General Ins Principles Flashcards
Law of Large Numbers
The larger number of individuals with similar exposure to loss is more predictable of future losses
Insurable Interest
*Must exist at time of loss. Policyowner would incur financial loss.
3 elements of Insurance Interest
Financial, Blood, Business
Risk
Uncertainity regarding financial loss
What are the two types of Risk?
Pure & Speculative
Pure Risk
Insurable because it only involves the chance of loss. No chance for financial gain.
Speculative Risk
Involves opportunity for gain or loss. NOT Insurable Ex: Gambling
Hazards
Circumstances or settings that increase the likelihood of an insured loss occurring. Ex. Slippery floor
3 kinds of Hazards
Physical, Moral, Morale
Physical Hazard
Structural, Material, or Operational features of the risk
Moral Hazards
Deals with an applicant who lies on application or submits fraud claims
Morale Hazards
An indifference to loss. Ex: No intention of fixing something, insurance will pay when breaks.
Indemnity
Often referred to as reimbursement.
- Beneficiary allowed to collect to the extent of financial loss.
- Cannot gain financially from a loss
Subrogation
Insurer’s legal right to seek damages from third parties after insured is reimbursed. Prevents insured from collecting twice.
Accident vs Occurence
Accident-unplanned, sudden and unexpected event resulting in damage or injury.
Occurence-includes losses caused by repeated exposure to conditions resulting from property damage or injury
Two types of Damages
Property and Bodily
Special Damages
Out-of-pocket expenses for medical, loss of wages, or miscellaneous expenses
General Damages
Compensate for disfigurement, mental anguish, or pain and suffering
Punitive Damages
Punishment for gross negligence, extreme behavior or willful intent
Negligence
Failure to use reasonable and prudent care
4 elements of Negligence
- Actual loss or damage
- Legal Duty
- Unbroken chain of events
- Standard of care
6 types of Loss Valuation
- Actual Cash Value
- Replacement Cost
- Market Value
- Agreed Value
- Stated Value
- Salvage Value
Types of Liability
Strict and Vicarious
Strict Liability
Often applied to PRODUCT liability cases
Vicarious Liability
Liability imposed on one party as a result of another.
Limits of Liability
- Per Occurence (accident)
- Per Person
- Aggregate
- Split
- Combined
Proximate Cause
Cause of property damage or bodily injury is natural and reasonably forseeable
Deductible
Dollar amount must be met by the insured before insurer provides coverage
*Higher Deductible = Lower Premium
Coinsurance
Policyholder maintains minimum amount of insurance coverage on property
Partial loss is paid in full if minimum is met
Coinsurance clause is not affected in a total loss
Loss Payment = (Insurance carried / Insurance required) x Loss Amount
Insurance to value
Replacement cost settlement for policyowners who carry minimum insurance coverage
Deposit Premium
Estimated premium is paid in advance of a policy being issued
Deposit Premium Audit
Insurance provider may audit the insured’s records and books to determine an adequate premium
Certificate of Insurance
Written evidence demonstrating that the insurance policy has been issued
Lists the amounts and types of insurance provided
Peril
Causes of loss that are insured against
Legal Hazards
Describe an array of legal or regulatory conditions that affect an insurer’s ability to collect premiums.
Loss
Refers to the decrease or reduction of value of the individual or property insured in a policy
Direct Loss
Involves other damage where the covered peril was the proximate cause of loss.
Example: Water damage from fire dept putting fire out but fire was proximate cause of loss.
Indirect Losses
losses resulting from direct loss.
Examples: Extra living expenses that occur while home is being repaired or loss of profits a business might suffer having to close down due to repairs.
Named Peril
Term used in property insurance to describe the extent of coverage provided under an insurance policy form that lists covered perils.
**No coverage is provided for unlisted perils
Open Peril
insures against any risk of loss that is not specifically excluded.
Burglary
Crime of forced entry with criminal intent
Robbery
Taking of property from the custody of an individual by harming or threatening bodily harm.
Theft
Any act of stealing, includes both burglary and robbery
Mysterious Disappearance
Disappearance of property without any knowledge as to time, location or how property was lost.
- this type of loss is excluded from most policies
Vacancy
Refers to covered structure where no one has been working or living for the required time stated in a policy (typically 60 days)
Unoccupancy
No one has been working or living within requried period of time, but some property is stored
Blanket Insurance
Single property policy that offers coverage for more than one class of property at one location, or for multiple classes of property at more than one location.
Specific Insurance
Property policy that insures specific kind or unit of property for a specific amount of coverage.
Loss Valuation
A factor in calculating the premium charged and the amount of coverage required
Actual Cash Value (ACV)
Calculated by deducting depreciation from the current replacement cost to replaced damaged property with like kind and quality
Replacement Cost
Cost of replacing damaged property with like kind and quality at today’s price without any deduction for depreciation
Functional Replacement Cost
Cost of replacing damaged property with less expensive and more modern equipment.
Example: building with lath and plaster walls may be replaced with drywall which is lower cost but just as functional
Market Value
Rarely used method of loss valuation based upon the amount a willing buyer would pay to a willing seller for the property before the loss occurs.
Agreed Value
Property policy with a provision agreed upon by the insured as to the amount of coverage that signifies a fair valuation for the property
Stated Value
Amount of coverage scheduled in a property policy that is not exposed to any coinsurance requirements in the event of a covered loss.
Salvage Value
Estimated value of an asset upon its sale at the end of its life. Property that can be sold as a whole or in parts.
Example: Totaled car being sold for parts so insurer can lower cost of claim
Limits of Liability Definition
Insurance carriers liability for payment as stated in an insurance policy. Is the maximum amount of money the insurer will pay for particular loss
Per Occurence (Accident)
Liability policy sublimit that puts a ceiling on payment for all claims that result from a single accident.
Per Person
Maximum payment amount available for bodily injury to a single perosn in an accident.
Aggregate Limit
Maximum limit of available coverage provided under liability policy during a policy year, regardless of number of accidents and claims.
*Resets on policy’s anniversary date
Split Limit
Seperate limits of liability for different coverages.
For example 25/50/25
Combined Single
Single dollar amount of liability that applies to the total damages of property and bodily injury.
