M4: Insurance Basics and Property Insurance

Question 1

Pertains to property insurance. Losses are frequently settled on an blank basis; that is, the insured is paid the amount of money, minus depreciation, that would be required to replace the damaged property with a similar new item.

Answer 1

Actual cash value

Question 2

Individual who sells insurance for a particular insurance company.

Answer 2

Agent

Question 3

Insurance designed to protect the insured against property losses to their automobile, as well as liability losses resulting from auto ownership or use.

Answer 3

Automobile insurance

Question 4

Under this doctrine, a person understands and realizes the danger of a particular activity and is barred from collecting damages in the event of an injury caused by another person.

Answer 4

Assumption of risk

Question 5

Insurance: An individual who sells insurance but is not limited to the products of any single company.
Real estate: An individual who represents the seller. An individual who acts as a conduit between a buyer and seller

Answer 5

Broker

Question 6

Included in automobile insurance policies. It covers damage to the insured’s own automobile in the event of collision. Coverage is typically on an actual cash value basis.

Answer 6

Collision physical damage coverage

Question 7

The concept that the amount an injured person collects in damages will be reduced to the degree that they were at fault.

Answer 7

Comparative negligence

Question 8

Broad coverage protecting an insured for acts of negligence and/or other liability exposures; frequently purchased as a part of a homeowners policy.

Answer 8

Comprehensive personal liability (CPL) Coverage

Question 9

One of four components of an insurance contract. Describe the responsibilities of the insured and insurer that must be accepted if the insurer is to be liable for a covered loss. Typically include the insured’s responsibilities in the event of a loss, the insurer’s rights with regard to fraud or concealment by the insured, policy cancellation procedures, and policy assignment procedures.

Answer 9

Conditions

Question 10

The concept that if an injured person in any way contributed to the injury, they cannot collect any damages.

Answer 10

Contributory negligence

Question 11

One of four major components of an insurance contract. Provides information about the person or property being insured.

Answer 11

Declaration

Question 12

A cost-sharing device frequently contained in insurance policies. When a covered loss occurs, the blank amount is the amount that the insured must pay before the insurer’s responsibility for payment begins. The blank is a means of retaining small, predictable amounts of risk. Typically, the larger the blank amount, the lower the policy premium because the insurer will be called upon only to indemnify larger losses.

Answer 12

Deductible

Question 13

A provision that is added to an insurance policy to supplement or modify a standard policy to meet the special needs of the insured individual.

Answer 13

Endorsement

Question 14

Insurance used by financial planners and advisers that covers fiscal (financial) harm that may happen to a client.

Answer 14

Errors and omissions insurance

Question 15

Personal liability coverage that has higher liability limits and broader protection than homeowners or auto policies. It is designed to provide liability coverage after the limits of homeowners or auto policies are exhausted. Many umbrella liability policies require specified levels of coverage on auto and homeowners policies, and some companies require that the insured purchase all three types of policies from them.

Answer 15

Excess liability insurance/Umbrella liability coverage

Question 16

One of the four major components of an insurance contract. The blanks section states the perils, losses, and/or property for which the insurer will not provide coverage under the policy.

Answer 16

Exclusions (insurance)

Question 17

Pertains to insurance. It is a condition or event that contributes to the possibility of a loss occurring.

Answer 17

Hazard

Question 18

Insurance that is designed to protect an insured against property losses to one’s home and personal property, as well as protect against liability losses resulting from home ownership and personal activities.

Answer 18

Homeowners insurance

Question 19

Pertains to insurance. The insurer is obligated to pay a claim only if there is a loss, and then only to the extent of the dollar loss.

Answer 19

Indemnity

Question 20

Coverage for personal property that is frequently moved from one location to another or for which there is not enough coverage under the homeowners policy (not literally marine insurance). Jewelry, furs, electronics, silverware, golf and ski equipment, musical instruments, fine art, and coin and stamp collections are often covered by inland marine policies.

Answer 20

Inland marine policies (personal article floaters)

Question 21

Pertains to insurance. The person applying for insurance coverage must be subject to a personal financial loss if the event for which insurance is being obtained occurs. For life insurance there must be an blank at the time of the claim.

Answer 21

Insurable interest

Question 22

A device by which an individual can contract with another party to exchange a large, uncertain risk for a relatively small, certain premium. It is a risk transfer technique.

Answer 22

Insurance

Question 23

One of four major components of an insurance contract. It states the insurer’s intention to cover losses resulting from certain specified perils or from all perils not specifically excluded from the contract.

