Principles of Insurance Flashcards
Law of Large Numbers
The law of large numbers specifies that when more units are exposed to a similar loss the predictability of such a loss to the entire pool increases.
helps to reduce objective risk
Perils
actual cause of a loss
Types of hazards
Moral, Morale, and physical
Moral Hazard
a character flaw
what type of hazard is shown in this example - A famous running back for Ohio State claimed his car was broken into and $10,000 worth of CDs were stolen. There certainly wasn’t $10,000 worth of CDs in his car and thus is an example of a moral hazard.
Moral Hazard
Morale Hazard
the indifference created because a person is insured
what type of hazard is shown in this example - what type of hazard is shown in this example - A famous running back for Ohio State claimed his car was broken into and $10,000 worth of CDs were stolen. There certainly wasn’t $10,000 worth of CDs in his car and thus is an example of a moral hazard.
Morale Hazard
What is Adverse selection
Tendency of persons with higher-than-average risks to purchase or renew insurance policies
Requisites for an insurable loss
CHAD
not Catastrophic - not pose catastrophic risk for the insurer
Homogenous exposure
Accidental
measurable & Determinable
Elements of a Valid contract
COALL! ->
Competent parties, Offer and Acceptance, Legal consideration, and Lawful purpose
Principle of Indemnity
entitled to compensation to the extent of the insured’s financial loss. Also, insured cant make a profit from an insurance contract
Subrogation Clause
cannot receive compensation from both the insurer and a third party for the same claim.
Principle of Insurable Interest
must have an emotional or financial hardship resulting from damage, loss, or destruction.
Principle of Insurable Interest - Property and Liability Insurance
the insured must have insurable interest at time of policy inception and at time of loss.
Principle of Insurable Interest - Life Insurance
the insured only needs an insurable interest at the time of policy inception
