On DEMAND: Property and casualty Insurance Terms & Related Concepts Flashcards
Transfer of loss. Protection
Insurance
2 Types of risk
pure
speculative
Type of risk that CANNOT be insured
speculative
- Gambling
Type of risk that CAN be insured
Pure risk
- no financial gain
Increases your possibility of having a loss. Conditions that INCREASE the probability of an insured loss.
Types of hazards
Smoking since you were 14 years old is what type of hazard
PHYSICAL hazard
Lying on the application is what type of hazard
MORAL hazard
- tendency towards risk
“If I’m insured, why should I worry?” is a type of hazard
Drinking and driving. “They’ll pay the claim if something happens.
MORALE
- state of mind that causes indifference towards loss. Mindset
The CAUSE OF LOSS. The reason you lost something. In life insurance, the cause is death. Health insurance, its sickness or accident.
Peril
A REDUCTION OF VALUE and a BASIS FOR A CLAIM
loss
2 types of peril
Property
Your personal things, house, car, things inside your home. Your stuff. Income-producing abilities. YOUR CAR in the wreck.
Property
Someone ELSE’S BODY or CAR that you are liable to pay for
Casualty
The LOSS represents …
the money required to fix or restore something
True purpose of insurance is this. To restore you back to the way you were before loss. REIMBURSEMENT.
indemnity
Insureds cannot GAIN FINANCIALLY or PROFIT after the loss
Indemnity = reimbursement
Indemnify
5 Elements of Insurable risk
- due to chance
- definite and measurable
- statistically predictable
- not catastrophic (insurance companies are businesses and must be profitable)
- randomly selected/large loss exposure (hits someone sometime in the group, and a large number of people. Larger the group, more accurate the actuaries can be.)
Risk must be due to
chance
- Random
- Not premeditated
Insurance is spreading risk among a large pool of people with similar exposure.
Law of large numbers
Insurance is a _____
contract
Property insurance is a ____ party contract
two
Property insurance covers losses to _______ or _____
possessions or assets
Casualty / liability is a _____ party contract
third
(policy pays a third party)
The person was hurt who came onto your property and was hurt
Property insurance is legal liability for _____ or _____ to others
Property insurance is legal liability for INJURY or DAMAGE to others
The _______ is the EVENT where someone is injured
The ACCIDENT is the EVENT where someone is injured
________ is WHEN it happened that causes the LOSS
OCCURRENCE is WHEN it happened that causes the LOSS
FIRE is a covered peril on the policy and your house burns down. This is a ______ LOSS.
FIRE is a covered peril on the policy and your house burns down. This is a DIRECT LOSS.
You lost your home to a fire. Where do you go? You might end up in a HOTEL while house is rebuilt. That money that’s out of pocket from loss of house. This is an ______ LOSS.
You lost your home to a fire. Where do you go? You might end up in a HOTEL while house is rebuilt. That money that’s out of pocket from loss of house. This is an INDIRECT LOSS.
_______ PERIL POLICY. The PERIL is the CAUSE OF THE LOSS.
FIRE, LIGHTNING, INTERNAL EXPLOSION.
Unless the house is destroyed by these, it’s NOT covered.
NAMED PERIL POLICY. The PERIL is the CAUSE OF THE LOSS.
FIRE, LIGHTNING, INTERNAL EXPLOSION.
Unless the house is destroyed by these, it’s NOT covered.
______ PERIL POLICY.
Anything is covered unless it’s in the EXCLUSION AREA in the back of the policy.
More high-end policy.
OPEN PERIL POLICY.
Anything is covered unless it’s in the EXCLUSION AREA in the back of the policy.
More high-end policy.
Type of policy Has the largest exclusion section.
open-peril
TYPE OF COVERAGE
It’s YOUR car. YOUR roof.
SPECIFIC
Named
TYPE OF COVERAGE
Insurance agency. Covers a GROUP OF PEOPLE.
BLANKET
Under the blanket and therefore covered
Multiple Classes. Don’t need to know specific name of it.
The rooms are empty. Nothing is in the dwelling. No people. No possessions. Empty building. Not coming back.
Vacancy
- If vacant for more than 60 days, the policy covers nothing. Voids out most contracts.
Your stuff is still there but you are not. You’re on vacation. Temporarily gone.
Unoccupancy
1
Valid reason for writing insurance on that house.
Insurable interest.
Insurable interest is provided when?
At the TIME OF LOSS.
What people do at home office, review applications, order consumer info, to determine what risk you are to the company. If you’re insurable or not.
Underwriting
Cost of the coverage
Rate
“how you’re rated”
Loss Ratio formula
(Incurred loss + Adjusting expenses)
/ Premium paid into policy
= Loss ratio
Agents are judged based on ______
loss ratio
- Your book of business’ loss
Someone hits you and takes off. No one is there to pay for car except you. File claim. Totaled the car. All on YOUR policy. When you accept the check, you _______ – or turning over the right to find the party who caused lost– to the insurance company. They chase the person to sue by third party
Subrogration
LOSS VALUATION METHODS
If your house burns down, have it rebuilt for LIKE KIND AND QUALITY AT TODAY’S PRICES. Build it just like it was. Same dry wall etc.
