Chapter 1: Insurance terms And Related Concepts Flashcards
(68 cards)
What is insurance?
The transfer of pure risk from one party to another for a price through a legal contract that spells out the terms, the losses covered, the losses that are not covered, and other specific provisions.
What does property insurance cover?
Coverage for real and personal property against loss or damage from perils and consequential loss.
What is casualty insurance?
Protects a person from financial loss arising from bodily injury or property damage to others arising out of:
* Operation of a motor vehicle
* Ownership of property
What are personal lines in insurance?
Insurance for families and individuals. Examples include auto and homeowner’s policies.
What are commercial lines in insurance?
Insurance for businesses of any size. Examples include Commercial General Liability and Business policies.
What are reserves in insurance?
Money set aside by insurance companies to pay policyholders who have filed legitimate claims on their policies.
True or False: Reserves are used to pay claims that have yet to be settled.
True
Fill in the blank: A claim reserve is an estimation of the money that will eventually be paid for the costs associated with that _______.
claim
What is exposure in the context of insurance?
Exposure is the actual condition or situation that presents a possibility of loss.
Give an example of exposure.
A home built on a flood plain is exposed to the possibility of flood damage.
What is adverse selection?
Adverse selection is the tendency for people with a greater than average exposure to loss to purchase insurance.
Define proximate cause.
Proximate cause is the cause that was responsible for the loss, either directly or indirectly, through the chain of events.
What must be true for a loss to be covered in insurance?
The insured peril must be the cause or within the chain of events that links the proximate cause to the loss.
Who is referred to as the insured?
The insured, or policyholder, is the person, business, or other entity whose interest is protected in the policy.
What is a named insured?
The named insured is the person, business, or entity named in the declarations to which the policy is issued.
What does the term insurer refer to?
The term insurer refers to the Insurance Company.
What is the policy period?
The policy period is the date and time specified on the Declarations Page at which coverage begins and ends.
What happens if material information is concealed?
The insurer may void the contract.
What is fraud in the context of insurance?
Fraud is the intentional lying or misrepresentation by policyholders to inflate a claims payment or receive a claims payment that would otherwise not be paid.
What is a binder in insurance?
A binder is a temporary contract pending the issue of the policy.
What is the typical duration for written binders?
The period for written binders is usually 30 days but rarely more than 60 days.
What is a deductible in insurance?
The portion of a loss considered to be the responsibility of the insured, subtracted from the total value of the claim.
What is subrogation?
The transfer to the insurance company of the insured’s right to collect damages from another after paying a claim.
What does the principle of indemnity state?
When a loss occurs, an individual should be restored to the approximate financial condition they were in before the loss.
