Section A-G. Insurance Terminology Flashcards
Insurance
Transfer of risk from a person or organization to an insurance company.
Indemnity
The principle to restore the insured to the pre-loss economic or financial condition
Insurable Interest
Proof that someone stands to lose financially if a loss occurs. Must exist at the time of the loss in property and casualty insurance.
Binder
Temporary insurance contract; commits the company to act as if a policy has been issued.
Perils
Cause of loss.
Direct Loss
Immediate actual physical damage to tangible property.
Indirect Loss
Inability to use property as a results of a direct loss (only paid if DIRECT LOSS is covered).
Risk
Chance of loss; uncertainty of loss.
Speculative Risk
Involves the simultaneous chance of gain or loss; it is NOT insurable (only pure risk is insurable).
Physical Hazard
Visible condition that increases the chance of loss (i.e. bald tires).
Morale Hazard
Attitude of carelessness or indifference to loss
Insurer
The insurance company (aka 2nd party to the contract)
Named Insured
A party named on the declarations who is purchasing the insurance policy (aka 1st party to the contract)
Insured
Who the insurer promises to protect in additional to the named insured.
Limit of Liability
The maximum amount that can be paid for a covered loss (aka policy limit or face value).
Consideration
An exchange of value between parties to contract.
Waiver
The VOLUNTARY relinquishment of a known right.
Estoppel
If an agent tells an insured there is a coverage for a loss when there is no suck coverage, then the insurer is prevented from denying the claim (this is a court action… INVOLUNTARY).
Concealment
Insured or prospect DELIBERATELY WITHHOLDING material information from the insurer… voids the coverage (NOT the same as material representation).
Material Misrepresentation
Insured or prospect giving incorrect material information to the insurer… voids coverage (NOT the same as concealment).
Warranties
A WRITTEN condition in the policy that must be true at the time of the loss; a breach will suspend coverage resulting in a denial of claim
- PERSONAL LINES/HOMEOWNER example… Sprinkler system
- BUSINESS example… Fire-proof box for valuable documents
What do you find in the DECLARATIONS page?
- Premium
- Policy Period
- Property Description
- Parties (1st, 2nd, Lienholder)
- Policy Limits (Limits of Liability/Face Amount & Deductible)
- Territory
What do you find in the INSURING AGREEMENT?
- Insurer’s promise to pay
- Cause of Loss (Perils Covered… Basic & Broad Forms)
What do you find within the CONDITIONS of an insurance policy?
- Territory
- Subrogation rights
- Rights of Salvage
- Duty to defend
- Other insurance (Pro rata liability clause)
What do you find within the EXCLUSIONS of an insurance policy?
Perils, property not covered, or both (GWOWPENNI)
What do you find within the ENDORSEMENTS of an insurance policy?
- Only approved/issued by underwriter
- Normally requires additional premium
- Only way to add, delete, and modify coverage (BUT NOT CANCEL POLICY).
Blanket Form
Covers, by a single amount of insurance protection, the same kind of property in different locations or different types of property at a single location. This means that several buildings in different locations may be insured under a single policy, or stocks of merchandise located in different warehouses may be covered under a single form.
Vacant
Occurs when premises are empty and no furnishings or occupants are present.
Unoccupied
Occurs when there is no occupant present within a building/dwelling/premises, but furnishings remain and the occupant intends to return.
Package Policy
When we insure two or more lines of insurance coverage in a single policy.
Monoline Policy
When we insure one line of insurance coverage in a single policy.
Co-Insurance
The condition in a policy that encourages the insured to carry enough insurance. The most common co-insurance requirement is 80%. If the insured has a partial loss and the co-insurance requirement is not met, then a PENALTY applies.
Punitive Damage
Purpose is to punish the wrongdoer due to his/her gross negligence.
General Damages
Compensate for non-economic loss, like pain and; suffering.
Tort
Defined as a civil wrong other than a breach of contract (NON-criminal).
Absolute Liability
Liability without fault.
Strict Liability
Is present when an insured knew about her product’s defect, which was reasonably dangerous, and the defect was the proximate cause of the claimant’s injury.
Vicarious Liability
Insured is responsible for the actions of the wrongdoer.
1) Employer responsible for actions of employee
2) Parent responsible for actions of minor child
3) Pet owner responsible for actions of pet
Negligence
The failure to act in a reasonable and prudent manner.
Proximate Cause
One of the 4 tests used to establish a charge of negligence by the wrongdoer. Defined as the first event/action by wrongdoer that set into motion what ultimately caused the loss.
