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CFP > Insurance > Flashcards

Insurance Flashcards

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1
Q

Risk

A

The probability of a loss

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2
Q

Peril

A

The cause of the loss (examples: hurricane, tornado, flood, fire, etc.)

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3
Q

Hazard

A

Something that increases the potential for a loss (oily shop raising garage near space heater, candles by a curtain, etc.)

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4
Q

Relationship between risk, peril and hazard

A

One type of risk is possible loss to home. Peril could be fire - this is what actually causes the loss. And hazard increases potential loss such as oily rags by space heater.

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5
Q

Static Risk

A

Earthquake, flood, etc. Other things besides changes in the economy. Tendency to occur with regularity and can be insured.

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6
Q

Dynamic risk

A

Generally NOT insurable. Results from economic changes like inflation.

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7
Q

Pure risk

A

Only the chance of loss, NO chance of gain, pure risks are insurable, example: fire.

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8
Q

Speculative Risk

A

Gambling. Both chance of loss and chance of gain. NOT insurable.

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9
Q

Risk management process:

A
  1. Identify & establish risk management goals.
  2. Gather pertinent data to determine risk exposures
  3. Analyze & evaluate info to identify risk exposure
  4. Develop risk management plan
  5. Communicate the recommendations
  6. Implement recommendations
  7. Monitor recommendations for needed changes
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10
Q

What amount of income is generally used for risk mitigation?

A

Average of at least 10%

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11
Q

4 basic methods of handling risk in two groups of risk control & risk financing

A

Risk control:
1. Avoidance ( don’t drive)
2. Reduction (seat belts)
Risk financing:
1. Risk retention (you keep the risk)
2. Risk transfer ( insurance)

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12
Q

Where in the risk matrix is insurance used

A

High severity and low frequency

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13
Q

Self insurance

A

Business use of risk retention. It is really not insurance. Large businesses ( but not many can) Requirements are:
1. Enough homogenous exposure units to make risk predictable
2. Adequate funds to cover losses
3. Ability to administer
4. Able to manage investments

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14
Q

Underwriting

A

The process of evaluating exposure:
1. Is risk insurable
2. Practical
3. How priced

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15
Q

Elements of insurable risk

A
  1. Large number of homogeneous exposure units to make losses reasonably predictable
  2. Loss is definite and measurable
  3. Loss is accidentally
  4. Loss must NOT be catastrophic to the company
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16
Q

Law of large numbers

A

Must be a reasonably large # of similar losses so insurers can reasonably make assumptions- predict.

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17
Q

Insurable interest

A

Party suffers a financial loss if the insured loss occurs. Some relationships exist that causes financial/ emotional suffering if loss occurs.

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18
Q

Actual cash value (ACV)

A

Replacement cost minus depreciation

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19
Q

Policy limits or face value

A

Maximum amount that will be paid when a loss occurs.

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20
Q

Subrogation

A

The right of an insurance company that has paid for a loss to recover its payments…say from another insurance company. Prevents the insured from collecting twice for the same loss.

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21
Q

Brokers

A

Represent many insurance companies. An agent of the insurance buyer.

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22
Q

Insurance agent

A

Generally have an obligation to: insurers, individuals, the public, the state.
Types:
1. Independent agents: represent several insurance companies.
2. Captive agents: sell propert & liability insurance for companies known as direct writers. Represents just one company.
3. Career agents: agent in a general agency or branch. Can be captive or not.
4. Producing general agents:

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23
Q

National Association of Insurance Commissioners (NAIC)

A

Composed of state insurance commissioners from all 50 states. 1989. Model laws created …no power to force usage.

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24
Q

Aleatory contract

A

Outcome controlled by chance and the dollars that change hands are ofter substantially unequal amounts.

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25
Q

Contract of adhesion

A

Prepared by one party and either accepted or rejected. No negotiations. Insurance is this way.

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26
Q

Insurance contracts are conditional

A

Insurance company pays on the condition of a covered loss occurring.

