Terms and Related Concepts Flashcards
18% of General Casualty Exam
Depreciation
Reduction in value, particularly due to wear and tear
Exposure
Susceptibility to risk
Implied Warranty
A legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer’s expectations
Insurance Policy
A contract between a policy owner (and/or insured) and an insurance company that agrees to pay the insured or the beneficiary for loss caused by specific events
Insurer (Principal)
The company that issues an insurance policy
Obsolescence
Depreciation in the value of a property due to becoming outdated
Premium
The money paid to the insurance company for the insurance policy
Law of Large Numbers
Forms the basis for statistical predictions of loss upon which insurance rates are calculated by looking are a large group of similar risks and setting premiums accordingly. (The more people in a risk pool, the more predictable future losses become)
Insurance
The transfer of risk of loss. (Insured’s loss is transferred over to the insurer and spread among other insureds)
Three elements of Insurable Risk
Financial (a monetary interest); Blood (a relative); Business (a business partner)
In property and casualty insurance, when must insurable interest exist?
At the time of the loss
Risk
The chance of a loss occurring.
Pure Risk
Refers to situations that can only result in a loss of no change and there is no opportunity for financial gain. This is the only risk that insurance companies are willing to accept.
Speculative Risk
Involves the opportunity for either loss or gain (ex. Gambling). These risks are not insurable.
Hazard
Conditions or situations that increase the probability of an insured loss occurring.
Physical Hazards
Hazards that arise from the material, structural, or operational features of the risk, apart from the persons owning or managing it
Moral Hazards
Hazards that refer to those applicants that may lie on an insurance application, or in the past, have submitted fraudulent claims against an insurer.
Morale Hazard
Hazard that refers to an increase in the hazard presented by a risk, arising from the insured’s indifference to loss because of the existence of insurance. (Ex. I’m not going to fix this. If it breaks, my insurance will pay to replace it)
Indemnity
Reimbursement. A provision in an insurance policy states that in the event of loss, an insured or a beneficiary cannot recover more than their loss. (Will only receive amount to cover loss and shall not make any money in the process)
Accident vs. Occurrence
An accident is a sudden, unplanned, and unexpected event resulting in injury or damage. An occurrence includes losses caused by continuous or repeated exposure to conditions resulting from injury or property damage.
Negligence
The failure to use the care that a reasonable, prudent person would have under the same or similar circumstances
Special Damages
Out-of-pocket expenses for medical, miscellaneous expenses, or loss of wages
General Damages
Compensate an injured person for pain and suffering, mental anguish, or disfigurement
Punitive Damage
Punishment for extreme behavior, gross negligence, or willful intent
4 Elements of Negligence
Legal duty, Standard of care, Unbroken chain of events, and Actual loss or damage
Absolute Liability
Imposed upon a person or company engaged in hazardous or potentially dangerous business who, by negligence or by an omission, causes harm or injury to another person or property. (Owning a swimming pool, selling explosives, wild animals, etc.) The injured party does not need to prove negligence.
Strict Liability
Commonly applied to product liability cases. A business that manufactures or sells a product and makes an implied warranty that the product is safe. The business is liable for the defective product regardless of negligence.
Loss Valuation
A factor in determining the premium charged and the amount of insurance required
Actual Cash Value (ACV)
A Method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of the property as it ages and becomes subject to wear and tear and obsolescence. Current Replacement Cost - Depreciation = ACV
Market Value
Seldom-used method of valuing a loss. This method takes into consideration the value of land and location, rather than just the cost of rebuilding the structure itself.
Agreed Value
A property policy that works best for items whose value does not fluctuate much. When a loss occurs, the policy pays the agreed value as specified on the policy schedule regardless of the insured item’s appreciation or depreciation.
Stated Amount
An amount of insurance scheduled in a property policy. This scheduled amount is the maximum amount the insure will pay in the event of a loss.
Salvage Value
The estimated value an asset will realize upon its sale at the end of its useful life. A property can be sold as a whole or in part. (Ex. car may be beyond repair as a whole, but some parts may be salvageable and sold)
Deposit Premium Audit
Insurers may audit the insured’s books and records to determine adequate premiums.
Certificate of Insurance
Written evidence showing the insurance policy has been issued and lists amounts and types of insurance provided.
Binders
Temporary contract of insurance. Places insurance in effect before it is issued
Warranty
Absolutely true statements on which the insurance policy depends
Representations vs Concealment
Representations are statements believed to be true to the best of one’s knowledge, but not guaranteed. These are the insured’s statements on the application
A Concealment is intentionally holding information about a material fact
Fair Credit Reporting Act
Administered by Federal Trade Commissions to protect consumers from distributing false or obsolete personal financial information
Vicarious Liability
Transfers liability from one person to another person who would probably have a greater ability to pay. (Parents liable for children/Employer liable for employee)
Peril
Cause of loss
Named Peril
Describes the coverage provided under an insurance policy form that lists specific covered perils. (No coverage provided for unlisted perils)
Special (Open) Peril
Describes the breadth of coverage provided under an insurance policy form that insured against any risk of loss that is not specifically excluded (Replaced term “all risks”)
Direct vs. Indirect Loss
Direct Loss - direct physical damage to buildings and/or personal property
Indirect Loss (Consequential) - losses as a result of direct loss (Ex. paying for extra living expenses while the home is being repaired)
Blanket vs Specific Coverage
Blanket Insurance - a single property insurance policy that covers multiple classes of property at one location.
Specific Insurance - a property insurance policy that covers a specific kind of unit of property for a specific amount of insurance.
Limits of Liability (5)
Per occurrence (accident) - max on the payment that arises from a single accident
Per person - max amount for payment of bodily injury to a single person regardless of the policy limit
Aggregate - max limit of coverage available under a liability policy during a policy year. Losses paid under coverages subject to aggregate limits reduce the amt available for future losses. (Restored at the anniversary of policy)
Split - separately stated limits of liability for different coverages. (one person/
Combined - single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.
Coinsurance
in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. (Example: 80% coinsurance - for a $100,000 building, the insured would have to carry at least 80,000 of insurance to meet the requirement.)
Insurance to value
replacement cost settlement for policyholders who carry minimum insurance.
