L, M, N, O & P Definitions

Question 1

Define

Law Of Large Numbers

Answer 1

Law Of Large Numbers:

Principle that states that the more examples used to develop any statistic, the more reliable the statistic will be.

Question 2

Define

Legal Purpose

Answer 2

Legal Purpose:

One of the characteristics of a legal contract; means that contracts are only enforceable if they are not obviously illegal, immoral or against the public good.

Question 3

Define

Liability Insurance

Answer 3

Liability Insurance:

Type of insurance that protects a person from financial loss arising out of claims brought against them for loss or damage (bodily injury or property damage) to another where the person can be held liable for that loss or damage. The financial responsibility associated with the claim is transferred from the insured to the insurance company, up to the limit of insurance carried.

Question 4

Define

Licensee

Answer 4

Licensee:

Person on the premises with the owner’s consent, but for the sole benefit of the visitor.

Question 5

Define

Lloyd’s Association

Answer 5

Lloyd’s Association:

A voluntary association of individuals or groups of individuals who agree to share in insurance contracts. Each individual is responsible for the amount of coverage they write or accept responsibility for.

It is also important to remember that Lloyds is not an insurance company, but a syndicate.

Question 6

Define

Loss Cost

Answer 6

Loss Cost:

Factor used in figuring insurance rates that represents how much an insurance company needs to collect to cover expected losses.

Question 7

Define

Loss Payable Condition

Answer 7

Loss Payable Condition:

See Mortgage Condition

Question 8

Define

Loss Provisions

Answer 8

Loss Provisions:

General term used to describe policy conditions that specify what the insured and insurer must do in the event of a loss, in other words, who is responsible for what.

Question 9

Define

Loss Ratio

Answer 9

Loss Ratio:

Method used to determine an insurance company’s success in covering current losses out of current premium income; determined by dividing incurred losses by earned premium.

Question 10

Define

Manual Rating

Answer 10

Manual Rating:

Method of premium determination that uses rates based on collected statistics. The rates, which apply per unit of insurance, are published in manuals. A Manual Rate may also be referred to as a “Class Rating.”

See also Class Rating.

Question 11

Define

Market Value

Answer 11

Market Value:

The amount property could be sold for at the time of loss. May be used to determine the amount of reimbursement for a loss, generally associated with Functional Replacement cost contracts..

Question 12

Define

Material Fact

Answer 12

Material Fact:

Information, had the insurer known it would caused an insurer to decline a risk, charge a different premium or change the provisions of the policy that was issued.

Question 13

Define

Merit Rating

Answer 13

Merit Rating:

Method of determining premiums where a manual rate is modified to reflect the risk’s unique characteristics. A Merit Rating may result in an increase or decrease in the premium requirement. Merit Rating is based upon the assumption that the loss experience of a particular insured will be substantially different from that of other insureds There are several different approaches to Merit Rating.

See also Experience Rating, Retrospective and Schedule Rating.

Question 14

Define

Messenger

Answer 14

Messenger:

As defined in insurance forms, an insured, partner or employee who has care and custody of insured property outside the premises.

See also Custodian.

Question 15

Define

Misrepresentation

Answer 15

Misrepresentation:

Written or verbal misstatement, omission or concealment of a fact. The intentional misrepresentation of a material fact is the definition of fraud. A material fact is information, which if known to the insurer would have altered its decision to issue.

Question 16

Define

Mono-Line Company

Answer 16

Mono-Line Company:

Insurance company that writes a single line of insurance, e.g. an insurer that writes only property insurance versus a company that writes both property and casualty insurance.

Question 17

Define

Mono-Line Policy

Answer 17

Mono-Line Policy:

Insurance policy that providing one type of insurance coverage, e.g. a policy that provides coverage for property losses only.

Question 18

Define

Monopolistic State

Answer 18

Monopolistic State:

Method of providing Workers Compensation coverage used in some states; requiring that employers purchase Workers Compensation insurance from a state fund; private insurance companies are not allowed to compete.

Question 19

Define

Moral Hazard

Answer 19

Moral Hazard:

Hazard created by an individual who would be willing to create a loss situation on purpose just to collect from the insurance company,

i.e. someone that intentionally takes advantage, does things the are unethical, if not illegal.

