Definitions Flashcards
Insurance
A contract that binds the insurer to indemnify (compensate) the insured against specified types of loss in return for money (premiums).
Law of Large Numbers
A theory that states that it is more likely to predict a particular outcome as the number of units in a group increases.
Ie., the bigger the observed sample, the more accurate the predicted results will be.
Indemnity
The underlying principle of insurance, which is restoring an insured to the same financial position that existed before a loss occurred.
To compensate to same financial position before loss.
Loss
The source of a claim for damages under an insurance policy.
Ie., financial loss due to loss of property, loss of loved one, losses due to medical problems.
Direct physical loss
A loss in which damage occurs as a result of an occurrence without an intervening cause.
Intervening cause
An event that interrupts the chain of causation by providing an independent cause of the final result.
Indirect or consequential loss
Loss in which damage occurs as a result of direct loss.
Insurance interest
The concept that insurance can be purchased when the applicant has a potential for financial loss
Insurable interest must be present at the time of loss and present as the time of application.
Risk
Meaning 1: the property or party that is insured
Meaning 2: the uncertainty of loss
Pure risk
A situation that only involves the chance for loss or no loss.
Such as property ownership.
This risk is insurable
Speculative risks
Are situations that involves the chance for either a loss or a gain
Such as gambling
This risk is uninsurable.
Premium
Money paid for insurance
Negligence
A conduct that is culpable because it misses the standard required by law of a reasonable person.
Failing to do something a reasonable person would do
Doing something a reasonable person would not do.
Self insurance
The making of financial preparations to meet risks by setting aside sufficient funds in advance to meet estimated losses
No insurance policy purchased
Applicant
The individual who applies for insurance is the applicant
Insurer
Another name for insurance company
Insured person
1) any member of the insured household who is a relative or is under 21.
2) a child or parent living with the insured, regardless of age
3) any other member of the insured household who is under the age of 21
Name insured
Person(s) listed as an insured in the Declarations page
First name insured
The first insured listed and the person in charge of correspondence. Such as renewal notices and policy changes
Additional insured
An individual or entity who other than the named insured qualifies as an insured under the policy.
Usually applies for mortgage or a business arrangement
Agent/producer
An individual who is state licensed to solicit and sell insurance for one or more insurance companies.
Must be authorized by an insurer (principal) to act on its behalf
Principal
Insurer
Policy owner
1) applies for a policy
2) takes responsibility for premium payment
3) right to cash values, dividends and policy process
4) ability to change beneficiaries and other policy particulars
Binder
A written or oral contact made by agent to put a policy immediately but temporarily for a specified period of time until accepted or cancelled by the insurance company.
A promise to pay within certain time frame
