Q, R, S & T Definitions

Question 1

Rate

Answer 1

Rate:

The basic charge an insurance company sets for various types of insurance

Question 2

Define

Reasonable Person Rule

Answer 2

Reasonable Person Rule:

Principle of law that states that each person must behave like a prudent person, following those ordinary considerations that guide human affairs.

Question 3

Define

Rebating

Answer 3

Rebating:

Giving or offering some benefit other than those specified in the policy to induce a customer to buy insurance. Rebating could be viewed as a kickback and is prohibited in most states.

Question 4

Define

Reinsurance

Answer 4

Reinsurance:

The act of subcontracting a risk (or part of a risk) from one insurance company to another insurance company. The insurer that writes the business is referred to as the originating (ceding) insurer and the company that accepts or assumes the risk is referred to as the reinsurer.

Question 5

Define

Reinsurance

Answer 5

Reinsurance:

The act of subcontracting a risk (or part of a risk) from one insurance company to another insurance company. The insurer that writes the business is referred to as the originating (ceding) insurer and the company that accepts or assumes the risk is referred to as the reinsurer.

Question 6

Define

Replacement Cost

Answer 6

Replacement Cost:

• *The cost to replace a damaged or destroyed item of property, without deduction for depreciation.**
• *This method of settlement goes beyond the concept of indemnification, where the insurer agrees to replace lost or damaged property with new property, without consideration for depreciation or prior use of that property.**

Question 7

Define

Reporting Form

Answer 7

Reporting Form:

• *Type of policy where the actual premium charged may not be determined until after the fact.**
• *(1) Property coverages - The insured pays an initial (deposit) premium based upon an estimate, then submits periodic reports to the insurer showing the status of the factors on which the premium is based. From these status reports, premiums are calculated and charged against the deposit.**

(2) Liability coverages - The insured pays an initial (deposit) premium based upon an estimate of the liability exposure during the policy period. At the end of the policy period in either case (1) or (2), the insurer does a premium audit to determine the actual loss exposure and makes an appropriate adjustment in the final premium for the policy period. Either the insured owes an additional premium or the insurer is obligated to a refund.

Question 8

Define

Representation

Answer 8

Representation:

Statements on an insurance application that the applicant believes are true to the best of the applicant’s knowledge and belief; a statement of fact, but not a guarantee (warranty) of fact. A representation is not considered a matter to which the parties contract, so a policy cannot be voided on the basis of a representation.

Question 9

Define

Retention Limit

Answer 9

Retention Limit:

Under an Umbrella policy, the amount the insured must pay for a loss, where coverage is not provided by an underlying policy, before the Umbrella will begin to cover the loss. Also called the self-insured retention limit.

Question 10

Define

Retroactive Date

Answer 10

Retroactive Date:

Under the claims-made Commercial General Liability (CGL) form, a date stipulated in the Declarations as the first date on which an event may occur and be covered by the policy if a claim is filed. A Retroactive date may be on or before the effective date of the policy.

Question 11

Define

Retrospective Rating

Answer 11

Retrospective Rating:

Type of merit rating that bases the insured’s premium on potential exposures and/or losses incurred during the policy period. Under a Retrospective Rate, the insured makes a Deposit Premium based on an estimate and at the end of the policy period there is a Premium Audit (look-back) to determine the actual exposure and/or losses incurred during the policy period, with a appropriate adjustment (up or down) in the actual premium for the policy period.

Question 12

Define

Risk

Answer 12

Risk:

The chance or uncertainty of loss.

Question 13

Define

Robbery

Answer 13

Robbery:

The taking or attempted taking of property by one who has caused or threatened to cause bodily harm, or committed a witnessed, obviously unlawful act.

Question 14

Define

Salvage

Answer 14

Salvage:

Damaged property that can be retrieved, reconditioned and sold to reduce an insured loss. In the event an insurer pays for or replaces damaged property, the insurer has the right to the damaged property for its salvage value.

Question 15

Define

Scheduled Coverage

Answer 15

Scheduled Coverage:

Property that is specifically listed in the Declarations and covered for a specific amount.

Question 16

Define

Self-Insurance

Answer 16

Self-Insurance:

Alternative to purchasing insurance where a company or individual assumes the risk of paying for its losses and sets aside the necessary funds to pay for such losses. In its the most basic premise, if an individual chooses not to buy insurance, whether setting money aside or not, they are choosing to self insure. A deductible is a form of self-insurance.

Question 17

Define

Self-Insured Retention

Answer 17

Self-Insured Retention:

See Retention Limit

Question 18

Define

Service Bureau

Answer 18

Service Bureau:

Organization that gathers, pools and analyzes statistics from its member insurance companies to establish loss costs used to determine insurance rates.

Question 19

Define

Short Rate

Answer 19

Short Rate:

In the event an insured cancels insurance prior to its expiration date, the insurer will refund unearned premium minus an administration (handling) fee, referred to as the short rate.

Question 20

Define

Single Limit

Answer 20

Single Limit:

See Combined Single Limit.

