Insurance Concepts and Principals Flashcards
Studying Insurance Terms and Definitions (121 cards)
1
Q
A social device for spreading the chance of financial loss among a large number of people?
A
Insurance
2
Q
Combining a large number of Homogenous units, the insurer is able to make predictions of possible loss.
A
The Law of Large Numbers
3
Q
The process of selecting certain tupes of risks that have historically produced a profit and rejecting those risks that do not fit the criteria of the insurer.
A
Underwriting
4
Q
Filed with the states based on loss ratios of the various classes of risks. Many components are involved with rate filing.
A
Insurers Rates
5
Q
Describes insurance that pays the insured for loss of property that is named in an insurance policy.
A
Property Insurance
6
Q
Insurance that pays a third party for a claim caused by the negligence of the insured.
A
Liability Insurance
7
Q
Includes the identity and address of the named insured, the policy term or period, the amount of insurance or limits of liability, the policy premium, and any applicable deductibles.
A
Declarations
8
Q
Describes the covered perils, or risks assumed, or nature of coverage, or makes some reference to the contractual agreement between insurer and insured.
A
Insuring Agreement
9
Q
Sets provisions, rules of conduct, duties, and obligations for the parties. A number of common insurance conditions describe such things as the policy period and territory, the insured’s obligation to provide proof of loss, how settlements are handled when other insurance is involved.
A
Conditions
10
Q
Describe property, perils, hazards, or losses arising from specific causes that are not covered by the policy.
A
Exclusions
11
Q
Defines important terms used in the policy language.
A
Definitions
12
Q
These may alter the content of the declarations and insuring agreement, and they may contain conditions, exclusions, and definitions.
A
Endorsements
13
Q
Forms that have been filed by Insurance Services Office, Inc. (ISO) to the individual insurance departments for approval.
A
Standardized Policies
14
Q
A potential cause of loss.
A
Peril
15
Q
Anything that increases the seriousness of a loss or increases the likelihood that a loss will occur.
A
Hazard
16
Q
A loss that is a direct consequence of a particular peril.
A
Direct Loss
17
Q
A loss that is a result of a covered peril but is not caused directly and immediately by that peril.
A
Indirect Loss
18
Q
If the insurer pays a loss on behalf of the insured, the insurer is entitled to the salvage to reduce the claim.
A
Salvage
19
Q
The insured cannot simply abandon the property to the insurance company in exchange for the full-insured value.
A
Abandonment
20
Q
This is a loss settlement condition that appears in many property insurance contracts including inland marine. It states that if part of a pair or set is lost or damaged, the loss will be valued as fair proportion of the total value of the set, giving consideration to the importance of the damaged article to the set.
A
Pair or Set Clause
21
Q
This is the self-insured part of an insured loss. Usually applies to first party claims such as property claims or auto physical damage claims. The insured must bear this loss.
A
Deductible
22
Q
The building is void of contents and people.
A
Vacancy
23
Q
The premises are void of people. In most cases this will not affect the coverage provided by the policy.
A
Unoccupancy
24
Q
An insurance policy cannot be assigned to another party without the consent of the insurance company.
A
Assignment Clause
25
A clause in property/casualty insurance contracts which states that if policy or endorsement forms are broadened and no additional premium is required, then all existing similar policies or endorsements will be construed to include the broadened coverage.
Liberalization
26
Serve as temporary evidence that coverage is in effect until the policy is issued.
Binder
27
In cases where more than one policy is in force, the primary policy pays first.
Primary Insurance
28
An insurance policy that pays benefits only when coverage under other applicable insurance policies has become exhausted.
Excess Insurance
29
A sudden and unforeseen event resulting in a financial loss.
Accident
30
A sudden and unforeseen event resulting in financial loss. May also be a continuous or repeated exposure to an event that results in a financial loss.
Occurrence
31
Policies may contain one or both of these clauses to facilitate an agreement when the insured and the insurer cannot agree on the value of the claim.
