Chapter 1 - Introduction to General Insurance Flashcards
Risk
Chance of financial loss to which an object of insurance is exposed
Speculative risk
The chance of a financial loss or gain
Pure risk
The chance of financial loss but no chance of financial gain.
Insurance
The undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed… or to pay a sum of money or other thing of value upon the happening of a certain event
Contract
An agreement between two or more persons which creates an obligation to do or not to do a particular thing
Consideration
An exchange of something of value between parties.
Insurable Interest
One has an insurable interest in the subject matter of the insurance when they will suffer financially by a loss.
Utmost good faith
The law requires insurance contracts maintain a higher standard of honesty than is needed of other contracts. (The duty of utmost good faith applies to the insured, the insurer and the broker.)
Indemnity
Application of the principle of indemnity ensures people receive the actual amount of their loss, no more and no less.
Insurance Binder
A temporary agreement in which the insurer agrees to provide certain coverages pending the issuance of the policy.
Agency agreement
A written agreement or contract between the insurer and the brokerage which acknowledges their relationship
Void contract
One which is unable in law to support the purpose for which it was intended. Such contracts are deemed never to have existed
Voidable contract
A contract that may be voided at the option of the wronged party only and not the wrongdoer
Peril
The cause of a loss
Direct loss
A direct loss occurs when the peril insured actually attacks the object of insurance
Indirect loss
Losses which arise as a consequence of a direct loss
Actual cash value
New or replacement cost of the property at the time of the loss, less depreciation.
Replacement cost
The cost to repair or replace the lost or damaged property with new property of like kind and quality, without deduction for depreciation.
Valued policy
Both the insured and insurer agree at the time the policy is issued as to the cash value of the property. In the event of a loss, the agreed amount would be paid.
Blanket coverage
Policy which provides a single limit of insurance for all property falling within a specific class
Scheduled coverage
Covered property is itemized on the policy
Fiduciary
One who occupies a special position of trust or confidence in the handling or supervising of the affairs or funds of another.
Unearned premiums
Premiums not yet earned by the insurer. Such premiums are deemed to be held in trust in order to refund the insureds in the event the policy is cancelled prior to expiry date.
Fire
Involves the presence of a visible flame or glow, actual ignition or burning is required.
Friendly fire
A fire that is contained in its proper receptacle
Hostile fire
A fire that passes outside of the limits assigned to it. (e.g. spark thrown from a fireplace that burns a carpet is hostile fire)
Proximate result
Damage which arises from a natural or continuous sequence of the peril causing the loss
Material change
Is any change within the control and knowledge of the insured and which arises after the policy has been issued and serves to increase the chance of loss.
Pro rate
Basis of return premium calculation when the insurer cancels a policy. The amount of the return premium is arrived at by dividing the amount of premium paid by the number of days in the policy period. The number so obtained is then multiplied by the number of days remaining in the policy period.
Short rate
The basis of return premium calculation when the insured cancels the policy. The amount of the return premium is equivalent to that provided on a pro-rata basis, less any administrative charge or cancellation penalty.
Notice of loss
Immediate report of loss to insurer by the insured or his representative (agent) in writing.
Proof of loss
A formal verification, under oath, of the details and amounts being claimed under the policy.
Fraud
Is a deliberate attempt to deceive, with a view to securing some profit.
Deductible
Represents the amount the insured is required to absorb for each loss for which insurance coverage is provided before receiving any payment from the insurer
Subrogation
When the insurer has paid a claim for loss caused by a third party, the Insurance Act allows the insurer to place itself “in the insureds shoes” in respect of their right to recover the amount of the loss from the responsible party
Proprietary insurers
Insurance companies which exist to make a profit or return on their investment.
Non-proprietary insurers
Insurance companies which are organized for reasons other than profit. They are owned and controlled by their policyholders and their mandate is to secure insurance at as low a cost as possible.