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27
Q

Indemnity

A

Insureds are restored to the financial position before the loss. (no profit from a loss, just reimbursed for the loss)

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28
Q

Collateral source rule

A

If others cause you a loss, they are obligated to pay for your loss and their liability is not reduced just because you had insurance. One circumstances where indemnity does not apply.

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29
Q

Unilateral and bilateral

A

Unilateral: if one party can enforce the contract. Insurance is unilateral. The company must, but the insurance co can’t make a person pay premiums.
Bilateral: when either party in a contract can enforce the contract.

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30
Q

Mistepresentation

A

False statement made

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31
Q

Warranty

A

Statement by the applicant that all they say is true

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32
Q

Concealment

A

Intentional withholding of material info.

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33
Q

Enforceability of a contract

A
  1. Offer and acceptance
  2. Consideration
  3. Legal object ( purpose of contract must be legal)
  4. Competent parties ( if minor the contract is avoidable by the minor)
  5. Legal form (such as state law requires that real property have a title)
34
Q

Void & avoidable contracts

A
  1. Void - is not enforceable, lacks one or more requirements
  2. Voidable - where one party has the option of voiding the contract, but the other is bound
35
Q

Parol evidence rule

A

When parties put agreement in writing that is what is looked at, not things before. Except modifications ( evidence of oral modification in written form is fine)

36
Q

Doctrine of waiver

A

Someone by owner actions has relinquished right. ABC insurance co accepts a policy that doesn’t meet its underwriting criteria. It is a good policy.

37
Q

Recision

A

Contract assumed to have never existed.

38
Q

Reformation

A

Original contract not accutlrate, so seek to change writing to reflect original intent

39
Q

Tort

A

When someone causes physical, emotional or financial harm to another. The person who commits a tort is a tortfeasor. Torts can be unintentional or intentional. Torts are civil.

40
Q

Negligence

A
  1. A duty is owed ( drive safely)
  2. Duty is breached ( rear end a car)
    3.actual damages ( broke taillightsand caused bumper)
  3. Proximate cause( ununteruptedsequence of events person texting and then rear ended)
41
Q

Attractive nuisance

A

Something about the property that is likely to attract and possibly injur children ( pool)

42
Q

Negligence per se

A

Duty of care is by statutes. Can be a statute to protect any class of people. Elements of tort still must be proved. Speeding in a school zone and hit child. Guilty of negligence per se.

43
Q

Absolute liability

A

Held responsible for any damage even without negligence. Activities that are extra hazardous (keeping wild animals blasting) also know as strict liability.

44
Q

Vicarious liability

A

Someone liable for others actions ( child, employee)

45
Q

Contributory negligenc

A

Negligence on the part of injured party contributes to injury, it absolve other party of liability. This strict approach isn’t used much and has been replaced with comparative negligence.

46
Q

Comparative negligence

A

Reduces defendants liability by some portion based on injured parties contribution to issue. % to blame

47
Q
A

Party immidiately prior to accident had a last clear chance to prevent injury but did not.

48
Q

Moral hazzard

A

Result of client being unethical….lie to get insurance or a claim

49
Q

Morale hazzard

A

Indifference
Leave car unlocked because it’s ok it insured

50
Q

Adverse selection

A

People with higher risk more likely to buy insurance

51
Q

Morbidity and mortality

A

Mornbidity…loosing health through illness or injury
Mortality ..incidence of death

52
Q

Commercial Package Policy ( CPP)

A

A CPP features lower policy premiums than the combined premiums of several policies, each covering one type of risk exposures.

53
Q

2 types of compulsory coverage

A
  1. When buy home with mortgage must have nome structural coverage.
  2. Car insurance to protect other drivers against their negligent acts
54
Q

Casualty and liability are synonymous

A

Yes

55
Q

Risk, peril, hazard

A

Risk is the possibility of a loss
Peril is the direct cause of the loss
Hazard increases the likelihood of the loss occurring

56
Q

Basic coverage ( 12 perils)

A

Fire
Lightning
Windstorm
Hail
Riot ir civil commotion
Aircraft
Vehicles
Smoke
Vandalism or malicious mischief
Theft
Volcanic eruption

57
Q

Broad coverage ( includes basic plus these 6 more perils)

A

Falling objects
Weight of ice, snow or sleet
Accidentally discharge or overflow of water or steam
Sudden and accidentally damage from an artificial generate electricity current
Sudden and accident tearing apart, cracking, burning or building of steam, got water, air conditioning, or automatic sprinkle system or of a household appliance.
Freezing of plumbing, heating, air conditioning, or auto sprinkler system or of a household’ appliances

58
Q

Open perils coverage

A

Increased protection to protect against all perils except those specific excluded from coverage. Most comprehensive type and most expensive.