Appraisal and Arbitration
32
When the dispute involves a property claim, both parties select an appraiser to determine the value of the loss. If the appraisers cannot agree, then an umpire is selected to make the decision. The insured and insurer each pay for their own appraiser and share the cost of the umpire.
Appraisal Clause
33
This clause usually appears in automobile policies to resolve disputes for uninsured/underinsured motorist claims for bodily injury. It may also be used to settle disputes between insurance companies involving third party liability claims.
Arbitration Clause
34
This clause is used when the insurer has paid a covered claim on behalf of the insured that is caused by another party. The insurance company is entitled to the insured’s right of recovery from the negligent party. This clause is sometimes called “transfer of right of recovery against others to us”.
Subrogation Clause
35
If the insured has other sources of recovery for a covered claim, this clause is activated.
Other Insurance Clause
36
Evidence that coverage is in effect. Many states require evidence of automobile insurance be carried at all times.
Certificate of Insurance
37
The definition of this term may vary in individual states. In most states it means that any person who has contact with an insured involving insurance matter should be licensed. Personnel that quote, sell, service, offer advice, explain coverage or adjusts claims would normally be required to be licensed. Attorneys, appraisers and clerical personnel usually are not required to be licensed.
Transacting Insurance
38
Assumes that a claimant should only be restored to the approximate financial condition that existed prior to the loss, no better or no worse.
Indemnity
39
An unbroken chain of events that causes a loss. An event that, in a natural and continuous sequence, produces a loss.
Proximate Cause of Loss
40
This is a form completed by the claimant listing the property that has been either lost or damaged due to a covered loss.
Proof of Loss
41
Language that is vague and creates doubt
Ambiguity
42
Type of “Other Insurance” condition found in liability policies. It calls for all insurers to contribute equally up to the limit of the policy having the smallest limit, whereupon the company stops paying. The other companies share in the remainder of the loss until the loss is paid in full or all policy limits are exhausted.
Contribution By Equal Shares
43
Situation that exists when the same property is covered by more than one policy, but the policies are not identical as to the extent of coverage provided.
Nonconcurrency
44
Refers frame, masonry, metal, brick veneer, fire resistive, etc. The better the construction the lower the fire rate.
Basic Types of Construction
45
A named peril form lists the specific perils to be covered in the policy. The open peril form does not list the perils but provides broader coverage. This means that all perils are covered except the perils listed in the Exclusions section of the policy.
Named Peril vs. Open Peril
46
Refers frame, masonry, metal, brick veneer, fire resistive, etc. The better the construction the lower the fire rate.
Basic Types of Construction
47
The cost of replacement minus depreciation.
Actual Cash Value
48
The current cost to purchase new, the item that was lost, without depreciations.
Replacement Cost
49
As reasonably close to the replacement of the lost or damaged item if possible.
Functional Replacement Cost
50
Usually antiques claims are adjusted on the basis of market value – the price that the market will support.
Market value
51
The value to be insured is agreed to by the insured and the insurer. This method is used when the true value cannot accurately be determined.
Agreed Value
52
An agreed amount of insurance which is shown on the policy and that will be paid in the event of a total loss regardless of the actual value of the property.
Stated Amount
53
A policy that states that in the event of a total loss, a specific amount will be paid, and that is set as the limit of the policy. It is generally used to insure fine arts, jewelry and furs.
Valued policy
54
Those that have an insurable interest in the property who would suffer a financial loss if the property were damaged by an insured peril. In personal insurance this can include family members without listing their names on the declarations page of the policy. And additional insured’s such as a lien holder.
An Insured
55
A separate limit per insured item applies. Example: A separate limit on the building and/or one for the contents.
Specific Basis
56
One limit that applies to both building and contents. With blanket insurance, usually more than one location is insured under a single limit. Blanket insurance is more often written on contents coverage with one blanket limit applying to more than one building or location. This assists the insured in avoiding underinsurance at a particular location in case of loss.
Blanket Basis
57
This allows the insured to report values to the company (usually on a monthly basis) of the insured contents. This allows the insured to pay for coverage on what is actually reported to the company. This form requires a 100% coinsurance clause.
