Insurance Flashcards
What is Risk?
A condition where there is a possibility of loss (a situation where exposure to loss exists).
- Starting a business
- Buying real estate
What is Peril?
The cause of a loss, the event insured against:
- Fire
- Windstorm
- Theft
- etc.
What is a Hazard?
A condition that may create or increase the chance of loss arising from a peril.
- Owning a home on an earthquake fault
- Owning a home by a river
What are the Elements of Insurance?
- Large number of homogeneous exposure units
- Loss must be definite and measurable
- Must be fortuitous or accidental
- Must not be catastrophic (for the insurance company)
What are the Methods to Avoid/Reduce Loss?
- Avoidance: Do not drive, Do not purchase a home but rent
- Diversification: Duplication of assets or activities at different locations
- Transference: INSURANCE
- Retention: Voluntary - Recognizes that the risks exist and assume losses (deductible, coinsurance)
- Risk Reduction: Sprinkler system, safety programs
Hint: RTARD
What is Insurable Interest?
- Property and Casualty: At inception and at time of claim
- Life: At inception, but need not be at time of claim
What are the Parts of the Insurance Contract?
- Declarations Page: Factual Statements that identify the specific person, property or activity being insured.
- Definitions: Explanation of key policy terms
- Insuring Agreements: Spells out the basic promise of the insurance company
- Conditions: Spells out in detail the duties and rights of both parties.
- Exclusions: Circumstances when the insurer will NOT pay.
- DICE
What are Negligences?
- Attractive Nuisances: Swimming pool, vacant lot
- Negligence per se: Violation of a statute
- Strict Liability (Product Liability): Romaine lettuce with e. coli
- Absolute Liability: Workers Comp
- Vicarious Liability: Respondeat superior (principal’s liability for their agents).
What are Defenses?
- Assumption of Risk (skiiing, car racing)
- Contributory (jay walking, being drunk)
- Comparative (A is 20% negligent, B is 80%)
- Last Clear Chance (Rear end someone when you could have avoided it by swerving, braking in time)
What are two methods of Calculating Life Insurance needs?
- Capital Utilization Approach: Uses annuitization to provide needed income but leaves no money at the end of the planned period.
- Capital Needs Approach: Uses interest only, so the original capital is still left at the end of the period (also called Capital Retention or Interest Only).
What are the most comprehensive Insurance Rating Service/Category services?
- A.M. Best: A++ to F
- Standard & Poor: AAA to CCC
What are Sections of a Homeowner’s Policy and
what do they cover?
Section I (Coverage: A B C D)
- A (abode) - Dwelling and Attached Structures
- B (building) - Other structures, separate from dwelling (detached garage, fences, sheds)
- C (contents) - Contents and Personal Property
- D (‘dditions) - Loss of Use Section II (Coverage: E F)
- E (enemy) - Liaiblity
- F (First Aid) - Medical Payments
What property is excluded under Personal Property Coverage?
- Animals, Birds, or Fish
- Motorized Land Vehicles and Aircraft
- Property of roomers, boarders or other tenants
- Property contained in an apartment regularly rented or held of rental to others by the insured (unless specifically endorsed)
What are the Basic Form Perils Covered?
The policy lists perils covered:
- Windstorm
- Hail
- Aircraft
- Riot
- Vandalism
- Vehicles
- Explosion
- Smoke
- Fire
- Lightning
- Theft
Study Hint: Remember: WHARVVES/FLT
What are the Broad Form Perils Covered?
- Rupture of a System
- Artificially Generated Electricity
- Falling Objects
- Freezing of Plumbing
Study Hint: Remember Basic plus RAFF
Homeowner’s Policy Exclusions include:
- Earthquake
- Flood
- Neglect
- Intentional Loss
- Ordinance/Law
- Power Failure
- War
- Nuclear Hazard
Note: Sinkhole is a covered peril for the exam
Hint: think “God” - Earth, Water, War, “Power”, & Law
What is the formula for Replacement Cost Coverage?
- Replacement Cost x Coinsurance Percentage = Insurance Required
- [(Insurance Carried÷ Insurance Required) x Loss] - Deductible = Amount Paid by Insurance
Hint: ReCo LoCo
What are the requirements for a vehicle to be eligible for:
- Insurance Services Office (ISO)
- Personal Auto Policy (PAP)
- Be owned by an individual or by a husband and wife living in the same household
- Be private passenger auto
- Not be used as public or livery conveyance
- Not be rented to others
What are the Parts of an Auto Insurance Policy?
What do they cover?
- Part A - Liability to third parties
- Part B - Medical payments
- Part C - Uninsured/Underinsured motorists
- Part D - Damage to the covered auto
What is classified as a “Covered Auto” under an
Auto Insurance policy?
- Any vehicle shown on the declarations page
- Any of the following which you acquire during the policy period:
- Private Passenger Auto
- Pickup Truck
- Panel Truck or Van
NO coverage for any of these used in a business (need a commercial policy for that)
- Any trailer you own listed on the declarations page
- Any auto or trailer you do not own while used as a temporary substitute for any vehicle decribed herein which is out of normal use because of a breakdown, repair, servicing, loss or destruction
Who are the Persons Insured under medical payments coverage of the PAP?
- The named insured and any family member who suffers bodily injury caused by accident while occupying covered vehicle
- The named insured and family members who if, while a pedestrian, are struck by any motor vehicle designed for use on public roads or by a trailer
- Other persons while an occupant of the insured’s auto (passengers)
What is Uninsured Motorist Coverage (UM)?
This agreement promises to pay the amount an injured insured could have collected from the uninsured dirver if such driver had carried auto liability insurance. The term “covered person” as used under the uninsured motorist coverage of the PAP includes the following:
- The named insured and any family member
- Any other person occupying the insured’s covered auto
- Any person, for damages that person is entitled to recover because of injury to a person described above
Note: UM is liability protection, NOT medical payments