Module 2 Terms And Concepts

Question 1

Speculative Risk

Answer 1

An uncertain prospect of a financial gain or loss and are uninsurable.

Question 2

Pure Risks

Answer 2

Situations involving a chance of loss or no loss, but no gain, and are insurable.

Question 3

Risk Avoidance

Answer 3

Ensures that an individual or business does not get involved in activity leading to a potential loss.

Question 4

Risk assumption

Answer 4

A method in which the individual or business assumes the expected losses from its own financial resources

Question 5

Risk sharing

Answer 5

Involves the insured and the insurer each accepting part of the risk

Question 6

Risk reduction

Answer 6

Lowers the possibility of a loss

Question 7

Peril

Answer 7

The cause of loss

Question 8

Economic loss

Answer 8

Total estimated cost to a person or business resulting from the damage or destruction of property or from a liability risk.

Question 9

Insurable interest

Answer 9

An economic stake in a potential financial loss that can be covered by insurance.

Question 10

Deductible

Answer 10

The intial amount of a claim not paid by the insurance company. Deducted from a claims settlement.

Question 11

Named peril

Answer 11

Insurance contracts in which the perils covered are specifically listed. (Ex, COMP)

Question 12

Open perils

Answer 12

Insurance contracts that cover all perils unless specifically excluded.

Question 13

Specific coverage

Answer 13

Insurance for only one kind of property at only one location of an insured. For example, property coverage written on a rare antique in a home covering only the antique.

Question 14

Blanket coverage

Answer 14

A single policy on the insureds property for: (a) more than one type of property in the same location; (b) the same type of property in two or more locations; or (c) two or more types of property in two or more locations.

Question 15

ACV

Answer 15

Actual cash value, the cost of replacing damaged or destroyed property with comparable new property minus depreciation and obsolescence

Question 16

Replacement cost

Answer 16

The actual cost of replacing property without a deduction for depreciation or obsolescence.

Question 17

Functional replacement cost

Answer 17

Amount needed to put a building back to the functional manner before the loss occured. For example, if a dwelling had plaster walls before the loss, the insurer may use sheet rock to replace the damaged plaster walls.

Question 18

Salvage value

Answer 18

The amount for which an insured can sell recovered property after paying damages to the insured.

Question 19

Mortgagee

Answer 19

Is a person or lender who provides a loan with which to buy property

Question 20

Loss payee

Answer 20

A person or entity listed on insurance documents to which the check for damages will be issued in the event of a loss

Question 21

Misrepresentation

Answer 21

Failure to disclose any material facts about the risk.

Question 22

Breach of warranty

Answer 22

A violation of an agreement between a seller and buyer in reference to the condition, content, quality, or title of an item sold.

Question 23

Concealment

Answer 23

The intention to withhold relative information about the risk from the insurance company.

Question 24

Negligence

Answer 24

Failure of a person to act with the legally required degree of care for others resulting in bodily harm or property loss.

Question 25

Liability

Answer 25

A condition enforced by the courts to do something bound under the law or in a contract.

Question 26

Supplementary payments

Answer 26

Payments made from the insurance companies for costs sucks as court cost and attorneys fees. They are made in addition to coverage limits.

Question 27

Personal injury

Answer 27

Damage through libel, slander, false arrest, defamation of character and invasion of privacy that could lead to a financial judgement against a person.

Question 28

Physical hazard

Answer 28

Circumstances that increase the chance of a peril occuring

Question 29

Moral hazards

Answer 29

A tendency to commit illegal acts for monetary gain

Question 30

Morale hazards

Answer 30

Circumstances that increase a risk due to a person’s indifferent attitude

Question 31

Occurence

Answer 31

An event that results in an insured loss but not necessarily from an accident

Question 32

Audits

Answer 32

Used in some property and liability policies to determine the actual liability exposure to the insurer

Question 33

Single limit

Answer 33

The total limit in an insurance policy for any single one occurence

Question 34

Split limit

Answer 34

Amount of coverage available to pay for bodily injury, property damage or any other covered perils under the insurance policy for any one occurence or claim.

Question 35

Aggregate limit

Answer 35

Maximum dollar amount of coverage available in the policy. Generally written as a total limit for the lifetime of the policy or the total amount available for any particular claim no matter the number of occurrences or claims.

Question 36

Certificate of insurance

Answer 36

Document for property and liability insurance that provides evidence of the existence and terms of a particular policy for the insured

Question 37

Binder

Answer 37

Temporary insurance contract providing coverage until a permanent policy is issued. Property and casualty producers issue binders as evidence of coverage.

Question 38

Endorsement

Answer 38

A written agreement attached to an insurance policy to add or subtract insurance coverage. Takes precedence over the original provisions of the policy.

Question 39

Subrogation

Answer 39

A right granted in an insurance contract allowing an insurance company to take action against a third party that owes monetary damages to the company’s insured.

Question 40

Liberalization Clause

Answer 40

Stipulates that if the state legislature or the state insurance regulatory office expands the coverage of an insurance policy or endorsement forms without requiring additional premium, then all similar policies and endorsements will automatically have such expanded coverage.

Question 41

First named insured

Answer 41

Person or entity listed on the policy Declarations page as an insured.

Question 42

Monoline policies

Answer 42

Cover only one risk(such as properties)

Question 43

Package policies

Answer 43

Combine two or more forms formerly written as monoline policies such as property and liability coverage.

Question 44

Declarations page

Answer 44

Includes the description of who or what is insured, the amount of insurance, the name of the insured, term of the policy, and premium amount.

Question 45

Insuring agreement

Answer 45

Section of the policy that lists the perils covered under the policy. It also details the insurer’s promise to pay for covered losses.

Question 46

The conditions

Answer 46

Explains the rights, duties and obligations of the insured and insurer in the contract

Question 47

The exclusions

Answer 47

Lists the perils or conditions not covered by the policy, such as earthquakes

Question 48

The definitions

Answer 48

This sections explains some of the terms used in the policy, to avoid ambiguity.