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Flashcards in General Insurance Deck (40):
1

What is insurance?

A contract in which the insurance company agrees to indemnify the insured against loss

2

What does insurance do?

Transfers the risk of loss from an individual or business entity to an insurance company

3

Risk

Uncertainty or chance of loss occurring

4

Pure risk

Situations that can only result in a loss or no change (insurable)

5

Speculative risk

Opportunity for loss or gain (not insurable)

6

Hazard

Situations that increase the probability of an insureds loss occurring

7

Peril

Causes of loss

8

Loss

Reduction, decrease, or disappearance of value caused by a peril

9

Avoidance

Eliminating exposure to a loss

10

Retention (self-insurance)

Planned assumption of risk through the use of deductibles, copayments, or self-insurance

11

What is the purpose of retention?

1. Reduce expenses and improve cash flow
2. Increase control of claim reserving and claims settlements
3. Fund for losses that cannot be insured

12

Sharing (reciprocal)

Dealing with risk for a group of individuals or businesses with the same exposure to loss to share the losses that occur within that group

13

Reduction

Reducing the chance of loss. Ex-installing a smoke detector

14

Transfer

Transfer risk so another loss is borne by another party. Purchasing of insurance relieves the insured of the financial losses risks bring.

15

Insurable risks

-due to chance
-definite and measurable
-statistically predictable
-not catastrophic
-randomly selected and large loss exposure

16

Adverse selection

Poorer risks tend to seek insurance to a greater extent than better risks

17

Law of large numbers

The larger the number of people with a similar exposure to loss, the more predictable actual losses will be

18

Stock companies

Owned by stockholders who share in any profits or losses (private)

19

Nonparticipating policies

Policy owners do not share in profits or losses and do not receive dividends. Taxable dividends are paid to stockholders

20

Participating policies

Issued by mutual companies in which policy owners are entitled to dividends (return of premiums) which are nontaxable.

21

Independent rating services

-AM Best
-Fitch
-Standard and Poor's
-Moody's
-Weiss

22

Express authority

Written in the contract

23

Implied authority

Not written in the contract but is assumed to have in order to conduct business

24

Apparent authority

Appearance of authority based on actions, words, or deeds

25

Fiduciary responsibility

It is illegal for insurance producers to commingle premiums with personal funds

26

Offer

Offer is made when applicant submits the application

27

Acceptance

Takes place when an underwriter approves the application and issues a policy

28

Consideration

Something of value that each party gives to the other

29

Contract of adhesion

Contracts are offered on a "take-it-or-leave-it" basis

30

Aleatory contract

Exchange of unequal amounts or values

31

Unilateral contract

Only one of the parties is legally bound to do anything

32

Conditional contract

Certain conditions must be met by policy owner and company in order for contract to be executed

33

Indemnity

The purpose of insurance is to restore, but not let an insured or beneficiary profit from the loss

34

Representations

Statements believed to be true to the best of ones knowledge

35

Misrepresentations

Untrue statements (lies) on the application

36

Warranty

An absolutely true statement upon which the validity of the insurance policy depends

37

Concealment

Intentional withholding of information

38

Fraud

Intentional misrepresentation or intentional concealment

39

Waiver

Voluntary act of giving up a legal right

40

Estoppel

Legal consequence of a waiver