Question 20

Define

Morale Hazard

Answer 20

Morale Hazard:

Hazard created by an individual’s tendency to contribute to a loss through his or her own irresponsible actions or carelessness.

Question 21

Define

Mortgage Condition

Answer 21

Mortgage Condition:

Condition found in Property insurance policies that specifies the rights and duties of the mortgagee under the policy.

Also called the Loss Payable Condition.

Question 22

Define

Mortgagee Rights

Answer 22

Mortgagee Rights:

Rights granted to a mortgagee (lender) under a Property contract issued to a mortgagor (borrower) by virtue of the mortgagee’s financial interest in the property.

Question 23

Define

Motor Carrier Act Of 1980

Answer 23

Motor Carrier Act Of 1980:

Federal regulation that requires truckers and other commercial carriers to certify they are able to meet financial obligations if they become liable for injury or damage arising from their trucking operations.

Question 24

Define

Multi-Line Company

Answer 24

Multi-Line Company:

Insurance company that writes more than one line of insurance, e.g. a company that writes both property and casualty insurance.

Question 25

Define

Multi-Line Policy

Answer 25

Multi-Line Policy:

A policy providing coverage against both property and casualty exposures.

See also Package Policy

Question 26

Define

Mutual Company

Answer 26

Mutual Company:

Insurance company owned by its policyowners. The policyowners have rights of ownership, similar in nature to stockholders of a stock insurer, such as, the right to vote on matters that affect them and the right to share in profits (divisible surplus), when and if declared by the insurer’s Board of Directors. Remember, dividends are not guaranteed.

Question 27

Define

Mysterious Disappearance

Answer 27

Mysterious Disappearance:

Vanishing of property with no explanation.

Question 28

Define

Named Insured

Answer 28

Named Insured:

Person, business or other entity named in the Declarations to whom the policy is issued and coverages are afforded.

Question 29

Define

Named Peril Policy

Answer 29

Named Peril Policy:

Insurance policy that insures only against perils specifically listed in the policy. Also referred to as a specified cause of loss policy.

Question 30

Define

National Association Of Insurance Commissioners (NAIC):

Answer 30

National Association Of Insurance Commissioners (NAIC):

Organization made up of individual state insurance commissioners whose purpose is to promote uniformity in regulation by drafting model laws and regulations.

Question 31

Define

National Flood Insurance Program:

Answer 31

National Flood Insurance Program:

Program run by the federal government that makes flood insurance available to residents and businesses in participating communities. Includes coverage for both buildings and personal property.

Question 32

Define

Nationwide Definition

Answer 32

Nationwide Definition:

Document that categorizes and classifies risks that are eligible for Ocean or Inland Marine insurance.

Question 33

Define

Negligence

Answer 33

Negligence:

The lack of reasonable care that is required to protect others from the unreasonable chance of harm.

Question 34

Define

No Benefit To Bailee Condition

Answer 34

No Benefit To Bailee Condition:

Condition found in Property insurance contracts that states that a bailee is not covered under an insured’s policy while the bailee has possession of the insured’s property.

Question 35

Define

No-Fault Insurance

Answer 35

No-Fault Insurance:

Form of Automobile insurance where each insurance company pays the damages of its own insureds, regardless of who was at fault for the accidents. Generally, Medical Payments of an auto policy is as close as we get to no-fault insurance.

Question 36

Define

Nonadmitted Insurer

Answer 36

Nonadmitted Insurer:

Company that is not authorized to do business in a particular state.

NOTE - Surplus Lines Insurers are not required to be admitted to insure domestic risks within the state, however, only a licensed Surplus Lines Producer can place business with a non-admitted (Surplus Lines) insurer.

Question 37

Define

Nonconcurrent

Answer 37

Nonconcurrent:

Situation that exists when the same property is covered by more than one policy, but the policies are not identical as to the extent of coverage provided.

Question 38

Define

Nonexclusive Agent

Answer 38

Nonexclusive Agent:

See Independent Agent

Question 39

Define

Nonfiled Form

Answer 39

Nonfiled Form:

Type of Commercial Inland Marine form that is not standardized and cannot be included in the Commercial Inland Marine Coverage Part of the Commercial Package Policy. Each nonfiled form is written as a stand alone policy.

