Insurance Concepts

Question 1

insurance contract

Answer 1

An insurance contract is a legal contract purchased to indemnify the insured against a loss, damage, or liability arising from an unexpected event. The exchange of a relatively small and definite expense for the risk of loss that, if it occurs, may be large or small. The insurance contract is designed to transfer risk from the insured to the insurer.

Question 2

Insurability

Answer 2

The ability of an applicant to meet an insurer’s underwriting requirements.

Question 3

Insurable Events

Answer 3

Any event, past or present, which may cause loss or damage, or create legal liability on the part of an insured.

Question 4

Principle of Indemnity

Answer 4

The insured should be restored to the same financial or economic condition that existed prior to the loss, depending on the amount and type of insurance purchased. The insured should not profit from an insurance transaction, but be made “whole” again.

Question 5

Insurable interest

Answer 5

Must exist in every enforceable contract
potential for financial hardship in the event of a loss

For life and health contracts the insurable interest must exist at the time of application