Answer 23

Insuring agreement

Question 24

Allows an individual to still collect damages, even if they were negligent, if the other person involved in the accident had a last clear chance to avoid causing damage.

Answer 24

Last clear change rule

Question 25

Covers the legal obligation of the insured to compensate others for bodily injury or property damage caused by acts of, or negligence by, the insured.

Answer 25

Liability insurance

Question 26

Pertains to liability coverage under homeowners and automobile insurance. Under homeowners insurance, it generally pays reasonable medical expenses up to a specified amount for injuries incurred on an insured’s premises or caused by the insured away from the premises. Under auto insurance, it usually pays up to a specified amount for medical expenses per person involved and injured in an automobile accident, including the insured and any occupants of their auto, without regard to liability.

Answer 26

Medical payment to others

Question 27

Pertains to insurance. Refers to traits of an insured that increase the probability of loss, such as dishonesty, fraud, or pyromania.

Answer 27

Moral hazard

Question 28

The attitude that “the insurance company will pay for it” if something goes wrong so individuals may not be as careful as they would be without insurance.

Answer 28

Morale hazard

Question 29

Failure to use reasonable care that results in damage or injury to another. Four things must happen for an individual to be considered blank: existence of a legal duty, failure to perform a legal duty, actual damage, and proximate cause must be established.

Answer 29

Negligence

Question 30

Included in automobile insurance coverage; covers physical damage to an auto that is not caused by collision (e.g., vandalism, tree falling on a car, etc.).

Answer 30

Other than collision coverage

Question 31

Pertains to insurance. It is the cause of loss; such as fire or flood.

Answer 31

Peril

Question 32

An automobile policy form that is available to cover cars used for personal (not business) pursuits.

Answer 32

Personal auto policy (PAP)

Question 33

A measure of financial soundness for an insurer. It compares the insurer’s net worth to its liabilities.

Answer 33

Policyholder’s surplus ratio

Question 34

Pertains to insurance. The probability of loss, which would be difficult to calculate for an individual, is reasonably easy to estimate when a large blank of risks is considered.

Answer 34

Pool

Question 35

Insurance that covers acts of negligence in conjunction with work or professional pursuits for which the insured is found liable. For financial planners this would be errors and omissions insurance.

Answer 35

Professional liability

Question 36

The chance of a loss, such as a house fire or automobile accident. With blank there is no upside, there is either a loss or, if there is enough insurance, little or not loss.

Answer 36

Pure risk

Question 37

Pertains to homeowners insurance. A provision allowing that if the insured carries insurance on a building equal to at least 80% of its replacement cost new, any covered loss to the building will be paid to the extent of the full cost to repair or replace the damage without deducting depreciation, up to the policy limit.

Answer 37

Replacement cost provision

Question 38

Provisions added to an insurance policy to supplement or modify it to meet the special needs of the insured.

Answer 38

Rider

Question 39

A risk management technique that involves eliminating a possible risk of loss entirely. For instance, a person is avoiding risk when they decide not to skydive.

Answer 39

Risk avoidance

Question 40

The identification, analysis, and management of personal risks. Management involves using strategies to reduce to probability of loss and the financial impact of loss.

Answer 40

Risk management

Question 41

Activities intended to prevent the occurrence of loss, such as removing combustible materials from a home or garage and installing sprinkler systems.

Answer 41

Risk reduction

Question 42

The conscious act of keeping or assuming risk rather than handling it in some other way. An example would be the use of deductibles, coinsurance, elimination periods, and other cost sharing devices.

Answer 42

Risk retention

Question 43

A risk management technique that moves financial responsibility from one person to another. An example is insurance, in which the insured transfers responsibility for losses to an insurer.

Answer 43

Risk transfer

Question 44

The chance for either a loss or a gain. For example, investing in the stock market.

Answer 44

Speculative risk

Question 45

A for-profit insurer that is owned by stockholders.

Answer 45

Stock company

Question 46

The process of determining whether a risk is acceptable and at what price.

Answer 46

Underwriting

Question 47

Coverage included in automobile insurance policies that protects the insureds against expenses related to bodily injury caused by uninsured or hit-and-run motorists.

Answer 47

Uninsured motorist coverage

Question 48

A rider that can be included as a part of a life insurance policy. If the insured becomes totally disabled before a certain age and disability lasts longer than a stated period, premiums on the life insurance policy will be waived during the period of disability, but the policy will remain in force.

Answer 48

Waiver of premium rider