INSURANCE TERMS AND RELATED CONCEPTS 1A

Question 1

What is insurance?

Answer 1

A financial tool that protects individuals /organizations from unforseen and extraordinary financial losses by transferring risk to another party

Question 2

How does an insurance contract work?

Answer 2

1. Insured pays premium
2. Insurer promises to pay for specified losses if occured
   3.insurer’s promise gives peace of mind to insured :)

Question 3

How can insurance afford to exist?

Answer 3

1. Collected premium go into a pool or reserve
2. Policyholder can file a claim for covered losses
3. After filing claim, insured becomes claimant
4. Insurer pays for claims out of pooled premiums
5. Pooled premiums should be enough to cover everything

Question 4

What’s the principle of Indemnity?

Answer 4

Restoration to approx previous financial condition. No.more, no less.
You can’t get paid from insurance and the person,
Can’t collect twice for the same loss..

Question 5

Indemnification may include payment for:

Answer 5

1. Repairs to property
2. Reimbursement for additional living expenses
3. Rental cars/hotels
4. Costs directly associated with a loss, as allowed under policy.

Question 6

The Insurance Policy CONTRACT

Answer 6

1. Contract to provide financial protection for a fee
2. Legally binding because it meets 4 requirements of legal contract.

Question 7

What are the 4 requirements of a legal contract?

Answer 7

1. Agreement (aka offer & acceptance)
   Signing Contract
2. Consideration
   Money in exchange for a car
3. Competent parties
   18 years old, sober, and sane
4. Legal purpose
   No contracts for money laundering

Question 8

What’s the acceptance criteria?

Answer 8

1. Offeree communicates to the offeror his intent to enter into contract (example- Ed signs Bill’s proposed contract)
2. Must be unconditional- The offeree accepts the terms proposed by the offeror
   3/ Original offeree is the only person who can legally accept an offer

Question 9

How can the offer be terminated?

Answer 9

1. Revocation by offeror
2. Rejection by offeree
3. Time Lapse
4. Termination by operation of law

Question 10

Offer rejections:

Answer 10

Explicit rejection
Proposal of new offer
Counteroffer