Insurance Terminology Flashcards
Peril
Anything that causes financial loss
Hazard
A condition that serves to increase the frequency or severity of perils.
Physical hazard
Physical characteristics of the person or property that increases the chance of loss.
Moral hazard
Dishonest tendencies, often due to an insured’s weakened financial condition, that are likely to increase loss frequency and/or severity.
Morale hazard
An indifference to the loss when insurance is in place, which creates carelessness and increases the chance of loss.
Adverse selection
The likelihood that parties with the greatest probability of loss are the ones who most desire the insurance. Insurance seeks to avoid adverse selection.
Unilateral contract
An insurance contract is a unilateral contract. Only the insurer promises to do anything, as there is no promise for the insured to pay the premium.
Contract of adhesion
One party prepares the entire contract
Aleatory contract
An agreement under which action is predicated on a specific event. The events are not controlled by either party.
Speculative risk
Involves both the chance of loss or gain. Speculative risk is not insurable.
Pure Risk
involves only the chance of loss or no loss
Static risk
Losses caused by factors not related to the economy (e.g., death of the family breadwinner). These tend to occur with regularity and can be insured against
Collateral source rule
Holds that damages assessed against a negligent party should not be reduced simply because the injured party has other sources of recovery available
Negligence
The failure to act in a way that a reasonably prudent person would have acted under the circumstances
Negligence per se
The act itself constitutes negligence, thereby relieving the burden to prove negligence
