Section A-G. Insurance Terminology

Question 1

Insurance

Answer 1

Transfer of risk from a person or organization to an insurance company.

Question 2

Indemnity

Answer 2

The principle to restore the insured to the pre-loss economic or financial condition

Question 3

Insurable Interest

Answer 3

Proof that someone stands to lose financially if a loss occurs. Must exist at the time of the loss in property and casualty insurance.

Question 4

Binder

Answer 4

Temporary insurance contract; commits the company to act as if a policy has been issued.

Question 5

Perils

Answer 5

Cause of loss.

Question 6

Direct Loss

Answer 6

Immediate actual physical damage to tangible property.

Question 7

Indirect Loss

Answer 7

Inability to use property as a results of a direct loss (only paid if DIRECT LOSS is covered).

Question 8

Risk

Answer 8

Chance of loss; uncertainty of loss.

Question 9

Speculative Risk

Answer 9

Involves the simultaneous chance of gain or loss; it is NOT insurable (only pure risk is insurable).

Question 10

Physical Hazard

Answer 10

Visible condition that increases the chance of loss (i.e. bald tires).

Question 11

Morale Hazard

Answer 11

Attitude of carelessness or indifference to loss

Question 12

Insurer

Answer 12

The insurance company (aka 2nd party to the contract)

Question 13

Named Insured

Answer 13

A party named on the declarations who is purchasing the insurance policy (aka 1st party to the contract)

Question 14

Insured

Answer 14

Who the insurer promises to protect in additional to the named insured.

Question 15

Limit of Liability

Answer 15

The maximum amount that can be paid for a covered loss (aka policy limit or face value).

Question 16

Consideration

Answer 16

An exchange of value between parties to contract.

Question 17

Waiver

Answer 17

The VOLUNTARY relinquishment of a known right.

Question 18

Estoppel

Answer 18

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).

Question 19

Concealment

Answer 19

Insured or prospect DELIBERATELY WITHHOLDING material information from the insurer… voids the coverage (NOT the same as material representation).

Question 20

Material Misrepresentation

Answer 20

Insured or prospect giving incorrect material information to the insurer… voids coverage (NOT the same as concealment).

Question 21

Warranties

Answer 21

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

Question 22

What do you find in the DECLARATIONS page?

Answer 22

• Premium
• Policy Period
• Property Description
• Parties (1st, 2nd, Lienholder)
• Policy Limits (Limits of Liability/Face Amount & Deductible)
• Territory

Question 23

What do you find in the INSURING AGREEMENT?

Answer 23

• Insurer’s promise to pay

- Cause of Loss (Perils Covered… Basic & Broad Forms)

Question 24

What do you find within the CONDITIONS of an insurance policy?

Answer 24

• Territory
• Subrogation rights
• Rights of Salvage
• Duty to defend
• Other insurance (Pro rata liability clause)

Question 25

What do you find within the EXCLUSIONS of an insurance policy?

Answer 25

Perils, property not covered, or both (GWOWPENNI)

Question 26

What do you find within the ENDORSEMENTS of an insurance policy?

Answer 26

• Only approved/issued by underwriter
• Normally requires additional premium
• Only way to add, delete, and modify coverage (BUT NOT CANCEL POLICY).

Question 27

Blanket Form

Answer 27

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.

Question 28

Vacant

Answer 28

Occurs when premises are empty and no furnishings or occupants are present.

Question 29

Unoccupied

Answer 29

Occurs when there is no occupant present within a building/dwelling/premises, but furnishings remain and the occupant intends to return.

Question 30

Package Policy

Answer 30

When we insure two or more lines of insurance coverage in a single policy.

Question 31

Monoline Policy

Answer 31

When we insure one line of insurance coverage in a single policy.

Question 32

Co-Insurance

Answer 32

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.

Question 33

Punitive Damage

Answer 33

Purpose is to punish the wrongdoer due to his/her gross negligence.

Question 34

General Damages

Answer 34

Compensate for non-economic loss, like pain and; suffering.

Question 35

Tort

Answer 35

Defined as a civil wrong other than a breach of contract (NON-criminal).

Question 36

Absolute Liability

Answer 36

Liability without fault.

Question 37

Strict Liability

Answer 37

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.

Question 38

Vicarious Liability

Answer 38

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

Question 39

Negligence

Answer 39

The failure to act in a reasonable and prudent manner.

Question 40

Proximate Cause

Answer 40

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.