Question 40

Define

Nonrenewal

Answer 40

Nonrenewal:

Decision made by an insured or insurance company not to continue coverage for another policy period after the current policy period expires.

Question 41

Define

Nonreporting Form

Answer 41

Nonreporting Form:

Type of insurance policy for which a flat premium is charged. A premium rate is established for the policy period based upon the overall risk exposure. The premium for this type of policy form is fixed at policy inception for a stated amount of coverage during the policy period.

See also Reporting Form

Question 42

Define

Obligee

Answer 42

Obligee:

Relating to bonds, the party to whom the principal (contractor) makes the promise, and for whose protection the bond is written.

Question 43

Define

Occurrence

Answer 43

Occurrence:

A loss that occurs at a specific time and place or over a period of time. In other words, an accident or the continuous repeated exposure to the same general harmful condition that results in a loss or damage (bodily injury or property damage).

Question 44

Define

Offer And Acceptance

Answer 44

Offer And Acceptance:

Two of the elements of a legal contract; means that a contract must involve two parties - one who makes an offer and another who accepts the offer.

Question 45

Define

Open Competition

Answer 45

Open Competition:

Method of rate and form regulation used by some state insurance departments that allows insurance companies to complete openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination.

Question 46

Define

Open Peril Policy

Answer 46

Open Peril Policy:

Insurance policy that protects the insured from losses caused by any cause of loss (peril) that is not specifically excluded by the policy.

Also called all risk and special coverage.

Question 47

Define

Package Policy

Answer 47

Package Policy:

Policy that includes more than one type of insurance coverage, e.g. a policy that provides for both property and liability coverages.

Also called a multi-line policy.

Question 48

Define

Peril

Answer 48

Peril:

a peril is the cause of loss; fire is an example of an insured peril..

Question 49

Define

Personal Contract

Answer 49

Personal Contract:

A characteristic of property and casualty insurance is that it is personal, insuring the person versus the property. A persons states they have there home insured; when in reality, they have themselves insured against loss or damage to their property. A person might say they have their car insured; when in reality, they have themselves insured against their own negligent actions towards others that results in bodily injury or property damage and further, they have themselves insured against loss or damage to their own vehicles.

Question 50

Define

Personal Injury

Answer 50

Personal Injury:

Injury other than bodily injury arising out of such things as libel, slander, false arrest, wrongful entry, invasion of privacy, and malicious prosecution.

Question 51

Define

Personal Lines

Answer 51

Personal Lines:

Insurance coverages that protect individuals and their families.

Question 52

Define

Physical Hazard

Answer 52

Physical Hazard:

Hazard that arises from the condition, occupancy or use of the property itself.

Question 53

Define

Policy

Answer 53

Policy:

An insurance contract.

Question 54

Define

Policy Limit

Answer 54

Policy Limit:

Maximum amount the insurance company will pay for a particular loss, or for losses sustained during a period of time. Also called limit of coverage, limit of insurance and limit of liability.

Question 55

Define

Policy Period

Answer 55

Policy Period:

The date and time specified in the Declarations for when coverage begins and ends. Property and casualty policy start and stop at 12:01AM; this rule is imposed to prevent gaps in coverage.

Question 56

Define

Policy Territory

Answer 56

Policy Territory:

Place where coverage under a policy applies. The coverage territory may be specified as worldwide or limited, e.g. United States, Canada, Puerto Rico, territories and possessions of the United States.

Question 57

Define

Post judgment Interest

Answer 57

Post judgment Interest:

Interest accruing on a judgment after an award has been agreed to, but before payment is made by the insurance company. Usually covered as a supplementary payment in Liability policies and paid in addition to the policy limit.

Question 58

Define

Prejudgment Interest

Answer 58

Prejudgment Interest:

Interest awarded to compensate a third party for interest he or she might have earned if compensation had been received at the time of injury or damage. Interest accruing from the time of an occurrence until settlement is actually agreed to.

Question 59

Define

Premises And Operations

Answer 59

Premises And Operations:

Business liability exposure arising out of the business location or the activities of the business.

