Definitions Flashcards
Insurance
A contract that binds the insurer to indemnify (compensate) the insured against specified types of loss in return for money (premiums).
Law of Large Numbers
A theory that states that it is more likely to predict a particular outcome as the number of units in a group increases.
Ie., the bigger the observed sample, the more accurate the predicted results will be.
Indemnity
The underlying principle of insurance, which is restoring an insured to the same financial position that existed before a loss occurred.
To compensate to same financial position before loss.
Loss
The source of a claim for damages under an insurance policy.
Ie., financial loss due to loss of property, loss of loved one, losses due to medical problems.
Direct physical loss
A loss in which damage occurs as a result of an occurrence without an intervening cause.
Intervening cause
An event that interrupts the chain of causation by providing an independent cause of the final result.
Indirect or consequential loss
Loss in which damage occurs as a result of direct loss.
Insurance interest
The concept that insurance can be purchased when the applicant has a potential for financial loss
Insurable interest must be present at the time of loss and present as the time of application.
Risk
Meaning 1: the property or party that is insured
Meaning 2: the uncertainty of loss
Pure risk
A situation that only involves the chance for loss or no loss.
Such as property ownership.
This risk is insurable
Speculative risks
Are situations that involves the chance for either a loss or a gain
Such as gambling
This risk is uninsurable.
Premium
Money paid for insurance
Negligence
A conduct that is culpable because it misses the standard required by law of a reasonable person.
Failing to do something a reasonable person would do
Doing something a reasonable person would not do.
Self insurance
The making of financial preparations to meet risks by setting aside sufficient funds in advance to meet estimated losses
No insurance policy purchased
Applicant
The individual who applies for insurance is the applicant
Insurer
Another name for insurance company
Insured person
1) any member of the insured household who is a relative or is under 21.
2) a child or parent living with the insured, regardless of age
3) any other member of the insured household who is under the age of 21
Name insured
Person(s) listed as an insured in the Declarations page
First name insured
The first insured listed and the person in charge of correspondence. Such as renewal notices and policy changes
Additional insured
An individual or entity who other than the named insured qualifies as an insured under the policy.
Usually applies for mortgage or a business arrangement
Agent/producer
An individual who is state licensed to solicit and sell insurance for one or more insurance companies.
Must be authorized by an insurer (principal) to act on its behalf
Principal
Insurer
Policy owner
1) applies for a policy
2) takes responsibility for premium payment
3) right to cash values, dividends and policy process
4) ability to change beneficiaries and other policy particulars
Binder
A written or oral contact made by agent to put a policy immediately but temporarily for a specified period of time until accepted or cancelled by the insurance company.
A promise to pay within certain time frame
Certificate of insurance
A document issued by insurance company/broker that is used to verify the existence of insurance coverage
Endorsement
An attachment to a document that amends or adds to.
Also referred to as a “rider”
Rider
Endorsement
Waiver
The voluntary abandonment of a known or legal right or advantage
Estoppel
The idea that once a fact has been admitted to be true by a previous action it can no longer be denied to be true
Accident
An unforeseen and unintended event that is identifiable as to time and place
Occurrence
An event, including continuous and repeated exposure to conditions
Results in bodily in fury or property damage unexpected, unintended
Exposure
The condition of being at risk for financial loss due to hazards or unforeseen events
Hazard
A condition that increases the chance for loss or severity of loss
Four types of Hazards
Physical hazards- such as damages steps or worn tires
Moral - insured habits
Morale - insured attitude
Legal - created by legal authority
Peril
Cause of a loss or event insured against
Named peril policy
A policy that only provides insurance for perils that are specifically listed or named in the policy
Open perils policy
A policy that provides insurance for all perils except those specifically listed to exclude
Maslows hierarchy of needs: list 5
Physiological needs - physical needs Security Affiliation Esteem Self actualization
Naic
What does it stand for?
National association of insurance commissioners
What are the roles of National association of insurance commissioners (NAIC)?
1) all state insurance directors or commissioners are members
2) encourages and tries to standardize insurance laws through the country by recommending model legislations to each home state
3) they do not make laws, they enforce laws in their own state.
4) they determine the amount of surplus, complaints investigation and examination of agents and insurers.
Tort
A tort is a vigil wrong that unfairly causes someone else to suffer loss or harm resulting in legal liability for the person who commits the act.
Co-insurance
Another cost feature, usually in commercial property insurance policy.
Requires specified amount of insurance based on the value of the insured property. Share percentage of loss.
Deposit premium
An initial or provisional premium required by an insurer.
burglary
The breaking and entering with felonious intent end up with a visible signs of forced entry
Ie., B for burglary, B for breaking, B for building
Robbery
The taking of another person’s property by force or fear of nature
Larceny
The taking or removal of another person’s property with the intent to permanently deprive them of it.
