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Insurance Exam > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

Insurable Interest

A

Financial interest in the subject of the insurance

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2
Q

Underwriting

A

Hazard recognition and evaluation, risk selection, pricing and determination of policy terms and conditions

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3
Q

Loss Ratio

A

percent of premiums used to pay claims

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4
Q

Rates

A

Price of insurance for each unit of exposure

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5
Q

Types of Rates (2)

A

Class - Rates apply to all members of a wide group of consumers having similar exposures

Judgement - These rates are partially or exclusively based on judgement

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6
Q

Rating Organizations and Rating Bureaus

A

Both save insurance companies time and money by gathering and analyzing statistical data for rate-making purposes.

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7
Q

Independent Filings

A

Companies prefer to make their won rating filing

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8
Q

Deviate

A

Companies charging higher or lower rates than the recommended benchmark rate.

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9
Q

Physical Hazard

A

Something that can be seen, touched, or felt that increases the probability or severity of loss

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10
Q

Moral Hazard

A

Past attitude. History of crime

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11
Q

Morale Hazard

A

Present attitude. “I don’t care” attitude.

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12
Q

Property vs. Casualty Insurance

A

Property portion - protects for direct losses to the property they own. Land and buildings.

Personal Property - contents of a dwelling or an auto

Casualty Portion - protection for injuries or damages the policy holder is legally liable for.

Tort - Wrongful act committed by one party against another, other than a crime.

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13
Q

Negligence

A

Failure to exercise the standard of care required by law to protect others from harm.

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14
Q

Elements of Negligence (4)

A

The existence of a legal duty to act or a standard to care

Failure to perform a legal duty.

Actual damages or injuries sustained

Proximate cause relationship between the negligent act and the resulting damages

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15
Q

Proximate Cause

A

Unbroken connection between the peril and the loss

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16
Q

Ensuing Loss

A

Caused by a peril after, or as a result of an initial peri;. (earthquakes causes a fire)

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17
Q

Assumption of Risk

A

A person may not recover for an injury received when he voluntarily exposes him/herself to a known and present danger

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18
Q

Comparative Negligence

A

Laws permit the injured person to recover damages even though he/she contributed to the accident

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19
Q

Contributory Negligence

A

A person cannot recover from the other party if that person contributed in anyway to the accident.

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20
Q

Intervening Cause

A

independent cause of injury that intervenes between the original wrongful act and produces a result that would not have otherwise followed.

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21
Q

Statue of Limitations

A

Legal actions against an insurer has to be within two years and one day.

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22
Q

Compensatory damages (3)

A

A combination of special and general damages and are design to compensate an individual

Special damages - Compensate the victim for itemized losses

General damages - Cannot be specifically itemized. Such as pain and suffering

Punitive damages - gross negligence and are intended to punish the wrongdoer

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23
Q

Absolute (Strict) Liability

A

Activities impose liability without regards to fault or negligence.

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24
Q

Vicarious Liability

A

Liability that is imposed on one party as a result of the actions of another

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25
Q

Split Limits

A

Separates limits apply to bodily injury (BI) and property damage (PD)

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26
Q

Combined Single Limits

A

A single limit applies to both bodily; injury and property damage arising from a single accident.

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27
Q

Aggregate Limit

A

Maximum amount that would be paid during a policy term for all damages arising out of one or more occurrences.

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28
Q

Peril

A

Cause of loss

29
Q

Friendly fire

A

Fire under control

30
Q

Hostile fire

A

fire out of control

31
Q

Extended Coverage Peril (REV.C.H.SHAW)

A

Riot

Explosion

Vehicle

Civil Commotion

Hail

Smoke

Hurricane

Airplane

Windstorm

32
Q

Named Perils vs Open Perils

A

Name or specified perils policy will list the perils that the company will protect that property against

Open or all risk policy covers the insured property against all causes of loss, unless it is specifically; excluded.

33
Q

Direct Loss

A

Damage to property caused as a direct result of the peril

34
Q

Indirect or Consequential Loss

A

Temporary Financial Burden

35
Q

Types of Construction

A

Frame - wood

Masonry - Brick, stone, or concrete blocks

Fire Resistive -Entirely of fire resistant materials

36
Q

Pro-rata

A

Equal distribution

37
Q

Blanket Policy

A

Insurance covers multiple properties under one policy

38
Q

Loss Valuation (7)

A

Actual Cash Value (ACV) - today’s replacement cost minus depreciation

Replacement Cost - Full replacement cost

Functional replacement cost - Replaces the property with closest equivalent available.

