Insurance Basics and Property Insurance

Question 1

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.

Answer 1

Actual Cash Value

Question 2

Individual who sells insurance for a particular insurance company

Answer 2

Agent

Question 3

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

Answer 3

Automobile insurance.

Question 4

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

Answer 4

Assumption of risk

Question 5

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

Answer 5

Collision physical damage coverage

Question 6

The concept that the amount an injured person collects in damages will be reduced to the degree that he or she was at fault

Answer 6

Comparative negligence

Question 7

Broad coverage protecting an insured for acts of negligence and/or other liability exposures; frequently purchased as a part of a homeowners policy

Answer 7

Comprehensive personal liability (CPL) Coverage

Question 8

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.

Answer 8

Conditions

Question 9

The concept that if an injured person in any way contributed to the injury, he or she cannot collect any damages.

Answer 9

Contributory negligence

Question 10

One of four major components of an insurance contract. The declaration provides information about the person or property being insured.

Answer 10

Declaration

Question 11

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

Answer 11

Deductible

Question 12

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

Answer 12

Endorsement

Question 13

Insurance used by financial planners and advisors that covers fiscal (financial) harm that may happen to a client

Answer 13

Errors and omissions insurance.

Question 14

Also called “umbrella” liability coverage

Answer 14

Excess liability insurance.

Question 15

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

Answer 15

Exclusions (insurance)

Question 16

Pertains to insurance. It is a condition or event that contributes to the possibility of a loss occurring

Answer 16

Hazard

Question 17

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

Answer 17

Homeowners insurance

Question 18

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

Answer 18

Indemnity

Question 19

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)

Answer 19

Inland marine policies (personal article floaters)

Question 20

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.

Answer 20

Insurable interest

Question 21

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

Answer 21

Insurance

Question 22

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

Answer 22

Insuring agreement

Question 23

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.

Answer 23

Internal Sublimits

Question 24

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

Answer 24

Last clear chance rule

Question 25

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

Answer 25

Liability insurance

Question 26

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

Answer 26

Medical payments to others

Question 27

Pertains to insurance: refers to traits of an insured that increase the probability of loss, such as dishonesty, fraud, or pyromania.

Answer 27

Moral hazard.

Question 28

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

Answer 28

Morale hazard

Question 29

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

Answer 29

Negligence

Question 30

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

Answer 30

No-fault endorsement

Question 31

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.

Answer 31

Other than collision coverage

Question 32

Pertains to insurance. It is the cause of loss, such as fire or flood

Answer 32

Peril

Question 33

An automobile policy form that is available to cover cars used for personal (not business) pursuits

Answer 33

Personal auto policy (PAP)

Question 34

A measure of financial soundness for an insurer. It compares the insurer’s net worth to its liabilities.

Answer 34

Policyholder’s surplus ratio

Question 35

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.

Answer 35

Pool

Question 36

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.

Answer 36

Professional liability

Question 37

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

Answer 37

Pure Risk

Question 38

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.

Answer 38

Replacement cost provision

Question 39

Provisions added to an insurance policy to supplement or modify it to meet the special needs of the insured

Answer 39

Rider

Question 40

The identification, analysis, and management of personal risks. Management involves using strategies to reduce the probability of loss and the financial impact of loss.

Answer 40

Risk Management

Question 41

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

Answer 41

Risk avoidance

Question 42

Activities intended to prevent the occurrence of loss, such as removing combustible materials from a home or garage and installing sprinkler systems.

Answer 42

Risk reduction

Question 43

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

Answer 43

Risk retention

Question 44

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

Answer 44

Risk Transfer

Question 45

The chance for either a loss or a gain. For example, investing in the stock market is an example of speculative risk

Answer 45

Speculative risk

Question 46

A for-profit insurer that is owned by stockholders

Answer 46

Stock insurance company

Question 47

Requires an insurance company to pay 100% of covered charges after the insured has paid so much out-of-pocket

Answer 47

Stop-loss provision

Question 48

The process of determining whether a risk is acceptable and at what price.

Answer 48

Underwriting

Question 49

Coverage included in automobile insurance policies that protects the insureds against expenses related to bodily injury caused by uninsured or hit-and-run motorists

Answer 49

Uninsured motorist coverage

Question 50

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.

Answer 50

Waiver of premium provision