Insurance Basics Flashcards
Pure Risk
There is a chance of loss or no loss, but not gain. The total loss of a car is considered a pure risk. Pure risks are insurable.
Speculative Risk
There is a chance of loss or gain. An example of this would be playing the lottery. There is a chance of loss or gain. These risks are not insurable.
Risk Avoidance
Avoid doing that activity that is considered risky. For example, if someone never rides in a car, the chances of getting injured in a car are eliminated or diminished significantly.
Risk Transference
Transfer the risk of sustaining damage before an accident to an insurance company by purchasing an auto insurance policy.
Risk Sharing
Share, the risk. An example is the deductible on collision coverage. The insured is responsible for the first $250 of collision damage when there is a $250 deductible and shares in the risk.
Reduction
Employ some type of safety device to reduce the severity of the risk
Risk Assumption
Don’t transfer the entire risk to the insurance company.
If the insured has the title to his car, he is not obligated to purchase Collision/Other than Collision.
Ex. liability only
physical hazard
a situation that increases the chance of a peril (cause of loss) happening.
If a car is not properly maintained and is driven with faulty brakes, the chances of a loss occurring significantly increases.
Moral hazard
When two parties enter into a contract, the expectation is that each party will deal in honesty and good faith. When one party is not as honest in the dealings and attempts to gain from the relationship financially, there is a moral hazard
An example of this would be someone who intentionally burns an auto in an attempt to collect on the Other Than Collision coverage.
Morale hazard
A morale hazard arises with someone’s indifference toward the risk knowing that insurance will pay. If the insured leaves the keys in the car while going into the store, the chances of the car being stolen increase. carelessness
1st party
The person who purchased the insurance policy.
2nd party
The insurance company who issued the policy.
3rd party
Anyone who has makes a claim for damages or injuries arising out of the insured’s (1st party) negligence acts or omissions
First Party Coverages
Paid to the insured if they are or are not at fault
Collision
Other than Collision (Comprehensive)(deer, hail, etc.)
Medical Payments
Personal Injury Protection
Uninsured Motorist Bodily Injury
Uninsured Motorist Property Damage
Rental Reimbursement
Towing and Labor (breakdown)
Third Party Coverages
Paid if they are not at fault
Bodily Injury Liability
Property Damage Liability
Uninsured Motorist Bodily/Property Injury
acts like 3rd party coverage
injured by an uninsured motorist
Split Limits
xx/yy/zz (3rd party)
xx: limit for 1 bodily injury occurrence
yy: limit for ALL bodily injuries
zz: limit ALL property damage
This is the most common. For example, the limit will indicate 25/50/15.
The twenty-five represents the most any one party can collect per occurrence ($25,000) for BI and is subject to the fifty ($50,000) per occurrence BI limit.
The fifty ($50,000) represents the full BI exposure in the aggregate for any one occurrence.
The fifteen ($15,000) represents full PD exposure in the aggregate for any one occurrence.
Combined Single Limits (CSL)
ONE BUCKET for everything
The BI and PD limits are combined for any one occurrence. There is no limit on the per person for BI or aggregate for BI or PD other than the actual policy limit itself. For example, a CSL of $750,000 could be used all on a BI or all on a PD or a combination of both from any one occurrence.
PD
property damage
BI
bodily injury
NC Minimum Liability Amounts
30/60/25
Claimant
the one affected by the insured
coll
collision (vehicle, fixed structure
PD
property damage
RR
rental and towing
UMPD
uninsured motorist property damage
comp
comprehensive
PIP
personal injury protection
BI
bodily injury
MedPay
medical payments (in a car, your car, or pedestrian)
CV
claimant vehicle
IV
insured vehicle
PDR (falls under PD)
property damage rental (insured owes the claimant a rental)
Agreement (contract)
The combination of OFFER AND ACCEPTANCE
Competent Parties (contract)
legal - sober - sane
Consideration (contract)
Each party to the contract gives up something of value.
The insured’s consideration is the money for the premium.
The carrier provides a promise to pay covered claims.
Legal Purpose (contract)
The purpose of the contract itself must be legal. A contract that is entered into for an illegal act would not serve a legal purpose.
Indemnity
The act of making someone “whole” after a loss
Duties and Conditions
There are certain conditions that an insured must meet for the insurer to provide coverage.
The most important one is that of good faith and fair dealing
Aleatory
The contract is one of unequal exchange of promises.
Most insurance contracts are aleatory in nature.
For example, the insured could pay a down payment of $200 on a policy and then immediately have a loss requiring the company to pay a sum considerably more than the $200 that was paid.
Adhesion
The insurance contract is written where there the carrier sets the primary terms and conditions. The insured has limited opportunity to negotiate those
