Property Insurance Basics Flashcards
Insurable interest
The financial interest in property to be insured. Must exist at time of loss
1) legitimate financial interest
2) no potential gain
3) potential loss
Underwriting
Process of reviewing applications for insurance and information on an application
Loss ratio
( incurred losses+ loss adjusting expenses) \earned premium
Hazards
Conditions or situations that increase the probability of an insured loss occurring
Physical hazards
Arising from the material structural or operational features of the risk apart from the person owning or managing it
Moral hazards
Refers to those applicants that may lie on an application for insurance
Morale hazard
Refers to an increase in the hazard presented by a risk arising from the insured indifference to loss because of the existence of insurance
Peril
A specific cause of loss. Example( fire wind hail explosions)
Named peril
A term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils
Open peril
A term used in property insurance to describe the breath of coverage provided under an insurance policy form that insurers against any risk of loss that is not specifically excluded
Consequential losses
Losses considered a result of direct loss, an indirect loss
Blanket insurance
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
Specific insurance
A property insurance policy that covers a specific kind or unit of property for a specific amount of insurance
Loss valuation
A factor in determining the premium charged and the amount of insurance required
Actual cash value (ACV)
Method of valuation reinforces the principle indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence.
Current replacement cost-depreciation =actual cash value
Replacement cost
Defined as the cost to replace damaged property with like kind and quality at todays price without any deduction for depreciation
Functional replacement cost
The cost to replace damaged property with less expensive and more modern construction or equipment
Agreed value
A property policy with a provision agreed upon by the insurer and the insured as to the amount of the insurance that represents a fair valuation for the property at the time the insurance is written and suspends any coinsurance or other contributions clauses in a policy