P&C Flashcards
What is Depreciation
Reduction in value, particularly due to wear and tear
What is exposure
Susceptibility to risk
What is implied warranty
A legal term meaning that the product is suitable for its intended purpose and that it fits an ordinary buyer’s expectation
What is an insurance policy
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
Who is an insurer (principal)
The company who issues an insurance policy
What is obsolescence
Depreciation in the value of a property due to becoming outdated
What is a premium
The money paid to the insurance company for the insurance policy
What is insurance
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
3 elements of insurable risk (interest)
Financial
Blood (a relative)
Business (a business partner)
What is risk
The uncertainty or chance of a loss occuring
Two types of risk
Pure Risk
Speculative Risk
What is pure risk
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
What is Speculative risk
Involves the opportunity for either loss or gain. An example is gambling. These types of risks are not insurable
What is a peril
The cause of loss insured against the policy
What is a hazard
Hazards are conditions or situations that increase the probability of an insured loss occurring
What is loss
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
What is indemnity
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.
What is subrogation
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
Accident
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
Occurance
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
Two types of property losses
Direct and indirect
Actual Cash Value
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.
Replacement Cost
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
Market Value
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
Law of Large Numbers
The larger number of people with similar exposure to loss, the more predictable the actual losses will be
3 types of hazards
Physical - a physical condition
Moral- a tendency toward increased risk
Morale- an indifference to loss
Accident vs. Occurrence
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
Negligence
Failure to use reasonable and prudent care
4 elements of negligence
Legal Duty
Standard of care
Unbroken chain of events
Actual loss or damage
Types of valuation
Actual Cash Value
Replacement cost
Market value
Agreed value
Stated value
Salvage value
Types of Liability
Strict liability -often applied to product liability cases
Vicarious liability - liability imposed on one party as a result of another
Limits of liability
Per occurrence
Per person
Aggregate
Split
Combined
Proximate Cause
Cause of bodily injury or property damage is natural and reasonably foreseeable
For injured party to collect damages, negligence must have proximate cause
Deductible
Dollar amount must be met by insured before insurer provides coverage
Higher deductible equals lower premium
Elements of a legal contract
Agreement
Consideration
Competent parties
Legal purpose
Binders
Temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued
Expires when the policy is issued
Policy Components
Declarations
Definitions
Insuring agreement
Additional coverage
Conditions
Exclusions and policy limits
Declaration
Section containing the basic underwriting information such as the insured’s name, address, amount of coverage, premiums and a description of insured locations
Definitions
Clarifies terms used in the policy
Insuring agreement
Establishes the obligation of the insurance company to provide insurance coveragesas stated in the policy
Additional Coverage
Provides an additional amount of coverage for specific loss expense, at no additional premium
Conditions
Indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy
Endorsements
Printed addendums to a contract that are used to change the policy’s original terms, conditions, or coverages
Exclusions and Policy Limits
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