Replacement cost
LOSS VALUATION METHODS
Replacement cost minus DEPRECIATION.
Actual cash value
*Usually you can upgrade to Replacement cost
LOSS VALUATION METHODS
Cost to replace with modern, less expensive construction or materials.
You have an older, historic home. No way to replace the carved, wood mantelpiece. Same wood might not be available or cost to obtain is impossible. Or craftsmanship.
Functional Replacement
LOSS VALUATION METHODS
What a willing buyer will pay a willing seller
Market value
LOSS VALUATION METHODS
Fair valuation based on the amount of insurance agreed on.
Artwork. Value is great today, 10 years it drops. Or vice versa. Hard to value. At the time of the policy, an appraiser comes possibly. More difficult to value.
Agreed value
Agree on a starting point.
LOSS VALUATION METHODS
Scheduled amount of insurance, and maximum the insurer will pay
Stated value
ELEMENTS OF NEGLIGENCE
Duty to act or not to act
Homeowner decides not to clean sidewalks of ice. Someone slips and falls
Legal duty
LOSS VALUATION METHODS
Defendant used standard of care that breached legal duty
Stardard of car
LOSS VALUATION METHODS
Unbroken chain of events that caused damage Rain Snowed Sleeted Froze Homeonwer didn't clean caused the loss
Proximate cause
LOSS VALUATION METHODS
Actual injury or damage
Actual loss or damage
TYPES OF NEGLIGENCE
2 types
Contributory
Comparative
TYPES OF NEGLIGENCE
The injured party must be COMPLETELY FREE OF FAULT
Contributory Negligene
Any negligence on the part of the insured party that CONTRIBUTED to the injury will defeat the claim.
TYPES OF NEGLIGENCE
More Lenient
Awards for damages are reduced by the PERCENTAGE OF NEGLIGENCE OF EAH PARTY
Comparative Negligence
TOPIC: Liability
Liability to _____, not ____
TOPIC: Liability
Liability to others, not yourself
TOPIC: Liability
Types
You own a tiger. The neighbor’s kid is bit.
Absolute liability
Obviously hazardous activities
Injured party does not need to prove negligence
TOPIC: Liability
Product liability
liable for defective products regardless of fault or negligence
Strict
TOPIC: Liability
Masters are liable for the acts of servants
Vicarious liability
Old English law
TOPIC: Liability
3 types of liability
Absolute
Strict
Vicarious
the maximum amount insurer will pay for a particular loss
Limits Of Liability
Insurer’s liability for payment as stated in an insurance policy
Limits Of Liability
Limits Of Liability are expressed in 3 ways
- Single limit
- Split limit
- Aggregate limit
Limits Of Liability
When you buy a home. If house burns down, they pay. For SITUATION.
single limit
Limits Of Liability
Usually on car insurance. SEPARATES.
Auto insurance
Claim up to a certain amount
Limits Of Liability
The absolute maximum the company will pay after all claims.
Aggregate
The company cuts you off
Cap
Usually large
Insured share of a loss, that is paid BEFORE the INSURER PAYS the policy benefits
Deductible
Helps make sure that the insurer isn’t just making small claims. Insureds absorb smaller classes; insurer covers large losses
deductible
The larger the deductible, the lower the policy ______
The larger the deductible, the lower the policy premium
You have a home.
It burns down.
If you have the proper amount of coverage.
Insurance says they will rebuild to similar or like.
Insurance To Value
Provides a REPLACEMENT COST SETTLEMENT t the policyholders who carries adequate insurance
Property insured to the EXACT DOLLAR AMOUNT or PERCENTAGE of its value.
Usually found in HOMEOWNERS POLICIES
Insured agrees to maintain a certain MINIMUM AMOUNT OF INSURANCE on the INSURED PROPERTY
Someone carries less coverage than they think is needed to rebuild the whole home. (Contractors who can do the work themselves)
Insurance company: “If you’re going to be cheap, so will we.. When we pay the claim, we pay a lot cheaper”
Coinsurance
Opposed to INSURANCE TO VALUE
Coinsurance formula
Insurance carried /
Insurance required
x Loss amount
= Loss Payment
Home value to rebuild: $100k
Insurance carried: $50k
CLAIM: $10k
= Loss payment
Vacancy Vs. Nonoccupancy
Insured structure in which o people have been living or working, and no property has been stored (usually 60 days)
Ex: You move away. Living in other house. The first home is sitting empty and for sale. On the 61st day, you lose coverages.
Vacancy
60 days and then you start losing coverage
Vacancy Vs. Nonoccupancy
Insured structure in which NO PEOPLE have been living or working, but SOME PROPERTY is stored
Ex: insured is on an extended vacation.
Nonoccupancy
Needs to be written as a SECONDARY RESIDENCE if its a summer or winter home. Remains as nonoccupancy that way.
