Insurance Basics and Property Insurance Flashcards
Pertains to property insurance. Losses are frequently settled on an actual cash value basis; that is, the insured is paid the amount of money, minus depreciation, that would be required to replace the damaged property with a similar new item.
Actual Cash Value
Individual who sells insurance for a particular insurance company
Agent
Insurance designed to protect the insured against property losses to his or her automobile, as well as liability losses resulting from auto ownership or use
Automobile insurance.
Under this doctrine a person understands and realizes the danger of a particular activity and is barred from collecting damages in the event of an injury caused by another person
Assumption of risk
Included in automobile insurance policies. It covers damage to the insured’s own automobile in the event of collision. Coverage is typically on an actual cash value basis
Collision physical damage coverage
The concept that the amount an injured person collects in damages will be reduced to the degree that he or she was at fault
Comparative negligence
Broad coverage protecting an insured for acts of negligence and/or other liability exposures; frequently purchased as a part of a homeowners policy
Comprehensive personal liability (CPL) Coverage
One of four components of an insurance contract. Describes the responsibilities of the insured and insurer that must be accepted if the insurer is to be liable for a covered loss. Typically include the insured’s responsibilities in the event of a loss, the insurer’s rights with regard to fraud or concealment by the insured, policy cancellation procedures, and policy assignment procedures.
Conditions
The concept that if an injured person in any way contributed to the injury, he or she cannot collect any damages.
Contributory negligence
One of four major components of an insurance contract. The declaration provides information about the person or property being insured.
Declaration
A cost-sharing device frequently contained in insurance policies. When a covered loss occurs, the deductible amount is the amount that the insured must pay before the insurer’s responsibility for payment begins
Deductible
A provision that is added to an insurance policy to supplement or modify a standard policy to meet the special needs of the insured individual
Endorsement
Insurance used by financial planners and advisors that covers fiscal (financial) harm that may happen to a client
Errors and omissions insurance.
Also called “umbrella” liability coverage
Excess liability insurance.
One of four major components of an insurance contract. The exclusions section states the perils, losses, and/or property for which the insurer will not provide coverage under the policy
Exclusions (insurance)
Pertains to insurance. It is a condition or event that contributes to the possibility of a loss occurring
Hazard
Insurance that is designed to protect an insured against property losses to his or her house and personal property, as well as protect against liability losses resulting from home ownership and personal activities
Homeowners insurance
Pertains to insurance. The insurer is obligated to pay a claim only if there is a loss, and then only to the extent of the dollar loss
Indemnity
Coverage for personal property that is frequently moved from one location to another or for which there is not enough coverage under the homeowners policy (not literally marine insurance)
Inland marine policies (personal article floaters)
Pertains to insurance. The person applying for insurance coverage must be subject to a personal financial loss if the event for which insurance is being obtained occurs. For life insurance there must be an insurable interest at the time the policy is being purchased, and with property insurance there must be an insurable interest at the time of the claim.
Insurable interest
A device by which an individual can contract with another party to exchange a large, uncertain risk for a relatively small, certain premium. It is a risk transfer technique
Insurance
One of four major components of an insurance contract. It states the insurer’s intention to cover losses resulting from certain specified perils or from all perils not specifically excluded from the contract
Insuring agreement
Pertains to homeowners insurance. Limits of coverage under homeowners policies apply to certain kinds of property, such as money, securities, philatelic items, watercraft, grave markers, jewelry, silverware, and guns. For example, although a policy may have a $50,000 limit on personal property, it may have an internal limit on guns of $1,000. If burglars stole $2,000 worth of guns, only $1,000 of the loss would be covered. However, an insured who has items valued higher than the internal sublimits of the policy could purchase additional coverage for these items through endorsements.
Internal Sublimits
Allows an individual to still collect damages, even if they were negligent, if the other person involved in the accident had a last clear chance to avoid causing damage
Last clear chance rule
Covers the legal obligation of the insured to compensate others for bodily injury or property damage caused by acts of, or negligence by, the insured
Liability insurance
Pertains to liability coverage under homeowners and automobile insurance. Under homeowners insurance, it generally pays reasonable medical expenses up to a specified amount for injuries incurred on an insured’s premises or caused by the insured away from the premises
Medical payments to others
Pertains to insurance: refers to traits of an insured that increase the probability of loss, such as dishonesty, fraud, or pyromania.
Moral hazard.
The attitude that “the insurance company will pay for it” if something goes wrong so individuals may not be as careful as they would be without insurance
Morale hazard
Failure to use reasonable care that results in damage or injury to another. Four things must happen in order for an individual to be considered negligent: existence of a legal duty, failure to perform a legal duty, actual damage, and proximate cause must be established
Negligence
Included in automobile insurance in many states. It provides certain statutory benefits for covered persons injured in automobile accidents, regardless of who was legally liable
No-fault endorsement
Included in automobile insurance coverage; covers physical damage to an auto that is not caused by collision (e.g., vandalism, tree falling on a car, etc.
Other than collision coverage
Pertains to insurance. It is the cause of loss, such as fire or flood
Peril
An automobile policy form that is available to cover cars used for personal (not business) pursuits
Personal auto policy (PAP)
A measure of financial soundness for an insurer. It compares the insurer’s net worth to its liabilities.
Policyholder’s surplus ratio
Pertains to insurance. The probability of loss, which would be difficult to calculate for an individual, is reasonably easy to estimate when a large pool of risks is considered.
Pool
Insurance that covers acts of negligence in conjunction with work or professional pursuits for which the insured is found liable. For financial planners this would be errors and omissions insurance.
Professional liability
The chance of a loss, such as a house fire or automobile accident. There is no upside, there is either a loss or, if there is enough insurance, little or no loss
Pure Risk
Pertains to homeowners insurance. A provision allowing that if the insured carries insurance on a building equal to at least 80% of its replacement cost new, any covered loss to the building will be paid to the extent of the full cost to repair or replace the damage without deducting depreciation, up to the policy limit.
Replacement cost provision
Provisions added to an insurance policy to supplement or modify it to meet the special needs of the insured
Rider
The identification, analysis, and management of personal risks. Management involves using strategies to reduce the probability of loss and the financial impact of loss.
Risk Management
A risk management technique that involves eliminating a possible cause of loss entirely. For instance, a person is avoiding risk when he or she decides not to skydive
Risk avoidance
Activities intended to prevent the occurrence of loss, such as removing combustible materials from a home or garage and installing sprinkler systems.
Risk reduction
The conscious act of keeping or assuming risk rather than handling it in some other way. An example would be the use of deductibles, coinsurance, elimination periods, and other cost sharing devices
Risk retention
A risk management technique that moves financial responsibility from one person to another. An example is insurance, in which the insured transfers responsibility for losses to an insure
Risk Transfer
The chance for either a loss or a gain. For example, investing in the stock market is an example of speculative risk
Speculative risk
A for-profit insurer that is owned by stockholders
Stock insurance company
Requires an insurance company to pay 100% of covered charges after the insured has paid so much out-of-pocket
Stop-loss provision
The process of determining whether a risk is acceptable and at what price.
Underwriting
Coverage included in automobile insurance policies that protects the insureds against expenses related to bodily injury caused by uninsured or hit-and-run motorists
Uninsured motorist coverage
A rider that can be included as a part of a life insurance policy. If the insured becomes totally disabled before a certain age and disability lasts longer than a stated period, premiums on the life insurance policy will be waived during the period of disability, but the policy will remain in force.
Waiver of premium provision