Theft
The unlawful taking off the property of another including burglary robbery and larceny
Mysterious disappearance
Personal property is missing but there is no provable cost for its disappearance the property might be lost or stolen
Liability
A legally enforceable debt or obligation
Adverse selection
of persons who present a greater than average or less than average degree of risk for loss.
Higher risk subject to higher cost
Resinsurance
Insurance sold and purchased between 2 insurance companies for the purpose of transferring, sharing risk usually catastrophic risk or losses in excess of a specific amount (500k or 100k)
Reinsurer
The insurer selling reinsurance to ceding insurers
Ceding insurer
The insurer buying reinsurance from a reinsurer.
Facultative insurance
The ceding insurer offers individual risks to the reinsurer. Reinsurer May choose to accept or reject each individual risk
(Based on each individual risk)
(Ceding insurer writes)
*faculty with a C
Treaty insurance
The residues write coverage for one or more lines of insurance issued by the ceding insurer.
Treaty reinsurance continues in force unless canceled by one of the parties.
Reinsurer cannot reject individual risks
(Reinsurer writes)
- treaty with an R
Multi line insurance companies
Writes more than one line of insurance
Stock companies
Insurers organized under the laws of the state in which are incorporated and owned by shareholders who elect officers and directors. Share profits growth stock growth and dividends.
*Stock companies, share holders
Mutual companies
These companies have no capital stock and owned by policyholders who share profits and dividends. Can attend and vote at company meetings.
*Mutual companies, Policy holder
Assessment mutual insurers
Share losses among group members. No premium is paid in advance. Premium paid by occurrence.
Similar to condo fixes
Advance premium assessment group
Premiums are paid at the beginning of each period. If more claims than premiums, then need to pay more. If money left over then returned to group members at the end of period
Non-assessable mutual insurers
Charges fixed premium and the policy holders cannot be assessed further. Reserved and surplus are maintained to provide payment of all claims.
Fixed payment, no refunds at end of period
Reciprocals or reciprocal insurers
Groups that exchange insurance on each other
Risk retention groups
A mutual insurance company that insured people in the same profession of business
Purchasing groups
Not an insurance company!
Purchasing group can be any group of persons with similar or related liability risks. Purpose is to purchase insurance in a group basis.
Contract of adhesion
Only one party to the contract prepares the contract and submits it to the other party.
The insured cannot make any changes to the contract
Aleatory contract
Unequal amounts of money are exchanged. Unequal value
Personal contracts
They cover the unstable interest and cannot be transferred or assigned to another individual
Unilateral contract
One sided contract. Only one party is legally bound to perform any duties once premium is paid
What is utmost good faith?
Both parties bargain in good faith in forming the contract.
Applicants expected to make honest and full disclosure of facts
Insurer expected to promptly indemnify the insured according to contract
*nothing to do with premium or money, just facts and indemnification
Non currency insurance
Happens when 2 ore more policies do not cover a risk in the same way at the same time.
Creates coverage gaps
Excess insurance
Starts when the primary insurance ends. Aka Umbrella Insurance
What is an assignment of a policy?
It is the transfer of a policy. From one insured to another entity.
Law requires rotten authorization and signed off by an officer (not agent) of insurance company
Pro rata
When more than one insurer covers claim. Division of loss. Distribution is not even in percentage
General average loss
Refers to a loss that directly affects two or more. Generally includes sacrifice of least prioritized.
Throwing away some cargo to save others
Using cargo as fuel
Cutting away spare of sails
For common safety
Particular loss
Partial loss or damage caused to any cargo or property
Uninsured motorist
Covers BI as result of accident caused by uninsured motorist or hit and run
Underinsured motorist
Covers excess liability provided by at fault drivers up to the limits of their policy
Limited tort and how to convert to full tort?
Covers recovering rights to medical and out of pocket expenses
Must meet financially responsibility requirements to be considered for coverage
Does not cover pain and suffering and non monetary compensation
—— unless other drivers is under influence, vehicle registered in another state, intention to injure himself, not carrying required financial responsibility, defect vehicle. Then victim can seem Full tort compensation
Full tort
Coverage unrestricted extended financial compensation by injuries caused by other drivers
Includes non monetary and pain and suffering
Subsequent injury fund
Set up by PA to pay prior disabilities benefits so employers are not discouraged from hiring disabled as they will not be responsible for full loss if partial disabled becomes full disabled
State workers insurance fund
WC insurance option to insure employers against liability and assure payment of WC, employers are liable.
State employees- long shore and harbor workers, federal coal mine
Coverage triggers
Notification of a claim
Retroactive date
First date claim is covered
Hold harmless clause
Policy Stating the contractor or subcontractor is solely responsible for the work to be done.
Covers Lease: Leases Easements Agreements Sidetrack agreement Elevator agreement
Discovery trigger
Discovery- trigger activated coverage under the policy in place discovery is known. Not at action date but at discovery date.
Loss sustained trigger
Injury in fact- actual injury or loss sustained. Coverage triggered for when actual injury occurred