Market Value - Amount a willing buyer is willing to pay a willing seller for the property.

Agreed Value - Appraisals. Covered property is agreed to be the value and will be paid with no depreciation.

Stated Amount - Appraisals. Specific amount of insurance but with depreciation

Valued Policy - Full value of the insured property

39
Q

Deductibles

A

Initial amount of damage the policyholder is responsible for.

40
Q

Claim Settlement Options

A

Insurance company has the option to pay whichever settlement is least expensive. Repair, replace, or restore.

41
Q

Restoration/ Non-reduction of Limits

A

Clause stating if there is a fire loss or other covered loss, the policy will respond and the policy limit will be reduced by the amount of the loss.

42
Q

Salvage

A

The insurance company can take title to damaged property after payment of a total loss.

43
Q

Abandonment

A

Insurance company will not accept the damaged property in return for the full insured value.

44
Q

Liberalization

A

Free coverage for everybody

45
Q

Loss payable clause

A

Lien or mortgage holder to verify that insurance is in force on a specific piece of property for specific coverages

46
Q

No Benefit to Bailee

A

When insured’s property is damaged while in the custody of someone else (Bailee), this clause prevents the other party from benefiting from the insurance of the insures.

47
Q

Other insurances

A

Applies when there is more than one policy covering the same property.

48
Q

Contribution by limits

A

Share the loss base d on the RATIO of each policy’s limit to the total available limits. Pro-rata liability

49
Q

Contribution by Shares

A

Each policy pays equal amounts until the loss is paid or the limits are exhausted

50
Q

Coinsurance

A

If the amount of insurance is not 80% of the property value, the insured becomes partially responsible for losses that occur.

(Amount carried / amount required) x loss

51
Q

Vacancy

A

Building without tenants or contents after 60 days

52
Q

Unoccupied

A

Building without tenants, but contains contents.

53
Q

Named Insured

A

Person or entity named in the policy declarations. First named insured is the only person or entity named first on the declaration page. They are responsible for the policy

54
Q

Assignment

A

Policy may not be given to another person without the insurer’s written consent.

55
Q

Policy Structure (DECIDES)

A

Declaration - Personalized to insured (Name, address, premium, coverages, amount of insurance

Exclusions - Narrow the scope of coverages

Conditions - Rules

Insuring Agreement - Promise to pay

Definitions - Describes key terms so the average policyholder has a clearer understanding

Endorsement - Add or substract coverages

Supplemental - Additional Coverages. Insurances pays for court fees.

56
Q

Personal Policies

A

10/10/30

57
Q

Commercial Policies

A

10/10/60

58
Q

Restriction to Non-renewal

A

prohibited from non-renewing a policy for the following reasons:

No longer writes auto insurance for certain groups of drivers

No longer writes insurance in a particular area

Agent withdraws from an agency

Single loss accident

59
Q

Binders

A

Temporary written evidence that coverage is in effect.

60
Q

Policy Period

A

All policies begin and end at 12:01 AM

61
Q

Policy Territory

A

Most policies limit coverage to the united states and territories, Canada, and Puerto Rico.

62
Q

Insured’s Duties after a loss

A

Proof of loss must be submitted within 91 days

If the loss is theft, the insured must notify the police

Inform the insurer of the details of the loss, all interest in the property, and the existence of any other insurance.

Complete a signed and sworn statement to the insurer

Protect property from further damage after a loss

63
Q

Duty to Defend

A

When another party makes a claim against the insured, the insurance company has a right to prompt notification.

64
Q

Subrogation

A

Suing the clmt for loses by the insurance company to recover expenses such as deductibles.

65
Q

Standard Mortgage Clause

A

The bank always gets their money

66
Q

Arbitration/Appraisal

A

Arbitration - Dispute between insurance and third party

Appraisal - Dispute between insured and insurance

67
Q

Liquidated Demand

A

All policies insuring real property (dwellings or buildings) contains this clause. Agrees to pay full policy limits, regardless of ACV in the the event of a total loss by fire.

68
Q

Residential Community Property

A

Insurable interest to the spouse or ex-spouse who is not named on the policy, but has financial interest to the property.

69
Q

Terrorism Risk Insurance Act of 2002

A

Shared public and private compensation for the insured losses resulting from acts for terrorism

Insurance Exam (11 decks)

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