Reporting Form
58
With commercial insurance the coinsurance clause is a method of requiring the insured to insure at least 80% of the value of the property in exchange for a premium discount. If the insured’s policy contains this clause and the insured carries less than this amount, a penalty will occur in the case of partial losses. The insured can always insure for more than 80% of the value of the property.
Coinsurance Clause
59
Protects the interest of the financial institution against loss to real property caused by perils insured against. It also grants coverage even if the insured intentionally caused the loss. The institution can also provide a proof of loss or pay premiums in case the insured cannot or refuses to do so. They must also be advised if the contracts have been cancelled or non-renewed by the insurer.
Standard Mortgage Clauses
60
Similar to the mortgagee clause but applies to chattel property.
Loss Payable Clause
61
An insured’s property insurance policy protects the insured and not a bailee of the insured’s property.
No Benefit to the Bailee
62
Occurs when a person or entity is determined to have been responsible, or legally liable, for injury or loss to another person or liable for damage to another’s property and the law requires them to make financial restitution. These are called third party losses.
Liability Losses
63
Occurs when the damage to repair exceeds the value of the vehicle after repairs have been made. The vehicle is considered to be a “constructive total loss”
Constructive Total Loss
64
For a liability policy to respond the insured must be guilty of “negligence” and coverage must be granted by the policy. Intentional acts are never covered by liability policies.
Negligence
65
A civil wrong that violates the rights of others.
Tort
66
Casualty policies cover bodily injury and property damage caused by the insured as a result of his/her negligence.
Punitive Damages
67
Common law defense against negligence that states that if an individual contributes to his or her own loss in any way, then another cannot be held liable for the loss.
Contributory Negligence
68
Law that allows an injured party to collect from another party for a loss, even when the injured party contributed to his or her own loss. Damages are reduced to the extent of the injured party’s negligence.
Comparative Negligence
69
Applies when a person assumes the risk, he or she may be prevented from recovering from a negligent party. This doctrine is frequently associated with injuries incurred by spectators at sporting events.
Assumption of Risk
70
An independent action that breaks the chain of causation and sets in motion a new chain of events.
Intervening Cause
71
States have enacted laws as to when certain types of lawsuits must be filled.
Statute of Limitations
72
Imposed by law on those participating in certain activities that are considered especially hazardous. Individuals involved in such operations may be held liable for the damages of another, even though the individual was not negligent.
Absolute Liability
73
There are times when a person may be held responsible for the negligent acts of another person.
Vicarious Liability
74
Pays a single amount as the maximum liability of the insurer with respect to any one accident occurrence.
Single Limit
75
Expressed by two figures. There may be a limit representing the maximum payable for each person injured per occurrence for bodily injury and another limit applicable to the claims of all persons injured in the accident or occurrence.
Split Limits
76
The limit stated in the policy represents the total amount for all claims paid during the policy period.
The Aggregate Limit
77
This clause outlines the promises made by the insurance company to the insured. These will vary by type of liability policy.
Insuring Agreement
78
There are exposures for which the insurer is unwilling to provide coverage.
Exclusions
79
Outline the duties of each party in case of a loss as well as other items that require clarification.
Conditions
80
Usually coverage is limited to the United States, its possessions, Canada and Puerto Rico. There are some policies and personal property covered in a Homeowners policy.
Policy Territory
81
Occurs before a policy has expired, in other words “mid-term”
Cancellation
82
Notice is sent prior to the expiration date of the policy advising the insured that the policy will not be renewed.
Nonrenewal
83
Any hazard arising from the material, structural, or operational features of the risk itself apart from the persons owning or managing it.
Physical Hazard
84
A condition of morals or the habits that increases the probability of a loss from peril.
Moral Hazard
85
A condition of morals or the habits that increases the probability of a loss from peril.
Morale Hazard
86
A situation where there is only the possibility of loss. (Ex. Catastrophic medical expenses, liability loss suit, damage by fire, lightening, etc.) This is an insurable risk.