Question 60

Define

Premium Audit

Answer 60

Premium Audit:

Survey of the insured’s financial records to gather information used to calculate the premium, such as exposures and limits. A premium audit is accomplished at the end of the policy period, where a Deposit Premium (estimated premium) was paid at the beginning of the policy period.

Also see Retrospective Rating.

Question 61

Define

Primary Insurance

Answer 61

Primary Insurance:

When two or more coverages or policies apply to the same loss, the one that pays first, up to its limit of liability or amount of the loss, whichever is less.

Question 62

Define

Prior Approval

Answer 62

Prior Approval:

Method of rate and form ratification used by some state insurance departments that requires a company to obtain official approval before using new forms or rates.

Question 63

Define

Pro Rata Other Insurance

Answer 63

Pro Rata Other Insurance:

Method of handling an insurance claim when more than one policy applies to the same loss. Each policy pays proportionately in relationship to what its policy limit bears to the total limit of all applicable policies.

Question 64

Define

Pro-Rata

Answer 64

Pro-Rata:

See Pro-Rate.

Question 65

Define

Pro-Rate

Answer 65

Pro-Rate:

(1) In the event an insurer cancels insurance prior to policy expiration, it (the insurer) is required to refund any unearned premium, referred to as a pro-rate. Also referred to as pro-rata or proportionate share refund.

(2) The term “pro-rate” is also applicable when two or more policies applies to the same property loss, each insurer stipulates it will pay its proportionate share only.

Question 66

Define

Producer

Answer 66

Producer:

General term used in the insurance industry to describe agents, brokers, solicitors, adjustors and consultants. Also see Insurance Producer, Solicitor, Consultant and Adjustor.

Question 67

Define

Products And completed Operations

Answer 67

Products And completed Operations:

Business liability exposure arising out of defects in the company’s products or completed operations.

Question 68

Define

Professional Liability

Answer 68

Professional Liability:

Liability arising out of rendering or failing to render services of a professional nature.

Question 69

Define

Proof Of Loss

Answer 69

Proof Of Loss:

Form completed by an insured after a loss that provides an official inventory of damages. A Proof of Loss statement is considered to be a sworn statement (warranty or guarantee) of information.

Question 70

Define

Property Damage (PD)

Answer 70

Property Damage (PD):

Damage to or destruction of property, including loss of use of the property.

Question 71

Define

Property Insurance

Answer 71

Property Insurance:

Line of insurance that includes many types of coverages designed to handle the risk that a person will suffer financial loss because something he or she owns is damaged or destroyed.

Question 72

Define

Proportionate Share

Answer 72

Proportionate Share:

See Pro-Rate

Question 73

Define

Proximate Cause

Answer 73

Proximate Cause:

An action that, in a natural and continuous sequence, produces a loss. Also defined as an unbroken chain of events that results in a loss.

Question 74

Define

Punitive Damages

Answer 74

Punitive Damages:

Type of damage award intended to punish the defendant or to make an example out of him/her in an effort to discourage others from behaving the same way. Also called exemplary damages.

Question 75

Define

Pure Risk

Answer 75

Pure Risk:

A risk in which there is no chance of gain, only loss.

Question 76

Person

Answer 76

• *Person: A very broad term; may be used when referring to individuals, as well as entities, including but**
• *not limited to corporations, associations, firms and partnerships.**

Question 77

Limited Class Insurance Producer

Answer 77

**Limited Class Insurance Producer:** A person licensed to sell one or more of the forms of limited class
insurance coverage to individuals through a master, corporate group, or individual policy. Limited class
licenses generally do not require examination and are not subject to continuing education requirements.

Question 78

Limited Class Insurance:

Answer 78

• *Limited Class Insurance: Includes, but is not limited to credit, mortgage, auto dealer physical damage**
• *insurance, and any other form of insurance designated by the Director as a form of limited class insurance**.

Question 79

Life Insurance

Answer 79

Life Insurance: is designed to protect an insured’s family, business, or both against premature death of the insured. This type of insurance provides the needed resources to pay off outstanding debt, pay off existing mortgages, providing for college funding, emergency funds, and income replacement or, in a business environment, to provide for business continuation.