Insurance Concepts & Policy Provisions Flashcards
Certificate of insurance
A certificate of insurance indicates that a policy has been written and issued. It can serve as evidence of coverage when various legal and financial issues arise. If the insurance covers a group of people, one person will be designated as the certificate holder.
Combined ratio
Combined ratio is the sum total of the loss ratio and expense ratio. If the combined ratio exceeds 100%, the company has suffered a loss. If the combined ratio is less than 100%, the company has earned a profit.
Earned premium
Earned premium includes all corporate earnings related to providing insurance.
Estoppel
Estoppel protects innocent parties against damages resulting from coverage misrepresentation. In effect, if an insurance provider indicates (either deliberately or inadvertently) that a particular coverage is present, the provider cannot deny that coverage, even when it is not part of the policy.
Expense ratio
Expense ratio is the total underwriting expenses divided by the total written premiums, and is used to determine the cost of conducting business.
Incurred loss
Incurred loss includes all corporate expenditures for handling or covering losses on claims.
Loss ratio
Loss ratio is the incurred loss percentage divided by the earned premium, and is used to determine the annual performance of corporate operations.
Pure risk
A pure risk is any risk that presents only the opportunity for loss, and is the only type of risk covered by insurance. Examples of pure risks include theft and fire.
Representations
Representations are statements provided by the applicant that are true to the best of his knowledge. Representations make up most of the information on an application. However, insurance companies cannot void the application based on representations because they are not contractual matters.
Speculative risk
A speculative risk is any risk that offers an opportunity for both gain and loss. Speculative risks are not coverable by insurance. An example of a speculative risk is a stock market investment.
Underwriting expense
Underwriting expenses include salaries, commissions, administrative costs, regulatory costs, and advertising.
Waiver
A waiver occurs whenever a person or organization intentionally gives up an established right. For instance, insurance companies may have the right to raise premiums, reduce benefits, and deny or revoke policies if certain contractual conditions or provisions are violated. In some cases, companies may deliberately relinquish (waive) these rights, even when they can exercise them. Not all rights can be waived, including facts and certain requirements for insurance, such as an insurable interest.
Warranties
Warranties are agreements between the insured party and the insurance provider, and are part of the insurance policy. If a warranty is violated either purposefully or accidentally, the entire policy can be voided.
Written premium
Written premiums include all premium income, such as earned premiums, unearned premiums, renewals, policy endorsements, and new business.
