P&C

Question 1

What is Depreciation

Answer 1

Reduction in value, particularly due to wear and tear

Question 2

What is exposure

Answer 2

Susceptibility to risk

Question 3

What is implied warranty

Answer 3

A legal term meaning that the product is suitable for its intended purpose and that it fits an ordinary buyer’s expectation

Question 4

What is an insurance policy

Answer 4

A contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Question 5

Who is an insurer (principal)

Answer 5

The company who issues an insurance policy

Question 6

What is obsolescence

Answer 6

Depreciation in the value of a property due to becoming outdated

Question 7

What is a premium

Answer 7

The money paid to the insurance company for the insurance policy

Question 8

What is insurance

Answer 8

Insurance is a transfer of risk of loss from an individual or business entity to an insurance company, which, in turn spreads the costs of unexpected losses to many individuals. If there were no insurance mechanism, the cost of a loss would have to be borne solely by the individual who suffered the loss

Question 9

3 elements of insurable risk (interest)

Answer 9

Financial
Blood (a relative)
Business (a business partner)

Question 10

What is risk

Answer 10

The uncertainty or chance of a loss occuring

Question 11

Two types of risk

Answer 11

Pure Risk
Speculative Risk

Question 12

What is pure risk

Answer 12

Refers situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure Risk is the only type of risk insurance companies are willing to accept

Question 13

What is Speculative risk

Answer 13

Involves the opportunity for either loss or gain. An example is gambling. These types of risks are not insurable

Question 14

What is a peril

Answer 14

The cause of loss insured against the policy

Question 15

What is a hazard

Answer 15

Hazards are conditions or situations that increase the probability of an insured loss occurring

Question 16

What is loss

Answer 16

Loss is defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss

Question 17

What is indemnity

Answer 17

Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of a loss an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract. The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss.

Question 18

What is subrogation

Answer 18

Subrogration is the insurers legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Subrogration is based on the principle of indemnity by preventing the insured from collecting on the loss twice : once from the insurer and a second time from the party that caused the damage

Question 19

Accident

Answer 19

Accident is a sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended

Question 20

Occurance

Answer 20

A broader definition of loss than accident because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected

Question 21

Two types of property losses

Answer 21

Direct and indirect

Question 22

Actual Cash Value

Answer 22

The actual Cash Value method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence.

Question 23

Replacement Cost

Answer 23

Is defined as the cost to replace damaged property with like kind quality at today’s price without any reduction for depreciation. This method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property’s actual Cash Value

Question 24

Market Value

Answer 24

Is a seldom used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss. This method takes into consideration the value of land and location, rather than just the cost of rebuilding the structure itself

Question 25

Law of Large Numbers

Answer 25

The larger number of people with similar exposure to loss, the more predictable the actual losses will be

Question 26

3 types of hazards

Answer 26

Physical - a physical condition
Moral- a tendency toward increased risk
Morale- an indifference to loss

Question 27

Accident vs. Occurrence

Answer 27

Accident - sudden, unplanned and unexpected event resulting in injury or damage

Occurrence - includes losses caused by continuous or repeated exposure to conditions resulting from injury or property damage

Question 28

Negligence

Answer 28

Failure to use reasonable and prudent care

Question 29

4 elements of negligence

Answer 29

Legal Duty
Standard of care
Unbroken chain of events
Actual loss or damage

Question 30

Types of valuation

Answer 30

Actual Cash Value
Replacement cost
Market value
Agreed value
Stated value
Salvage value

Question 31

Types of Liability

Answer 31

Strict liability -often applied to product liability cases
Vicarious liability - liability imposed on one party as a result of another

Question 32

Limits of liability

Answer 32

Per occurrence
Per person
Aggregate
Split
Combined

Question 33

Proximate Cause

Answer 33

Cause of bodily injury or property damage is natural and reasonably foreseeable
For injured party to collect damages, negligence must have proximate cause

Question 34

Deductible

Answer 34

Dollar amount must be met by insured before insurer provides coverage

Higher deductible equals lower premium

Question 35

Elements of a legal contract

Answer 35

Agreement
Consideration
Competent parties
Legal purpose

Question 36

Binders

Answer 36

Temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued
Expires when the policy is issued

Question 37

Policy Components

Answer 37

Declarations
Definitions
Insuring agreement
Additional coverage
Conditions
Exclusions and policy limits

Question 38

Declaration

Answer 38

Section containing the basic underwriting information such as the insured’s name, address, amount of coverage, premiums and a description of insured locations

Question 39

Definitions

Answer 39

Clarifies terms used in the policy

Question 40

Insuring agreement

Answer 40

Establishes the obligation of the insurance company to provide insurance coveragesas stated in the policy

Question 41

Additional Coverage

Answer 41

Provides an additional amount of coverage for specific loss expense, at no additional premium

Question 42

Conditions

Answer 42

Indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy

Question 43

Endorsements

Answer 43

Printed addendums to a contract that are used to change the policy’s original terms, conditions, or coverages

Question 44

Exclusions and Policy Limits

Answer 44

Perils that are not insured against and what persons are not insured. Policy limits are the maximum amounts an insured may collect or is protected under the terms of the policy