What is insurance?

Question 1

Insurance

Answer 1

Protects financially from unforeseen and extraordinary losses by transferring risk to another party.

-Collected premiums go into a pool. Insured can file a claim for covered losses (Insured becomes “claimant”). Insurer pays for claims out of pool, which should always be enough to cover losses.

Question 2

Principle of Indemnity

Answer 2

Restoration to approximate previous financial condition; no more, no less. Applies to repairs to property, reimbursement for additional living expenses, rental cars, hotels, costs directly associated with a loss, as allowed under the policy.

Question 3

Premium

Answer 3

Fee paid by the insured in exchange for an insurance policy.

Question 4

Insurance policy contract

Answer 4

• To provide financial protection for a fee.
• 4 elements that make a contract legal:
• Agreement (Offer & Acceptance: Intent to enter into contract, unconditional, original offeree is only one who can accept)
• Consideration (all bring value)
• Competent Parties
• Legal Purpose

Question 5

What can terminate an offer?

Answer 5

1. ) Revocation by offeror
2. ) Rejection by offeree (explicit rejection, proposal of new offer, counteroffer)
3. ) Time lapse
4. ) Termination by operation of law (party dies or disabled, performance of contract becomes illegal, subject matter is destroyed)

Question 6

Insured

Answer 6

Individual or organization that pays premiums in exchange for protection.

Question 7

Insurer

Answer 7

Company, group, or government agency offering financial protection.