Chapter 1. Property and Casualty Insurance Terms and Related Concepts Flashcards
What are the two types of risk?
Pure risk - can only lose; this is the only type of risk that is insurable
Speculative risk - stand the chance to gain
What are the three types of hazard?
Physical
Moral - e.g. lying
Morale - mindset (e.g. indifference to loss)
Peril
The causes of loss insured against in an insurance policy
What is another word for indemnity?
Reimbursement - for loss ONLY
Insureds cannot recover more than their loss
What is insurable interest and when must it exist for P&C policies?
The insured would incur a financial loss if the insured property is damaged or lost
It must exist at the time of the loss
What are the two types of property losses?
Direct - covered by property insurance
Indirect - NOT covered by property insurance
What are the six methods of loss valuation?
- Actual cash value
- Replacement cost
- Market value
- Agreed value
- Stated value
- Salvage value
Compare named peril and open peril policies
Named peril covers only the perils explicitly listed in the policy
Open peril covers all perils unless they are explicitly excluded
Acronym for handling risk
STARR
Sharing - among a group
Transfer - to an insurance company
Avoidance - avoid the risk
Reduction - e.g. salt the sidewalk
Retention - e.g. paying coinsurance to cover insurance benefits
What are the five elements of insurable risk?
- Due to chance
- Definite and measurable
- Statistically predictable
- Not catastrophic
- Randomly selected/large loss exposure
Property vs Casualty
Property - two-party contract between insurer and policyowner to insure one’s own assets
Casualty - third-party contract to insure damage to someone else’s assets
Vacancy vs unoccupancy
Vacancy - insured structure is empty of people and property for 60 days
Unoccupancy - insured structure empty of people but not property
What are the four elements of negligence?
LiSP A (elemenTH of negligenTH)
- Legal Duty: reasonably prudent
- Standard of Care: breached Legal Duty
- Proximate Cause: negligence led to chain of events that cause the damage
- Actual Loss and Damage
What are the two types of negligence?
NegligenCCe
- Contributory (more strict): injured party must be completely free of fault otherwise the claim is void
- Comparative (more lenient): injured is covered to the degree they are not at fault
What are the three types of liability?
ASVi
- Absolute: obviously hazardous activity led to the injury of another
- Strict: (e.g. product liability) liable regardless of fault or negligence
- Vicarious: transfer of liability to someone with greater ability to pay (e.g. child to parent or employee to employer)
What is property coinsurance?
Insured agrees to carry insurance for most of replacement value (usually 80%)
What is split limit liability?
Limits separately stated for different coverages (e.g. per person, per accident, property damage for auto liability)
What sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?
Per occurrence
What are the two types of compensatory damages?
Special damages: these are tangible losses that can be easily calculated, like medical expenses, lost wages, and property damage
General damages: these are intangible losses that are harder to quantify, such as pain and suffering, emotional distress, and loss of enjoyment of life.
In property insurance, what is actual cost?
Replacement cost at the time of loss minus depreciation
In property insurance, what is the purpose of the coinsurance clause?
To encourage insureds to insure property close to its value
What determines an insurer’s responsibility for payment, as stated in an insurance policy?
Limits of liability
What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?
Indemnity
What term defines an exact, direct and uninterrupted cause of loss?
Proximate cause
What does loss of use coverage do?
It covers indirect losses incurred after after a direct loss caused by a covered peril has occurred
An insured’s building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?l
$30,000 since it’s 75% of the loss and only 75% of of the amount of insurance he agreed to carry ($120,00 of the agreed $160,000) was covered
If the property was insured for $160,000 (80%), then the policy would have covered 100% of the partial loss
An insured’s business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?
Consequential
A type of indirect financial loss that a business may experience after an insured event. Liability consequential loss insurance protects businesses from these losses.
What term is defined as losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected?
Occurence
Which type of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property’s appreciation or depreciation?
Agreed value
An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have?
Specific
