Chapter 10 Vocab

Question 1

property insurance

Answer 1

insurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils such as fire, theft, vandalism, and windstorms

Question 2

liability insurance

Answer 2

insurance that protects against the financial consequences that may arise from the insured’s responsibility for property loss or injuries to others

Question 3

peril

Answer 3

a cause of loss

Question 4

negligence

Answer 4

failing to act in a reasonable manner or to take necessary steps to protect others from harm

Question 5

principle of indemnity

Answer 5

an insurance principle stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss

Question 6

moral hazard

Answer 6

when dishonest policyholders purposely cause losses in order to collect the insurance payments

Question 7

actual cash value

Answer 7

a value assigned to an insured property that is determined by subtracting the amount of physical depreciation from its replacement cost

Question 8

right of subrogation

Answer 8

the right of an insurer, who has paid an insured’s claim, to request reimbursement from either the person who caused the loss or that person’s insurer

Question 9

co-insurance

Answer 9

in property insurance, a provision requiring a policyholder to buy insurance in an amount equal to a specified percentage of the replacement value of their property

Question 10

comprehensive policy

Answer 10

property and liability insurance policy covering all perils unless they are specifically excluded

Question 11

named peril policy

Answer 11

property and liability insurance policy that individually names the perils covered

Question 12

personal property floater (PPF)

Answer 12

an insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner’s policy

Question 13

replacement cost

Answer 13

the amount necessary to repair, rebuild, or replace an asset at today’s prices

Question 14

personal automobile policy (PAP)

Answer 14

a comprehensive automobile insurance policy designed to be easily understood by the “typical” insurance purchaser

Question 15

bodily injury liability losses

Answer 15

a PAP provision that protects the insured against claims made for bodily injury

Question 16

property damage liability losses

Answer 16

a PAP provision that protects the insured against claims made for damage to property

Question 17

uninsured motorists coverage

Answer 17

automobile insurance designed to meet the needs of “innocent” victims of accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists

Question 18

underinsured motorists coverage

Answer 18

optional automobile insurance coverage, available in some states, that protects the insured against damages caused by being in an accident with an underinsured motorist who is found liable

Question 19

collision insurance

Answer 19

automobile insurance that pays for collision damage to an insured automobile regardless of who is at fault

Question 20

comprehensive automobile insurance

Answer 20

coverage that protects against loss to an insured automobile caused by any peril (with a few exceptions) other than collision

Question 21

no-fault automobile insurance

Answer 21

automobile insurance that reimburses the parties involved in an accident without regard to negligence

Question 22

financial responsibility laws

Answer 22

laws requiring motorists to buy a specified minimum amount of automobile liability insurance, or to provide other proof of comparable financial responsibility

Question 23

personal liability umbrella policy

Answer 23

an insurance policy providing excess liability coverage for homeowner’s and automobile insurance as well as additional coverage not provided by either policy

Question 24

captive agent

Answer 24

an insurance agent who represents only one insurance company and who is, in effect, an employee of that company

Question 25

independent agent

Answer 25

an insurance agent who may place coverage with any company with which he or she has an agency relationship, as long as the insured meets that company’s underwriting standards

Question 26

claims adjustor

Answer 26

an insurance specialist who works for the insurance company, as an independent adjustor, or for an adjustment bureau to investigate claims