General Insurance Concepts Flashcards
terms to know
Adverse Selection
insuring of risks more prone to loss than the average risk
Agent / Producer
a legal representative of an insurance
Applicant / Proposed Insured
a person applying for insurance
Hazard
conditions that increase the probability of a loss
* PHYSICAL (physical conditions)
* MORAL (tendency toward increased risk)
* MORALE (indifference to loss)
Indemnity
restoring the insured to the condition that existed before loss
Insurance
transfer of risk of loss from an individual to an insurer
Insurance Transaction
solicitation, negotiations, or effectuation of a contract
Insured
the person covered by the insurance policy
Insurer (Principal)
a company that issues an insurance policy
Law of large numbers
the larger the number of people with the same exposure to loss, the more predictable the actual loss will be
Peril
the cause of loss
Policyowner
the person who has the rights and privileges in the policy
Risk
uncertainty or chance of a loss
-Pure (insurable)
-Speculative (uninsurable)
TYPES OF INSURERS
Ownership
-Stock (nonparticipating)
-Mutual (participating= dividend to policyowner)
TYPES OF INSURERS
Authority to Transact Business
-Admitted/ Authorized (have a certificate of authority)
-Nonadmitted/ Unauthorized
TYPES OF INSURERS
Location (Domicile)
-Domestic (this state)
-Foreign (another state)
-Alien (another country)
INSURANCE CONTRACT
4 Required Elements:
-Agreement (offer and acceptance)
-Consideration (exchange of something of value)
-Competent parties (of legal age and mentally competent)
-Legal purpose (must have insurable interest and consent)
INSURANCE CONTRACT
Contract Characteristics:
-Personal (between an insurer and an individual)
-Aleatory (exchange of unequal values)
-Unilateral (only one party is legally bound to a contract)
-Adhesion (contracts are accepted by the applicants as is)
-Conditional (certain conditions must be met by both parties for the contract
to be executed)
INSURANCE CONTRACT
Legal Terms:
-Representation (a statement believed to be true to the best of one’s
knowledge)
-Misrepresentation (an untrue statement on the insurance application)
-Material misrepresentation (a statement that, if discovered, can alter the
underwriting decision)
-Warranty (an absolutely true statement)
-Concealment (intentional withholding of material information)
-Fraud (intentional act with the purpose of deceiving another party)
INSURANCE CONTRACT
Ideally Insurable Risk:
-Due to chance
-Definite and measurable
-Statistically predictable
-Not catastrophic
-Randomly selected from a large pool
Law of Agency
acts of the agents within the scope of their authority are deemed to be the acts of the insurer
3 types of Agent Authority
-Express (written in the contract)
-Implied (assumed necessary to conduct business)
-Apparent (based on agent’s words and actions)
KNOW THIS……
Insurance is the transfer of risk
KNOW THIS……
Statements on the application are representations
