Key Insurance Terms Flashcards
Peril
Anything that causes a financial loss.
Example: Wind, fire, theft.
Hazard
A condition that serves to increase the frequency or severity of perils.
Example: Gasoline soaked cloth in garage.
Physical hazard
Physical characteristics of the person or property that increases the chance of loss.
Example: Slippery sidewalk.
Moral hazard
Dishonest tendencies, often due to an insured’s weakened financial condition, that are likely to increase loss frequency and/or severity.
Example: Exaggerated claims.
Morale hazard
An indifference to the loss when insurance is in place, which creates carelessness and increases the chance of loss.
Example: Unlocked doors (home or car).
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.
Example: Sick person’s interest in health insurance.
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.
Example: A unilateral contract is a 20-year term policy for $900. You can’t negotiate to pay $875 for the premium.
Contract of adhesion
One party prepares the entire contract.
Example: An insurance contract is a contract of adhesion.
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, such as gambling. 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 (such as insurance or employee benefits).
Negligence
The failure to act in a way that a reasonably prudent person would have acted under the circumstances.
Example: Not documenting patient files after providing medical procedures.
Negligence per se
The act itself constitutes negligence, thereby relieving the burden to prove negligence.
Example: A driver causes an accident by driving the wrong way on the highway.
Absolute liability
Liability without regard to negligence or fault.
Example: Your dog bites the mailman.
Strict liability
Liability for damage resulting from some extraordinarily dangerous activity or other statutorily defined activities. Negligence does not have to be proved; however, defenses may be allowed to refute or lessen liability.
Example: Most traffic violations.
Joint and several liability
Negligence caused by one or two or more parties. Each party may be held fully liable. The party paying more than its own legal share can seek contribution from the others who have not paid their proportional share.
Example: An electrician wires a home that the town inspector approves, which causes a fire. Both can be sued and held jointly and severally liable.
Vicarious liability
One person may become legally liable for the torts (negligent behavior) of another.
Example: If a child drives a car, registered to a parent, for a family purpose, then the parent is responsible for the negligent acts of the child at the wheel.
Waiver of Premium Rider
- Future premiums are waived if the insured becomes permanently disabled as a result of injury or illness prior to a specified age.
- The disability waiver may have an elimination period before premiums are waived, such as 90 days.
- Typically, Once the elimination period is satisfied a disability premium waiver refunds the premiums paid during the elimination period AND continues to waive the premium for the duration of the disability to a specified age..
Guaranteed Insurability Rider
- Allows you to purchase additional insurance coverage in the stated period without the need for further medical examination.
- The option often is structured in a manner such as every 3 years from age 21 to 40 or some other interval
Accidental Death Rider
- pays out an additional amount if the insured dies as the result of an accident. Normally, the additional benefit paid out on death due to an accident is equivalent to the face amount of the original policy, which doubles the benefit,
- Sometimes referred to as the “double indemnity rider.
- A policy may offer an accidental death benefit rider in higher multiples of the policy face amount.
Family Income Benefit Rider
- Pays a monthly income to the beneficiary in addition to the policy face amount for a stated period of time to help with expenses in a transition period after the death of the insured.
Child Term Rider
- Provides a death benefit in case a child dies before a specified age.
- After the child reaches maturity, the plan can be converted into permanent insurance, often up to a multiple of the rider amount, perhaps 4-5x, without the need for medical underwriting.
- These riders typically insure all children of the insured parent at one premium cost.
