Exam FX Flashcards
Depreciation
Reduction in value particularly due to wear and tear
Exposure
Susceptibility to risk
Implied Warranty
A legal term meaning that a product is suitable for its intended purposes and to fit an ordinary buyer’s expectations.
Insurance Policy
A contract between a policy owner and an insurance company which agrees to pay the insured for loss caused by specific events.
Insurer (principal)
The company who issues an insurance policy
Obsolescence
Depreciation in value due to becoming outdated
Premium
The money paid to the insurance company for the insurance policy
Insurance
The transfer of risk of loss.
The cost of an insured’s loss is transferred over to the insurer and spread among other insureds.
The law of large numbers
The larger the number of people with similar exposure to loss, the more predictable loss will be.
As the number of people in a risk pool increases, future losses become more _____________.
Predictable
What do individuals use to transfer their risk of loss to a larger group?
Insurance
Insurable interest
A type of investment that protects a person or property that is subject to financial loss.
In property and casualty, when should an Insurable interest must exist?
At the time of a loss.
Insurable risk
A risk that an insurance will cover
What are three elements of insurable risks?
- Financial ( a monetary interest)
- Blood (a relative)
- Business ( a business partner)
Risk
The chance of of loss occurring.
What are the two types of risks?
- Pure risk
2. Speculative risk
Pure risk
A situation that can only result in a loss or no change. No opportunity for financial gain.
Speculative risk
Involves the opportunity for either loss or gain. Not an insurable risk.
What is the ONLY type of risk that is insurable?
Pure risks
Peril
A specific cause of loss.
Hazards
Conditions or situations that increase the probability of loss occurring.
What are the 3 types of classified hazards?
Physical hazards
Moral hazards
Morale hazards
Physical Hazard
Hazards arising from the material, structural, or operational features of the risks.
Moral Hazards
Hazards that refer to applicants who may lie on on an application for insurance. Or the submission of fraudulent claims against an insurer.
Morale Hazards
Hazards that increase by a risk, arising from an insured’s indifference to loss because of the existence of insurance.
Loss
The reduction, decrease, or disappearance of value of the insured or property in a policy, caused by a peril.
Indemnity is also know as ____________________.
Reimbursement
Indemnity
A provision in an insurance policy that states in the case of loss, an insured is permitted to collect only to the extent of the financial loss, and its not allowed to gain financially because of the existence of an insurance contract.
Subrogation
The insurer’s legal right to seek damages from third parties, prevents the person insured from collecting on the loss twice.
Subrogation is based on the principle of __________________.
Indemnity
Accident
Sudden, unplanned, and unexpected event not in control of the insured. Results in injury or damage that is not expected or intended.
Occurrence
Broad definition of loss because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury or person or damage to property that is neither intended or expected.
What are the two types of property losses a business or individual can suffer?
- Direct Loss
2. Indirect Loss
Direct loss
Direct physical damage to buildings and /or personal property .
Property insurance only covers ________________ losses.
Direct
Proximate cause
Other damage(s) caused by a specific peril that are covered because they are the proximate cause of loss.
Indirect causes are also known as ___________________?
Consequential losses
Indirect losses (aka consequential losses)
Losses caused by as a result of a direct loss.
Named peril
provides coverage only for those perils listed in an insurance policy.
Open perils
Provides insurance coverage for any reason risk of loss that is not specifically excluded
What are the two forms of damage?
1) Property damage
2) Bodily injury
How is extent of loss, determined in property damage?
It is determined by the the actual monetary loss in the injured party suffered, which is measured by the value of the damaged property and the loss of use of that asset.
