Module 4: Insurance Basics and Property Insurance Flashcards
What are types of personal risk?
Loss of income
disability
death
divorce
what is most common catastrophic expenses?
Medical expenses
What are the 4 components to negligence that an injured person must prove to collect damages?
- existence of a legal duty
- failure to perform legal duty
- actual damage is caused
- proximate cause is established
What are the 4 essential techniques for managing risk?
- risk avoidance
- risk retention
- risk transfer
- risk reduction
What are the 2 techniques that fall under risk control
risk avoidance
risk reduction
What are the 2 techniques that fall under risk financing?
Risk transfer
Risk retention
What are the 3 rules of risk management?
- Don’t risk more than you can afford to lose.
- Don’t risk a lot for a little.
- Consider the odds.
What is self insurance?
funds set aside that would cover any losses.
What are the 4 types of pure risk?
- personal risk
- liability risk
- property risk
- failure of others
An insurable risk must meet the four requirements:
- law of large numbers must apply
- loss must be accidental or fortuitous
- loss must be definite and measurable
- loss must NOT be catastrophic.
What are the legal requirements of an insurance contract to be considered valid?
- Must deal with a legal activity or legal object to be enforceable
- must consist of an offer and an acceptance.
- Must provide some sort of consideration (i.e. payment or performance)
What is consideration?
An act or the payment for the act
What is idemnity?
When a person suffers a loss, they should be made whole. Policyholders should NOT profit from loss- should merely be reimbursed.
What is a subrogation clause?
the insurance company gets paid back before you get more money.
What are the 4 sections of a life insurance policy?
- Declarations
- Insuring agreement
- Exclusions
- Conditions
What does the declarations section of a life insurance policy contain?
consists of information provided by the insured/applicant
contain all of the basic information that defines the policy. These declarations include the name of the insured, the amount of coverage and the name, description and location of the item or items being covered.
What does the insuring agreement section of a life insurance policy contain?
states the insurer’s intention to cover losses resulting from certain specified perils or from all perils not specifically excluded from the contract.
What does the exclusions section of a life insurance policy contain?
States the perils, losses, and/or property for which the insurer will NOT provide coverage under the policy.
What does the conditions section of a life insurance policy contain?
describe responsibilities of the insured and insurer that must be accepted if the insured 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/concealment by insured, policy cancellation procedures, and policy assignment procedures.
What is a rider?
A rider applies to health and life insurance. Typical riders are waiver for premium due to disability, accidental death benefit, or a guaranteed purchase option,
What is a mutual company with respect to life insurance?
Owned solely by policyholders. Policyholders may be entitled to refund of premium if company’s expenses are less than anticipated. The dividend is NOT taxable as income. can ONLY sell participating policies.
What is a stock company with respect to life insurance?
Insurance company owned by stockholders. dividends are taxed as ordinary income. Can sell both participating and nonparticipating policies
What is CLUE?
Comprehensive Loss Underwriting Exchanges - a report that provides up to 7 yrs worth of claims information to underwriters.
How much home insurance is needed?
At least 80% of replacement cost.
What are the 4 areas of coverage for auto insurance?
Liability, medical payments, physical damage, and uninsured motorists
What are split limits?
e.g. 25/50/15
first # is amount of bodily injury liability coverage
second # is amount for all people injured in common accident
third # is amount of coverage provided for property damage per accident
What are the 4 primary factors for cost of insurance?
age & sex of driver
use of vehicle
type of vehicle
driver’s record
What are the 3 main categories of a PAP?
Personal Auto Policy
- Legal liability
- Injury to insured or other family members
- Damage to or loss of auto
what is a deductible?
It is a cost-sharing device
amount an insured must pay before insurer’s responsibility for payment begins
means of retaining small, predictable amounts of risk
What is an endorsement?
A provision that is added to an insurance policy to supplement or modify a standard policy to meet the special needs of the insured.
What is excess liability insurance?
An umbrella policy
higher liability limits and broader protection than homeowners and auto insurance
What is an inland marine policy and what does it cover?
Coverage for personal property that is moved from one location to another of for which there isn’t enough coverage under homeowners insurance
Examples of property covered - Jewelry, furs, art, stamp collection, ski equipment
What are internal sublimits?
Pertains to homeowner’s policy
Limits of coverage apply to certain kinds of property. EX. you may have $50k limit on personal property but an internal limit on firearms at $1,000.
What is liability insurance?
covers legal obligation of insured to compensate others for bodily injury or property damage cause by acts/negligence of insured.
What are medical payments to others?
Pertains to liability coverage under homeowner & auto insurance
homeowner -pays reasonable medical expenses up to a specified amount for injuries incurred on insured’s property or caused by insured away from premises (dog bite)
Auto -pays up to specified amount for medical expenses per person involved and injured in auto accident including insured and passengers regardless of liability
What is the no-fault endorsement?
in auto insurance - pertains to certain statutory benefits for covered person injured in auto accident regardless of who is liable.
What is the Policyholder’s surplus ratio?
It is a measure of financial soundness for insurer (Insurance Company). Compares company’s net worth to liabilities.
What is the replacement cost provision?
pertains to homeowner’s insurance. If insured has enough insurance that is equal to at least 80% of replacement cost new, policy will cover all costs up to policy limits to repair or replace damage without deducting depreciation.
What is risk management?
Identification, analysis, and management of personal risks. Involves using strategies to reduce probability of loss and financial impact of loss.
What is the stop-loss provision?
Requires insurance company to pay 100% of covered charges after the insured has paid so much out of pocket.
