Key Terms Flashcards
Risk.
Risk refers to the chance of financial loss to which an object of insurance is exposed.
Insurance.
Insurance means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed. OR to pay a sum of money or other thing of value uipon the happening of a certain event.
Speculative Risk.
Involves the possibility of either financial loss or gain. When people speculate, there’s always a chance that the venture will fail.
Pure Risk.
Involves the chance of financial loss which does not, at the same time, offer a chance of financial gain. When there is no opportunity for a person to profit from a loss, the risk is pure. Only pure risk is insurable.
Contract.
A “contract” is an agreement between two or more persons which creates an obligation to do or not to do a particular thing.
Consideration.
Is an exchange of something of value between the parties. The following forms include: a return promise, an act performed, or an agreement not to act.
Insurable Interest.
People have an insurable interest in the subject matter of an insurance contract when they are able to show that they would suffer financially by a loss.
Utmost Good Faith.
The law requires that insurance companies maintain a higher standard of honesty than is needed of other contracts. The complete honesty of the parties is viewed as critical to the contract.
Indemnity.
Ensures that people receive the actual amount of their loss, no more and no less. Indemnity is measured by the value of the insured property as it existed immediately prior to a loss.
Void.
A Void contract is one which is unable in law to support the purpose for which it was intended.
Voidable.
A voidable contract is one which is void as to the wrongdoer but not void as to the wronged party unless he elects to so treat it.
Insurance Binders.
The broker has committed the insurer to provide a contract of insurance on the subject matter under discussion. Insurance binders may be oral or written and contain all details to be incorporated into the policy.
Agency Agreement.
An insurer’s Agency Agreement will provide the brokerage with the authority to bind the insurer for certain classes of risks and limits.
Peril.
A peril is defined simply as “ the cause of the loss”.
Direct Loss.
When the object of insurance is actually attacked by an insured peril, the loss to that object is a direct loss.
Indirect Loss.
These are losses which arise as a consequence of direct loss. e.g. Loss of food in a freezer when electrical motor malfunctions.
Actual Cash Value.
The new or replacement cost of the property at the time of the loss, less depreciation.
Replacement Cost Policies.
The repair or replacement of lost or damaged property with new property of like kind and quality without deduction or depreciation.
Valued Policies.
Both the insured and the insurer will agree at the time the policy is issued as to the cash value of the property , in the event of a loss, the agreed amount would be paid. e.g. old jewelry, antiques etc.
Scheduled Coverage.
A building or expensive equipment, the policy may provide a limit for each item.
Blanket Coverage.
A single limit of insurance for all property falling within a specific class.
Fiduciary.
A fiduciary is one who occupies a position of special trust or confidence in the handling or supervising of the affairs or funds of another.
Unearned Premiums.
Unearned premiums are held in trust in order to refund the insureds in the event the policy is cancelled prior to expiry date.
Fire.
The presence of a visible flame or glow. For fire to occur, actual ignition or burning is required.
Friendly Fire.
A friendly fire is one that is contained in its proper receptacle. If damage is caused to property deliberately introduced to a friendly fire there’s no insurance coverage.
Hostile Fire.
Once a fire passes outside the limits assigned to it, it becomes a hostile fire. Fire insurance policies are intended to provide coverage for losses arising fro hostile fires only.
Proximate Result.
The policy will pay for all damages which arise proximately, or as a natural and continuous sequence of the peril causing the loss. e.g. Damage caused by water and other extinguishing agents, covered under the fire policy.
Material Change.
A material change is any change within the control and knowledge of the insured which: arises after the policy has been issued; and serves to increase the chance of loss. It is something substantial and continuing.
Pro Rata.
The amount of the refund to which the insured is entitled shall be calculated on a pro rata basis. The insurer divides the amount of the premium paid by the number of days in the policy period. The amount to be refunded is determined by mul
Short Rate Basis.
When the insured terminates the policy the amount of the refund is calculated on a short rate basis. The insurer is allowed to deduct certain admin costs which would not have been incurred had the policy been allowed to remain in force for the contracted term.
Notice of Loss.
Notice of loss will be given to the Insurer forthwith “immediately” and in writing.
Proof of Loss.
Proof of loss is a formal verification, under oath, of the details and the amounts being claimed under the policy. It is to be filled as soon as practicable.
Fraud.
Fraud is defined as a deliberate attempt to deceive, with a view to securing some profit. An honest mistake in a proof of loss doesn’t constitute fraud.
Deductible.
A deductible represents the amount the insured is required to absorb for each loss for which insurance coverage is provided before receiving any payment from the insurer. There is only one deductible applied to the total amount claimed for loss or damage arising out of a single event.