59
Q

Perils excluded from most homeowners policies

A

Earthquake
Flood
Negligence
War or nuclear hazards
Power failure
Intentional loss ( burning down your own house)

60
Q

Homeowners (HO) policy sections

A

Section I: covers property losses
Section II: covers liability losses
Section I is divided into 4 sections A through D
A - insured the dwelling and other attached structures. Also, there is some coverage on landscaping.
B - covers starch structures (sheds, fences)
C - general persons property
D - loss of use coverage
Coverage A limit on dweling determines the others b,c,and d
Section II includes two sections E and F
E - comprehend liability
F - medical payments to others.

61
Q

Forms of HO insurance

A

HO-2: Broadway form (named perils)
HO-3: Special form (open perils) most common
HO-4: content broad form (for tenants or renters) just person liability and content coverage and loss of use.
HO-5: comprehend form (open perils) Best coverage all open perils
HO-6: Unit owner forms (for condo owners)
HO-8: modified for special risks ( older history homes)

62
Q

Inland marine insurance

A

Protection for persona’s property that is in transit or that can be transported. Usually open perils coverage.
Also called inland Marine floater, persona property floater,
Used to cover valuable persons’ property.

63
Q

Coins rance penalty formula or partial loss formula

A

(amount of insurance /amount of insurable required x loss) - deductable

64
Q

Actual cash value (ACV)

A

Replacement cost minus depreciation /

65
Q

25/50/10

A

Liability for bodily injury is $25k per person/ $50k per accident/ with $10k for prop damage. State requirements are low. Some states permit a single limit.

66
Q

Auto, physical damage coverage two types

A
  1. Damage by collision - hit something
  2. Comprehensive other than collision- fire, wind, hail, vandalism
67
Q

When do collision and comprehensive auto insurance pay?

A
  1. Collision- pays for damage to covered vehicle when insured is at fault
  2. Comprehensive- pays when insured is not at fault
68
Q

Business insurance monoline form

A

Insurance policy that covers only one type or a very limited number of loss ( boiler insurance)

69
Q

CPP commercial package policy (large companies) and BOP business owners policy ( small businesses)

A
70
Q

Coinsurance requirement

A

80%

71
Q

Malpractice

A

For docs ( obgyn and anestisiologist)

72
Q

A doctor starting his own practice needs what to protect against BUSINESS related liability risk?

A

Malpractice insurance and a business owners policy

73
Q

Which type of HO insurance is for condo owners?

A

HO-6

74
Q

Which form of HO policy offers the highest level of building and personal property coverage?

A

HO-5

75
Q

Personal liability umbrella policy (PLUP)

A

Is for those with substantial underlying liability insurance, provides additional coverage to the underlying policy, has drop down limitations that will apply in most cases

76
Q

Standard coverage for an umbrella policy is?

A

$1M. ( however additional amounts can be optained)

77
Q

Under an HO-3 policy what is coverage under B ( not attached shed)

A

10% of what the home is insured for will cover unattached sheds, fences, etc

78
Q

The term casualty in property & casualty stands for

A

Casualty is synonymous with liability

79
Q

Basic coverage

A

Protects against financial loss due to 12 perils: fire, lightning, windstorm, hail,riot or civil commotion,aircraft,vehicles,smoke,vandalism, explosion,theft,Volcano eruption

80
Q

Formula for covered damage

A
  1. Insurance required is 80%
  2. Cuuent insurance ÷ insurance required
  3. (That number × loss incurred) - deductible

CFP (4 decks)

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