Insurance Terms Flashcards
(44 cards)
What is depreciation?
Reduction in value, particularly due to wear and tear
Depreciation affects the value of assets over time.
Define exposure in the context of insurance.
Susceptibility to risk
Exposure refers to the potential for loss or damage.
What does implied warranty mean?
A legal term meaning that a product is suitable for its intended purpose and fits an ordinary buyer’s expectations
Implied warranty ensures that products meet basic quality standards.
What is an insurance policy?
A contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Insurance policies outline the terms of coverage.
Who is the insurer?
The company who issues an insurance policy
The insurer is responsible for providing coverage as per the policy agreement.
What does obsolescence refer to?
Depreciation in the value of a property due to becoming outdated
Obsolescence can occur due to technological advancements or changes in consumer preferences.
What is a premium in insurance?
The money paid to the insurance company for the insurance policy
Premiums are typically paid on a regular basis, such as monthly or annually.
Define tort.
A wrongful act or the violation of someone’s rights that leads to legal liability
Tort law addresses civil wrongs and provides remedies for those harmed.
What is the Law of Large Numbers?
The Law of Large Numbers states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
This law forms the basis for statistical prediction of loss upon which insurance rates are calculated.
How does the Law of Large Numbers apply to insurance?
It allows insurance companies to make predictions about losses based on a large group of similar risks.
For example, predicting the time of death for a 35-year-old male based on statistics from a similar group.
What happens to the predictability of future losses as the number of people in a risk pool increases?
Future losses become more predictable.
This principle is crucial for setting insurance premiums.
Fill in the blank: The basis of insurance is sharing _______ among a large pool of people with a similar exposure to loss.
risk
True or False: The Law of Large Numbers allows insurance companies to predict individual losses with absolute certainty.
False
It provides a statistical basis for predictions, not certain outcomes.
Define ‘homogeneous group’ in the context of insurance.
A homogeneous group refers to a large pool of people with a similar exposure to loss.
What is insurable interest?
The insured must have an insurable interest in the person or property covered by an insurance policy.
How is insurable interest established in property insurance?
It means the insured would incur a financial loss if the insured property was damaged.
What can create an insurable interest?
Ownership, custody, or control of a property.
Who may have an insurable interest in their respective properties?
Mortgagees and leaseholders.
What are the three elements of insurable risk?
- Financial (a monetary interest)
- Blood (a relative)
- Business (a business partner)
When must insurable interest exist in property and casualty insurance?
At the time of the loss.
True or False: An insurable interest is only required at the time the insurance policy is purchased.
False
How are risk and exposure related
Risk is the uncertainty or chance of loss
Exposure is the susceptibility to that risk
2 types of Risk
Pure Risk and Speculative Risk
Insurance will only accept pure risk
Define pure risk
Situations that can only result in a loss or no change. There’s no opportunity for financial gain.