Question 21

Define

Solicitor

Answer 21

Solicitor:

A Solicitor License is a limited class license, not available in all states. A solicitor is sponsored by a licensed insurance producer or agency; a solicitor is not appointed by the insurance company. A solicitor may solicit, sell or procure applications for insurance, but only for insurance companies which have appointed the sponsoring insurance producer/agency. A solicitor cannot bind coverage or issue policies.

Question 22

Define

Special Coverage

Answer 22

Special Coverage: See Open Peril Policy

Question 23

Define

Special Damages

Answer 23

Special Damages:

Type of compensatory damages that reimburse the injured party for direct and specific expenses involved in the loss, such as medical expenses and lost wages.

Question 24

Define

Specified Causes Of Loss

Answer 24

Specified Causes Of Loss:

One of the Physical Damage coverage options in the Commercial Auto coverage forms; provides more limited coverage than Comprehensive coverage, insuring only against specified (named) perils.

Question 25

Define

Speculative Risk

Answer 25

Speculative Risk:

A risk that may result in a loss or gain. Speculative risk is not an insurable exposure.

Question 26

Define

Split Limits

Answer 26

Split Limits:

Automobile policy limit that provides separate limits for BI and PD.

Question 27

Define

Standard & Poor’s

Answer 27

Standard & Poor’s:

Organization that rates the financial stability of businesses, including insurance companies doing business in the United States. Similar to obtaining a credit report on an individual, Standard & Poor’s provides a credit report on a business.

Question 28

Define

Standard Of Care

Answer 28

Standard Of Care:

See Degree of Care

Question 29

Define

Stated Value

Answer 29

Stated Value:

See Agreed Value

Question 30

Define

Statute Of Limitations

Answer 30

Statute Of Limitations:

Law that provides that certain types of suits must be brought within a specified time of the occurrence to be valid under the law.

Question 31

Define

Stock Company

Answer 31

Stock Company:

An insurance company owned by its stockholders. Policyholders are not entitled to share in company profits.

Question 32

Define

Strict Liability

Answer 32

Strict Liability:

Strict liability makes a person legally liable for loss or damage regardless of fault. Strict liability is a form of Absolute Liability generally associated with “product liability.”

Question 33

Define

Subrogation

Answer 33

Subrogation:

The transfer to the insurance company of the insured’s right to collect damages from another (third) party. If someone else damages the insured’s property and the insured makes a claim with his/her own insurance company, the insured is then required to transfer his/her rights of recovery against the negligent party to the insurer to the extent of its payment on the claim.

Question 34

Define

Supplementary Payments

Answer 34

Supplementary Payments:

Provides extra coverage over and above the insured’s limit of insurance (liability). Commonly included are defense costs, first aid expense to others, payment of bonds, and post judgment interest.

Question 35

Define

Surety

Answer 35

Surety:

In bonds, the party (often the insurance company) that agrees to be responsible for loss that may result if the principal (contractor) does not fulfill his/her obligation (promise).

Question 36

Define

Surplus Lines Producer

Answer 36

Surplus Lines Producer:

An insurance producer licensed by the state to handle the placement of business with Surplus Lines (non-admitted) insurers. Also known as Excess Lines.

Question 37

Define

Theft

Answer 37

Theft:

A broad term encompassing any unlawful taking of property, including burglary, robbery and taking of property undetected (by stealth). Coverage forms usually excludes employee dishonesty and mysterious disappearance under this definition.

Question 38

Define

Third Party Loss

Answer 38

Third Party Loss:

A Liability loss. A claimant (third party) brings a claim against the insured (the first party), which is then paid, up to the limit of liability insurance carried, by the insurer (the second party to the contract).

Question 39

Define

Tort

Answer 39

Tort:

A civil wrong for which monetary damages may be provided. Does not include losses arising out of contracts or intentional acts.

Question 40

Define

Transfer Account

Answer 40

Transfer Account:

An account maintained by the insured at a financial institution from which, the insured can initiate the transfer, payment or delivery of funds, e.g. bank checking account.

Question 41

Define

Trespasser

Answer 41

Trespasser:

A person who is on the premises without the owner’s express or implied permission.

Question 42

Define

Trigger

Answer 42

Trigger:

See Coverage Trigger.

Question 43

Define

Twisting

Answer 43

Twisting:

Prohibited activity in which an insurance producer convinces a prospect to cancel existing insurance and buy another policy, which is generally done for the insurance producer’s good and not necessarily for the customer’s good and in fact, could be to the detriment of the insured. By definition; replacement without full disclosure is defined as twisting.

Question 44

Residual Market Insurance

Answer 44

Residual Market Insurance:

• *Residual market insurance is insurance provided by or subsidized by a state or federal government**
• *or agencies thereof; or proportioned among member insurers doing business within this state.**

Question 45

Required Capitalization

Answer 45

Required Capitalization: The minimum combined paid-up capital and surplus required of a stock
insurer, or the minimum surplus so required of an insurer without capital stock.

Question 46

State

Answer 46

• *State: When used to signify a jurisdiction other than this State, state means any state, district, territory,**
• *commonwealth, or possession of the United States.**