general insurance concepts Flashcards
insurance
is the transfer of risk from an individual to an insurance company
pure risk
can only result in a loss, no opportunity for financial gain. pure risk is insurable
speculative risk
either loss or gain. Ex. gambling. No insurable
Hazards
are conditions or situations that increase the probability of an insured loss. 3 types of hazards.
Physical hazard
individual characteristics that increase the chances of a loss. Exist because of a physical condition, past medical history or condition at birth such as blindness
moral hazard
are tendencies towards risk. involve evaluating character and reputation of an insured. someone that lies on a application
Morale Hazard
they arise from a state of mind that causes indifference to loss, such as carelessness
peril
the causes of loss insured against on an ins policy.
Methods for handling risk
- avoidance: eliminating exposure to loss. ex. not driving
- risk retention
- sharing
- reduction ex. smoke detector
elements of insurable risks
- due to chance: outside of I’s control
- definite and measurable: specific to cause, time, place, amount
- statistically predictable
- not catastrophic
- randomly selected and large loss exposure: age, gender, occupation etc.
Stock companies
owned by stockholders. officers are elected by the stockholders. issue nonparticipating policies, policyholders do not share in profits or losses
mutual companies
owned by policy owners. policy owners get dividends are a return of excess premiums
3 types of insurers
- domestic: where the company’s home office is Ex. Washington
- Foreign: incorpoated in another state
- Alien: incorporated outside the US
the law of agency
- an agent represents the insurer (principal) not the insured
- any knowledge of the agent is presumed to be knowledge of the insurer
- if the agent is working within the conditions of her contract, the insurer is fully responsible
- when the insured submits payment to the agent it is the same as submitting it to the insurer
3 types of agents authority
- express authority: the authority that is written in the contract
- Implied: authority that is not expressed or written into the contract, but wich the agent is assumed to ahve in order to transact business.
- apparent authority: the assumption of authority based on actions, words, or deeds of the principal
Fiduciary responsibility
it is illegal for ins agents to commingle premiums collected from applicants with their own personal funds.
code of ethics
- conflict of interest
- a request of a gift or loan as a condition to complete busienss
- supplying confidential info
4 elements to an insurance contract
- agreement: offer and acceptance. the applicant makes the offer when submitting the app. acceptance takes place when an insurers UW approves the app and issuses the policy
- consideration: is the binding force. the insured makes a payment of premium and confirms that the statements on the app are accurate and the consideration for the insurer is the promise to pay in the event of a loss
- competent parties: legal age, mentally competent, not under the influence
- legal purpose: must be legal and not against public policy
Indemnity
a provison in a policy that states that in the event of a loss, an insured is permitted to collect only to the extent of the financial loss, and is not allpwed to gain financially. the purpose is to restore and not to profit
Utmost good faith
there will be no fraud, misrepresentation or concealment between the parties. the insured must provide acurate info on the application and the insurer muct clearly and truthfully describe policy features and benefits and must not conceal or mislead the insured
representations
are statements believed to be true to the best of one’s knowledge, but are not guaranteed to be true. they are the answers the I gives on the application
Misrepresentations
untrue statements on the application and can void the contract
A material misrepresentation is a statement that if discovered would alter the UW decision of the ins company
***if material misrep are intentional they are considered fraud
Warrant
is an absolutely true statement upon which the validity if the INS policy depends. Breach can be grounds for voding the policy or a return in premium.
concealment
intentional withholding of info of a material fact that is crucial in making a decision. May void a policy
fraud
the intentional misrepresentation or intentional concealment of a material fact used to cheat a party. Grounds for voiding an ins contract
waiver
voluntary act of relinquishing a legal right
Estoppel- a consequence of a waiver