Pure Risk
87
A situation where either profit or loss is possible. (Ex. Betting on a horse race, investing in real estate) Usually not insurable.
Speculative Risk
88
These are connected with losses caused by the irregular action of nature, by the mistakes and misdeeds of human beings. Similar to pure risk. This is insurable.
Static Risk
89
Associated with a changing economy. Examples are the change in taste of consumers, technological changes, etc. Not uninsurable.
Dynamic Risk
90
Defined as a risk that affects the entire economy or large number of persons or groups within the economy. Example: double digit inflation, foreign competition. Not insurable.
Fundamental Risk
91
A risk that affects only the individual and not the entire community or country. Example: Theft of a stereo set. Insurable.
Particular Risk
92
Simply means avoiding the hazard. For example, if you don’t want the risk of owning a car or a home, you avoid owning a car or a home.
Avoidance
93
This is a common method of risk management by members of insurance pools.
Sharing a Risk
94
This is the most common method of handling risk. It involves transferring the risk to an insurance company in return for a premium charge.
Transfer of Risk
95
(Also known as risk retention) an individual decides to do what creates a risk (buys a car or home) and retain the uncertainty of loss. If the care is wrecked or the house burns, the individual will replace the car, rebuild the home or do whatever he deems appropriate at his own expense.
Assumption of Risk
96
Risk may be reduced via loss prevention methods. Examples are installing a sprinkler system in a building, a person stopping smoking or a planned weight loss program.
Risk Reduction or Risk Control
97
The Insured
First Party
98
The Insurance Company
Second Party
99
In liability insurance, this is the party that has been damaged by the first party. An at-fault auto accident is an example.
Third Party
100
In order for the contract to be binding, all parties must have the necessary ________ __ ________
Capacity to Contract
101
An insurance contract must not be written to cover an illegal activity or immoral purposes.
Legal Purposes/Object
102
An applicant completes an application for coverage and the insurance company accepts it and returns a policy or a binder. If the insurance company issues an altered policy, the altered policy becomes a counter-offer.
Offer and Acceptance
103
Something that has value in the eyes of the law in which a promisee receives something in return for a promise. The injured (the promisee) gives the application and premium to the agent and/or company in return for their promise to pay in the future.
Consideration
104
This is contingent on an uncertain event (a loss). Insureds who pay premium but have no losses will not receive claim payments under the policy.
Aleatory
105
The insurance company is the author of the contract and the insured must accept it “as is”. There is unequal bargaining strength between the parties; therefore, any ambiguous language will bring a court decision in favor of the insured.
Contract of Adhesion
106
Both sides must perform certain acts to make the contract legally enforceable.
Executory
107
Promises action in the event of a future occurrence.
Conditional
108
Both parties bargain in good faith.
Utmost Good Faith
109
Contract is bound to the insurable interest of the insured person. For instance, with the sale of a house, the policy does not automatically pass to the new purchaser.
Assignability
110
Pays only the amount of the loss.
Reimbursement Contract
111
Pays stated amount in the event of a claim.
Valued Contract
112
The contract must restore the insured to the financial position previously held before the loss. This is also known as indemnification.
Principle of Indemnity
113
The insured has agreed to pay a premium in exchange for the insurers promise to act in the future.
Unilateral
114
A policy condition, based either on information given by the insured in an application or inserted by the insurer in the policy.
Breach of Warranty
115
An untrue statement or statements made by the insured, usually at the time the application is made.
Misrepresentation
116
The failure of the insured to reveal relevant facts known to the insured when applying for insurance.
Concealment
117
An intentional act designed to deceive and induce another party to part with something of value.
Fraud
118
Something that becomes part of the contract and is a statement that is considered to be a guarantee.
Warranty
119
States that a policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.
Reasonable Expectations
120
Generally defined as the voluntary or intentional relinquishment of a known right.
Waiver
121
If someone intentionally or unintentionally creates the impression that a certain fact exists, an innocent party relies on the impression and is damaged as a result, the guilty party may be legally prohibited from asserting that the fact does not exist.
Estoppel
