Chapter 1: Insurance Terms and Concepts Flashcards
Insurance
Insurance is a type of:
Risk Transfer
What is the difference between Pure Risk and Speculative Risk
Pure risk involves the chance of LOSS OR NO LOSS, WHEREAS Speculative risk involves the chance of LOSS OR GAIN.
Note:Speculative risk is not insurable.
In a insurance policy the insurer promises to
The insurer promises to make claimants FINANCIALLY WHOLE when covered losses occur.
In PROPERTY INSURANCE, the insurer promises to pay covered losses that occur during the policy period on the condition that
The INSURED pays the premium when due AND
That the insured takes certain actions such as:
REPORTING The loss in a timely manner
PROTECTING the property from further damage
COOPERATING with the insurer
PROVING the loss with appropriate documentation
CONTRACTS
What is a contract
Is a legally binding agreement
CONTRACTS
What does a Contract need to be VALID
CONSIDERATION LEGAL PURPOSE Agreement Between the Parties Parties Who are Mentally Competent (CLAP)
CONTRACTS
Agreement between parties is
An offer by one party that is ACCEPTED by the other party is an AGREEMENT
A Conditional contract is
This means that ONE party’s obligation is conditioned on the performance of certain SPECIFIED DUTIES of the other party
A Contract of ADHESION is written by the (insurer)
If a dispute occurs over unclear VAGUE OR AMBIGUOUS words, what will be apply
The doctrine of reasonable expectations will apply
Note:the court will typically favor the insured.
What are NOT accidental losses
Losses caused INTENTIONALLY by an insured
Losses that are INEVITABLE OR EXPECTED
Examples: normal wear and tear, rust, corrosion, mechanical breakdown, losses caused by latent defects (defectos ocultos)
CONTROLLABLE LOSSES such interior damage from failing to shut windows and doors, frozen pipes
Adverse selection when does this occur
It occurs when people seek coverage only when they have the MOST RISK like rushing to buy flood insurance at the last minute.
Note:to prevent adverse selection the insurance company requires 30 days advance purchase
Representations are
STATEMENTS MADE that one reasonably believes to be true at that time.
Note: oral questions and those on written applications and claim forms, are legally considered to be REPRESENTATIONS.
Misrepresentation is
If an applicant or claimant falsifies an answer in response to any verbal or written question IF THE PERSON LIES during the application process, or at any time is considered to be MISREPRESENTION
REPRESENTATIONS AND MISREPRESENTATIONS
What is considered to be insurance fraud
Material representation and Material Concealment
Constitute INSURANCE FRAUD.
Note:in case of insurance fraud by a policyholder/claimant, the insurance coverage is VOID.
HAZARDS INCREASE THE CHANCE OF LOSS
What is a Hazard
Is a feature or characteristic about the subject of the insurance, existing BEFORE A LOSS OCCURS, that makes a loss MORE LIKELY
HAZARDS INCREASE THE CHANCE OF LOSS
What are Physical Hazards
Examples: large quantities of combustible materials, being located in a dangerous or crime-ridden area or being VACANT for a prolonged period
Crime-ridden =plagado de crimenes
Vacancy is an specially important physical hazard
A vacant building is when
The building is empty, without occupants, inhabitants, or contents.
Note: Many property policies automatically suspend coverage for the perils of VANDALISM
When the vacancy persists BEYOND 60 DAYS
HAZARDS INCREASE THE CHANCE OF LOSS
Moral and Moral Hazards are
Characteristic of PEOPLE that make a loss more likely.
Examples: acquiring the policy falsely, intentionally causing a loss, or PADDING A CLAIM.
Moral hazards occur when the property is not their own, lack of concern, they are careless.
Insurable interest is
When a party has economic interest in property.
We have Insurable interest when we have a
FINANCIAL STAKE in the property.
(Participacion financiera)
Insurable interes is created when we:
Own property
Or when we use, borrow, or have custody of non-owned property other than buildings.
Are a LIENHOLDER or the mortgagee (like a bank)
Are a BAILEE with possession of non-owened property to perform a SERVICE on it.
What is the Amount a party is able to recover under the ins. Policy for covered losses
Up to the LIMIT on the policy, and never more than its insurable interest in any covered loss.
Example:
Limit of $200,000.
Mortgage of $80,000
The bank’s recovery from Mr. Smith’s insurable policy will be LIMITED to $80,000.
Mr. Smith can recover $120,000.
Direct loss means
DAMAGE CAUSED BY A PERIL INSURED AGAINST.
Note: A direct loss includes physical damage, destruction or theft.
Windstorm or hail
Indirect loss is
Indirect loss is also known as LOSS OF USE or TIME ELEMENT LOSS or in COMMERCIAL ins.
Business interruption loss.
Additional coverages are
By definition, provided AUTOMATICALLY.
NOTE: IN Homeowners and Commercial property