P.I Terms & Related Concepts Flashcards
Depreciation
a reduction in value, particularly due to wear and tear
What is exposure (in terms of risk)?
susceptibility to risk
Implied Warranty
a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer’s expectations
Insurance Policy
a contract between a policyowner and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Insurer (Principal)
the company who issues an insurance policy
Obsolescence
depreciation in the value of a property due to becoming outdated
Premium
the money paid to an insurance company for the insurance policy
Tort
a wrongful act or the violation of someone’s rights that lead to legal liability
Insurance is a ________ __ ____ ____ from an individual/business entity to an insurance company, which spreads the costs of unexpected losses to many individuals
transfer of risk of loss
States that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be
The Law of Large Numbers
What is insurable interest?
An economic stake in something that if damaged, destroyed, or lost would result in financial hardship
To exercise _________ ________, the policyholder would buy insurance on the item or entity in question
Insurable interest
In property and casual insurance, _________ _________ must exist at the time of the loss
Insurable interest
The uncertainty/chance of a loss occurring
Risk
What are the two types of risks?
1) Pure
2) Speculative
The type of risk that can only result in a loss or no change; there is no opportunity for financial gain
Pure risk
The type of risk that involves the opportunity for either loss or gain
Gambling; not insurable
______ are the causes of loss insured against in an insurance policy
Perils
What kind of insurance insures against the financial loss caused by premature death of the insured?
Life insurance
What kind of insurance insures against the medical expenses and/or loss of income caused by the insured’s sickness or accidental injury?
Health insurance
What kind of insurance insures against the loss of physical property or the loss of its income-producing abilities?
Property insurance
What kind of insurance insures against the loss and/or damage of property and resulting liabilities?
Casualty insurance
________ hazards are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it
Physical hazards
_____ hazards refer to applicants that may lie (or have in the past lied) on their insurance application, or have submitted fraudulent claims against an insurer
Moral hazards
______ hazard refers to an increase in the hazard presented by a risk, arising from the insured’s indifference to loss because of the existence of insurance
Morale hazard
What insurance policy provision is also referred to as a reimbursement?
Indemnity
_________ is a provision in an insurance policy that states that in the vent of loss, the insured is permitted to collect only to the extent of the financial loss, not to gain financially
Indemnity
What term means insureds cannot recover more than their loss?
Indemnity
The insurer’s legal right to seek damages from third parties, after it has reimbursed the insured for the loss
Subrogation
Created to prevent insured from collecting on a loss twice, once from the insurer, and second from the party that caused the damage
Subrogation
An ________ 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
Accident
What does occurrence include in the definition of loss that accident does not?
Covers losses caused by continuous, repeated exposure to conditions resulting in injury that isn’t intended/expected
In property insurance, what is direct loss?
Physical damage to buildings and/or personal property; includes damage where the insured peril was the proximate cause of loss (firefighter hose water dousing a fire is damage paid under the peril of fire because fire was the proximate cause)
Does property insurance cover indirect loss?
No; property insurance only covers direct loss
What are consequential (or indirect) losses?
Losses considered a result of direct loss (extra living expenses incurred while a home is being repaired; cost of business being closed while business is being repaired)
_____ _____ is used to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils
Named peril
____ _____ is a term used in property insurance to describe the breadth of coverage under an insurance policy form that insures against ANY RISK OF LOSS that is not specifically excluded
Open peril
What is negligence?
the failure to use the same care that a reasonable, prudent person would have under similar circumstances
If the insured moved, their house would be considered ______. If the insured went on vacation, their house would be considered __________.
vacant; unoccupied
Refers to an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy
Vacancy
Refers to an insured structure in which no people have been living/working within the required period of time, but some property is stored
Unoccupancy
What is loss valuation?
The reduction, decrease, or disappearance of value of the person/property insured in a policy, by a peril insured against
____ ________ is a factor in determining the premium charged and the amount of insurance required
Loss valuation
A single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations
Blanket insurance
A property insurance policy that covers a specific kind of unit/property for a specific amount of insurance
Specific insurance
Current Replacement Cost - Depreciation =
Actual Cash Value
___ reinforces indemnity because it recognizes the reduction of value of property over time
A.C.V - Actual Cash Value
The cost to replace damaged property without any deduction for depreciation
Replacement Cost
What method of loss valuation is contrary to indemnity because it may provide the insured with a settlement in excess of the A.C.V?
Replacement cost
A willing buyer pays a willing seller for property prior to the loss
Market value
Market value method of loss valuation considers the value of ____ and ________, rather than just the cost of rebuilding the structure
land and location
A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time policy is written
Agreed value
A ______ ______ is amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss
Stated amount
_______ _____ is the amount of money realized from the sale of damaged merchandise
Salvage value
What are some examples of absolute liability?
Owning a swimming pool, harboring wild animals, or selling explosives; the injured party would not need to prove negligence
Strict liability is most commonly applied in _______ liability cases
Product
A person/business that sells a products makes an implied warranty the product is safe, but is liable for defective products, regardless of fault or negligence falls under what liability?
Strict liability
What is vicarious liability?
Liability imposed on one party as a result of another (purpose is to transfer liability from one person to another who has a greater ability to pay; ex - parents for the negligent act of kids)
The maximum amount of money the insurance company will pay for a particular loss/for loss during a period of time
Limits of liability
______ __ _________ are the insurer’s liability for payment as stated in an insurance policy
Limits of liability
A sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence
Per occurrence
The maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims
Per Person
The maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims made or the number of accidents that occur
Aggregate limit
_____ limits are separately stated limits of liability for different coverages
Split limits
_____ limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury & property damage
Split limits
A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident/occurrence
Combined single
What is proximate cause?
an act/event considered a natural and reasonably foreseeable cause of the damage/event that occurs and damages property/injures a plaintiff
What is negligence in terms of proximate cause?
Negligence must have been the proximate cause of the damage if the injured party is to collect for the damage; there must be an unbroken chain of events beginning with negligence and resulting in injury/damage
Negligence must have been the cause of accident/occurrence without which the accident/occurrence would not have happened; this is also referred to as what kind of liability?
direct liability
In property and casual insurance, a __________ is a $ amount an insured must pay on a claim before the insurance policy provides coverage
deductible
What is the formula for calculating coinsurance penalties?
(Insurance Carried / Insurance Required) x Loss Amount = Loss Payment
A higher deductible ______ the amount of premium
Lowers
