Principles & Practices (Word Problems) Flashcards
Understanding RIBO Principles & Practices via word problems
Who owns a mutual insurance company?
The policy holders
What did factory mutual insurance companies specialize in?
Fire risk management
How often will a policy with an aggregate policy limit pay out on claims?
Until the limit is used up for the term
How often will a policy with an occurrence limit pay out on claims?
Every time a loss occurs
What is the difference between an agent and a broker?
Agent = one company
Broker = multiple companies
What is the difference between actual cash value and replacement cost?
Actual cash value is the replacement cost less depreciation and replacement cost is the cost of the item at the time of loss without depreciation
What is a bailee?
Someone in the care custody and control of someone else’s property
What are the four reasons a property insurance policy may be automatically assigned?
- Bankruptcy
- Operation of Law
- Death
- Succession
What is binding authority and who grants it to a broker?
Binding authority is the authority to put a contract of insurance in effect without contacting the insurer for permission and it is granted by the insurer
What are the three elements necessary for a contract of insurance only?
- Utmost good faith
- Indemnity
- Insurable interest
What is a claim reserve?
Once a claim is reported, insurers are required to put money aside to pay the claim
To whom are the rights of subrogation granted once a claim if paid?
The insurance company
What value is depreciation taken off in the settlement of a claim on an actual cash value basis?
It is taken off the replacement cost of the item at the time of the loss
Is proximate cause the last event that occurs and causes a loss?
No. It is the immediate and effective cause of the loss but not necessarily the last in a chain of events.
What is earned premium? What is unearned premium?
Earned premium is the premium that is used up while unearned premium is the premium that has not yet been used up
What is an endorsement used to do?
Used to change or amend a policy
What does exclusion mean?
Not included
What type of refund is required when an insurer cancels an insurance policy?
Pro rata
What type of refund is required when an insured cancels his insurance policy?
Short rate
What is a franchise or disappearing deductible?
A deductible that no longer exists once the loss reaches a certain amount
What is a material fact?
A fact that is so important that it determines on its own whether a risk is acceptable or not and the basis on which the premium will be determined
What is misrepresentation?
A lie about a material fact
What is a hazard?
A condition that may cause a loss to occur
What are the two types of hazards?
Physical and moral
When is the principle of general average used?
When cargo on a ship or cars on a ferry are jettisoned to save the ship or ferry. All the insurers of the cargo or cars not jettisoned will contribute towards the loss
What is a stock insurance company?
An insurance company that trades on the stock market and is owned by its shareholders
In regards to Lloyds of London, who makes up groups of syndicates?
Investors
What is common law based on?
Law of the common people and precedents
Who is the lessee? Who is the lessor?
Lessee is the person leasing the car and lessor is the leasing company
What is statute law?
Law enacted by the government
What is a lien?
A loan or financial interest someone holds on a property
How does the mortgage clause protect the mortgagee if the insured violates the policy?
if insured violated the policy, they will not receive any benefits from the policy, but the insurable interest of the mortgagee is protected
What insurance coverage requires that the insured be negligent before it will pay out?
Liability
What is a peril?
An event that may cause a loss to occur
What is risk? What type of risk can be insured?
Risk is the chance of a loss and only pure risk can be insured
What is reinsurance?
Insurance companies taking out insurance on what they insure
What is a rate?
The price of a unit of insurance
What three types of policies require statutory conditions?
- Fire
- Auto
- Accident and sickness
Who is the first party and who is the third party in a contract of insurance?
First party is the insured and the third party is anyone else involved in claiming from the insurance contract
What is time on risk?
The length of time in days that the policy has been in force
What is a tort? What does it usually result in?
A tort is a legal wrong done against another and it usually results in the injured party suing the person who caused their injury
What is the unearned premium reserve fund?
A fund to guarantee an insurer’s unearned premium as of any given valuation date
What does a valued policy do?
It guarantees the amount set out in the policy
What is the difference between vacant and unoccupied?
Intent to return
What occurs when a policy is made void?
It is treated as if it never existed, cancelled back to inception date, and all premium is returned
An insurance policy will pay the lesser of these three things?
- Actual cash value
- Insurable interest
- Policy Limit
When does an insurance policy expire?
12:01 a.m. on the date stated
What is an example of a contract of compensation?
A life insurance policy
What is necessary when determining what name an insurance policy will be set up in?
The owner of the property or vehicle, whether it be a person or organization
What is a writ?
A notice that someone is being sued
How is a binder or temporary insurance canceled?
It should be canceled the same way as permanent insurance
Consideration as it related to insurance is?
The premium (aka some form of payment to enter into the agreement)
A binder is a?
Temporary insurance undertaking
What are the three ways to deal with risk?
- Reduce the risk
- Assume or retain the risk (Self Insurance)
- Transfer the risk (Purchasing Insurance)
What is the Lloyds of London?
An insurance market whose members are private investors and are managed by underwriters.
What is the different between a sole proprietorship and incorporation/limited?
In a sole proprietorship the owner and business are one entity. In an incorporation the business is considered a separate legal entity and can enter into contracts e.g. insurance.
Hint: BALLVP
Written applications are required for which types of insurance?
- Bonds
- Accident and Sickness
- Liability
- Life
- Valued Items
- Personal Articles Coverage/Floater
What is a declaration?
A Declaration is a statement signed by the insured declaring all the information given in the applicatio
for insurance is correct
What is a fiduciary?
A Fiduciary is a person or firm who occupies a position of special trust or confidence in handling or supervising the affairs or funds of others
What are the five requirements for any contract?
- Offer & Acceptance
- Consideration (Payment)
- Legal Capacity
- Meeting of the Minds
- Legality of Object
What are the three doctrines that uphold the principles of indemnity?
- Salvage (taking possession)
- Subrogation (right to sue)
- Contribution (insurers work together)
What is loss ratio?
The comparison of how much money the insurer spent settling claims versus how much premium it collected from paying customers
What is the difference between direct loss and indirect loss?
Direct loss is damage cause by an insured peril. Indirect loss is the financial loss resulting from direct loss.
What is negligence?
Negligence is the failure to use the degree of care expected of a reasonable and prudent person.
What is concurrent insurance?
Concurrent insurance occurs when two or more insurance policies provide coverage for the same risk and have identical effective and expiration dates
What is a concurrent clause?
The clause states that if damage is caused by two or more perils -one being covered and another excluded- then the loss should be covered.
What is sharing economy?
People using online platforms to sell or rent under-utilized property, goods or services and rating each other’s trustworthiness through online reputation systems
What is co-insurance?
Co-Insurance is designed to apply to partial losses rather than a total loss. The insured may end up self-insuring part of their property while the insurer covers the remainder.
When a dwelling is declared vacant, what coverages will be lost immediately?
- Water escape/damage
- Vandalism/malicious acts
- Glass breakage
When is a must a vacancy permit be added to a policy? How long will it extend coverage?
Vacant dwelling beyond 30 days. It will extend coverage a maximum of 60-90 days.
What is fraud?
Fraud is the concealment of facts which should have been made known to the insurance company.
