Insurance Basics

Question 1

Pure Risk

Answer 1

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.

Question 2

Speculative Risk

Answer 2

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.

Question 3

Risk Avoidance

Answer 3

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.

Question 4

Risk Transference

Answer 4

Transfer the risk of sustaining damage before an accident to an insurance company by purchasing an auto insurance policy.

Question 5

Risk Sharing

Answer 5

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.

Question 6

Reduction

Answer 6

Employ some type of safety device to reduce the severity of the risk

Question 7

Risk Assumption

Answer 7

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

Question 8

physical hazard

Answer 8

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.

Question 9

Moral hazard

Answer 9

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.

Question 10

Morale hazard

Answer 10

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

Question 11

1st party

Answer 11

The person who purchased the insurance policy.

Question 12

2nd party

Answer 12

The insurance company who issued the policy.

Question 13

3rd party

Answer 13

Anyone who has makes a claim for damages or injuries arising out of the insured’s (1st party) negligence acts or omissions

Question 14

First Party Coverages

Answer 14

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)

Question 15

Third Party Coverages

Answer 15

Paid if they are not at fault

Bodily Injury Liability
Property Damage Liability

Question 16

Uninsured Motorist Bodily/Property Injury

Answer 16

acts like 3rd party coverage
injured by an uninsured motorist

Question 17

Split Limits

Answer 17

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.

Question 18

Combined Single Limits (CSL)

Answer 18

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.

Question 19

PD

Answer 19

property damage

Question 20

BI

Answer 20

bodily injury

Question 21

NC Minimum Liability Amounts

Answer 21

30/60/25

Question 22

Claimant

Answer 22

the one affected by the insured

Question 23

coll

Answer 23

collision (vehicle, fixed structure

Question 24

PD

Answer 24

property damage

Question 25

RR

Answer 25

rental and towing

Question 26

UMPD

Answer 26

uninsured motorist property damage

Question 27

comp

Answer 27

comprehensive

Question 28

PIP

Answer 28

personal injury protection

Question 29

BI

Answer 29

bodily injury

Question 30

MedPay

Answer 30

medical payments (in a car, your car, or pedestrian)

Question 31

CV

Answer 31

claimant vehicle

Question 32

IV

Answer 32

insured vehicle

Question 33

PDR (falls under PD)

Answer 33

property damage rental (insured owes the claimant a rental)

Question 34

Agreement (contract)

Answer 34

The combination of OFFER AND ACCEPTANCE

Question 35

Competent Parties (contract)

Answer 35

legal - sober - sane

Question 36

Consideration (contract)

Answer 36

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.

Question 37

Legal Purpose (contract)

Answer 37

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.

Question 38

Indemnity

Answer 38

The act of making someone “whole” after a loss

Question 39

Duties and Conditions

Answer 39

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

Question 40

Aleatory

Answer 40

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.

Question 41

Adhesion

Answer 41

The insurance contract is written where there the carrier sets the primary terms and conditions. The insured has limited opportunity to negotiate those