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CFP March 2021 > Insurance > Flashcards

Insurance Flashcards

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CFP® flashcards
1
Q

Basic coverage

A 
12 Perils
Fire
Vehicles
Lightening 
Smoke
Windstorm
Vandalism 
Hail
Explosions 
Riot
Thrift
Aircraft
Volcano
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2
Q

Broad coverage

A

All from basic coverage plus:

Falling objects
Weight of ice, snow and sleet
Accidental discharge of water
Sudden and accidental cracking, burning or bulging of appliance
Freezing of plumbing, heating or gas lines
Damage from artificially generated electrical currents

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3
Q

Property Insurance Section I and II

A 
Section I: Coverage
A dwelling
B other structures
C personal property
D loss of use

Section II: Coverage
E personal liability
F medical payments to others

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4
Q

Perils

A

Basic and broad - named perils

Open - all perils except for exclusions
Movement of the earth
Ordinance or law regulations
Damage from rising waters
Nuclear hazard 
Power failure
Intentional acts
Neglect
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5
Q

Partial losses for HO insurance

A

Actual Insurance
———————————————
(Co-Insurance x replacement cost)

x amount of loss

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6
Q

Actual cash vs replacement costs

A

Bought tv for $2800, 3 years ago. It was stolen and now cost $1500 for new tv. Tv is 60% depreciated.

Actual cash = replacement cost - (replacement cost x depreciation), $1500 - 900 = $600

Replacement = $1500

Never considered about original costs!

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7
Q

Home owner policies

A 
HO - 1 Basic Form (Perils 1 - 12)
HO - 2 Broad form (1 - 18 perils)
HO - 3 Special form (open perils)
HO - 4 Renters policy
HO - 5 comprehensive (umbrella policy)
HO - 6 Condo policy
HO - 8 Modified Coverage - functional replacement
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8
Q

Risk Management Guidelines
Severity $$
Frequency - # of Times in a given period

A

High Severity / High Frequency - Avoidance
High Severity / Low Frequency - Transfer (Insurance)
Low Severity / High Frequency - Retention/Reduction
Low Severity / Low Frequency - Retention

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9
Q

Risk - Company Prespective

A

Law of Large Number
A larger group makes it easier to predict events
Larger groups pool funds for use in claims

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10
Q

Causes of Insured Loss

A

Perils - Actual cause of loss (fire, wind, tornado)

Hazard - Condition that increase the likelihood of a loss occurring (Moral, Morale or Physical Hazard)

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11
Q

Moral, Morale or Physical Hazard

A

Moral - Dishonesty/Fraud
Morale - indifference
Physical Hazards - Icy roads in MN, hurricanes in FL

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12
Q

Insurable Losses

A
  • Large number of similar exposure units
  • Losses must be accidental from insured’s view
  • Losses must be measurable and determinable
  • Losses must not pose a catastrophic risk for the insurer
  • Premiums must be affordable
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13
Q

Elements of a valid contract

A
  • offer / acceptance
  • competency of all parties
  • exchange of consideration
  • lawful purpose
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14
Q

Principle of Indemnity

A

_ Only entitled to compensation to extent of loss and cannot profit (made whole)
- Subrogation clause - cannot receive compensation from both insurer and 3rd party and ins company has right to sue on your behalf.

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15
Q

Insurable interst

A

Property and Liability - must exist at time of policy inception and at time of loss

Life Insurance - only need insurable interest at time of policy. (Insurable if Blood, Marriage or Business)

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16
Q

Law of Agency

A

Agent - Legal rep of insurer and enters agreements on behalf o the insurer
General Agent - represents 1 insurer
Independent Agent - represents multiple, unrelated insurers
Broker - Represents Policy Owner, not Insurance Co.

17
Q

Agent’s Authority to legally bind the insurer arises from

A

Express Authority - Written agency agreement
Implied Authority - Authority public perceives and has valid agency agreement.
Apparent Authority - Insured believes agent has authority, but has no valid agency agreement

18
Q

Adhesion

A
  • Insurance policy is basically “take it or leave it”
  • no negotiations over terms and conditions
  • any ambiguities in the contract are found to favor insured
19
Q

Aleatory

A

The money exchanged may be unequal. Small premium, but insured may receive large benefit.

20
Q

Unilateral

A

Only one promise is made - insurer promise to pay if there is a loss. Insured is not obligated to pay premiums, if they are not paid, then there is no promise by the insurer.

21
Q

Conditional

A

Insured must abide by terms and conditions of the insurance contract. If not followed, insurer does not have to pay.

22
Q

Contracts - Dispute Remedy

A

Parol Evidence Rule - all previous and prior understandings void
Reformation - revises to express original intent of all parties
Rescission - deems contract void from inception

CFP March 2021 (2 decks)

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