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Property & Casualty License Basics > Property and Casualty Insurance > Flashcards

Property and Casualty Insurance Flashcards

1
Q

2 Types of Loss

A

Direct & Indirect

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2
Q

Direct Loss

A

physical loss to property with no intervening cause

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3
Q

Indirect Loss

A

is a consequential loss as the result or consequence from a direct loss

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4
Q

Methods of Handling Risk - STARR

A

Sharing
Transfer
Avoidance
Retention
Reduction

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5
Q

When 2 or more individuals/businesses agree to pay portion of any loss incurred by any member of the group. Stockholders in a corporation share the risk this is called?

A

Sharing

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6
Q

When a risk is passed on to someone else, example - insurance

A

Transfer

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7
Q

When you eliminate a risk by not engaging in certain activities

A

Avoidance

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8
Q

When an individual or business takes on payment for losses

A

Retention

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9
Q

When you lessen the chance that a loss will occur - example - wearing a seatbelt

A

Reduction

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10
Q

Elements of Insurable Risk - CANHAM

A

Calculable
Affordable
Non-catastrophic
Homogenous
Accidental
Measurable

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11
Q

Elements of a Legal Contract - CLOAC

A

Consideration
Legal Purpose
Offer
Acceptance
Competent parties

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12
Q

Adhesion

A

“take it or leave it” policy written by the insurance company (insurer), insured has NO input

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13
Q

Aleatory

A

a contract that is contingent on an uncertain event (a loss) that provides for unequal transfer of value between parties

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14
Q

Warranty

A

a statement that is guaranteed to be true

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15
Q

Concealment

A

the failure to disclose known facts

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16
Q

Policy Structure - DICEE

A

Declarations - who, what, when, where and how much
Insuring agreements - promise to pay and perils covered
Conditions - rules for the policy
Endorsements - changes to the original policy
Exclusions - items not covered

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17
Q

Additional Supplementary Coverage

A

provides payment for additional expenses not normally covered, may have separate limits

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18
Q

Unearned Premium

A

unused premium that was paid in advance

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19
Q

Prorated Basis

A

the insured will receive a full refund of unearned premium; refunded to insured when cancellation is given WITH notice

20
Q

Short-rated Basis

A

partial refund of unearned premium; refunded to insured when policy is cancelled WITHOUT notice

21
Q

Loss Ratio

A

Shows the percentage of losses the company has incurred for every dollar of earned premium, the premium the company actually earned by providing insurance coverage for the designated period. It is calculated by dividing the amount of incurred losses by the amount of earned premium.

22
Q

Expense Ratio

A

It is an indicator of the cost of doing business. It is calculated by dividing underwriting expenses – the costs to acquire and keep policies - by the amount of the written premium – the gross amount of premium income received from insureds. It includes both earned and unearned premium

23
Q

Combined Ratio

A

the sum of the loss ratio and expense ratio

24
Q

Judgment Rating

A

no set rates based upon underwriter’s experience

25
Q

Manual/Class Rating

A

sets rates for specific risk classes

26
Q

Experience Rating

A

type of merit rating that determines premium based on previous loss experience, can increase or decrease your premium

27
Q

Open Perils

A

insures against all risks of direct physical loss except those specifically excluded

28
Q

Named Perils

A

coverage lists the perils or causes of loss insured against under the contract

29
Q

Basic Perils

A

fire
lightning
internal explosion

30
Q

Extended Coverage (EC) Perils - WCSHAVVER & V&MM

A

W - wind
C - civil commotion (large in numbers)
S - smoke - not from friendly fire (aka fireplace)
H - hail
A - aircraft
V - vehicles - damage caused by contact w insured’s property
V - volcanic eruption
E - explosion
R - riot (usually smaller than a civil commotion)

V - Vandalism
MM - Malicious Mischief

31
Q

Broad Perils - BIG AFFECT

A

Basic Perils
WCSHAVVER
V&MM
B- burglary - NOT theft
I - ice, sleet and snow (weight of)
G - glass breakage
A - accidental discharge of water
F - freezing objects
F - falling objects
E - electrical current
C - collapse
T - tearing asunder
*under WCSHAVVER - smoke includes loss caused by fireplace smoke & vehicles includes damage to fences, driveways, and walks when the vehicle is driven by someone who is NOT a resident of the insured’s household

32
Q

Special (Open) Perils Exclusions

A

Flooding
Earthquake
Intentional damage caused by an insured
Losses due to enforcement of building codes
Damage caused by a power interruption occurring off premises
Government seizure

33
Q

Classes of Contruction

A

Class 1 - Frame
Class 2 - Joisted Masonry
Class 3 - Noncombustible
Class 4 - Masonry Noncombustible
Class 5 - Modified Fire Resistive
Class 6 - Fire Resistive

34
Q

Insurable Interest

A

a legitimate risk of financial loss in the person or thing being insured; may be present at the time of application but MUST be present at the time of loss. example - you may buy property insurance for your home but not your neighbors because there is no interest there

35
Q

Policy Limits

A

maximum amount the insurance company will pay for a loss

36
Q

Actual Cash Value

A

is the current cost of replacing an an asset now (NOT what was originally paid for the item) minus the deprecation; most commonly used

37
Q

Cost to Repair

A

used when this amount is less than the actual cash value

38
Q

Replacement Cost

A

current replacement cost with no depreciation

39
Q

Functional Replacement Cost

A

is the cost of acquiring another item of property that will perform the same function with equal efficiency, even if it is not identical to the property being replaced

40
Q

Defenses Against Negligence

A

Contributory Negligence
Comparative Negligence
Assumption of Risk
Intervening Clause
Statues of Limitation
Last Clear Chance

41
Q

A doctrine that says if a person contributed to his/her own damage in ANY way, another party CANNOT be held liable for the damages; “other guy” does NOT have to pay a cent

A

Contributory Negligence

42
Q

Allows a finding of liability to be made when both parties have contributed to the loss, with the award based on the extent of each party’s negligence; each party pays a %

A

Comparative Negligence

43
Q

Compensatory Damages

A

are damages awarded by a court equivalent to the loss a party suffered; 2 types: special (direct and specific expenses) and general (pain and suffering, mental anguish) damages

44
Q

Punitive Damages

A

damages awarded to punish the defendant and set an example

45
Q

Aggregate Limit

A

an insurance contract provision limiting the maximum liability of an insurer; applies to all losses occurring in 1 policy period

46
Q

Supplementary Payments - BAILED

A

B - Bonds
A - Aid (first aid)
I - Interest
L - Loss of Earnings
E - Expenses
D - Defense Costs

Property & Casualty License Basics (10 decks)

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