2 - Terms and Concepts Flashcards
Risk
-uncertainty of a financial loss
speculative risks
- uninsurable
- financial gain or loss
pure risk
- chance of loss
- insurable
Risk Management Methods
- Risk Avoidance
- Risk Assumption
- Risk Transference
- Risk Sharing
- Risk Reduction
Hazard
-any circumstance that increases a possible loss (peril)
3 main Hazards
- Physical
- Moral
- Morale
Exception Hazard for Property
- “ordinance or law”
- would limit any compensation for temporary inability to occupy your home (sinkhole)
Peril
-cause of loss
Economic Loss
-total estimated cost to a person or business resulting from the damage or destruction of property or from a liability risk
Indemnity
- compensation for a loss
- “put-back”
- not designed to place insured in a better financial position than before the loss occurred
Insurable Interest
-expectation of a financial loss that can be covered by insurance
Deductible
-amount paid after a loss by the insured
Direct Loss
-a property loss by an unbroken chain of events from a covered peril
Indirect Loss (Loss of Use)
- a loss that is not a direct result of a covered peril
- ex. loss of business earnings due to property damage
Proximate Cause
-may be used in conjunction with direct or indirect losses
Named Perils
-contracts under which perils covered are specifically listed
Open Perils
- contracts that cover all perils unless specifically excluded
- “All Risk of Perils”
Specific Coverage
- single insurance for only one kind of property at only one location of an insured
- ex. rare antique in a home
Blanket Coverage
-single policy on the insured’s property for more than one type of property
4 methods of property loss valuations
- Actual Cash Value (ACV)
- Replacement Cost
- Functional Replacement Cost
- Salvage Value
Actual Cash Value (ACV)
- cost of replacing damaged/destroyed property with comparable new property minus depreciation
- insurer not required to pay more than ACV on total building losses
If an insured was carrying more coverage than the actual loss on building…
-the insurer is required to refund the overpaid premium with an addition of 6% interest/year
Functional Replacement Cost
-amount needed to put a building back the the functional manner before the loss occurred
Salvage Value
-amount for which an insurance company can sell recovery property after paying damages to the insured
