Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Insurance CFP > Principles of Insurance > Flashcards

Principles of Insurance Flashcards

(94 cards)

Start Studying
1
Q

Absolute Liability

A

liability without regard to negligence or fault (workers comp)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Adverse Selection

A

parties with greatest possibility of loss have the greatest desire for insurance. Want to AVOID

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Aleatory Contract

A

if no loss occurs insurer pays nothing. Alternatively, if loss occurs, they may pay out more than premiums collected

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Collateral Source Rule

A

damages assessed against negligent party not be reduced simply bc injured party has other resources of recovery avail. (insurance or employee benefits)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Common law contract

A

negotiable and can be modified (real estate contract)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Contract of adhesion

A

insurance contract is contract of adhesion - insurance co prepares the entire contract. Insured can accept or decline but cannot modify. “take it or leave it”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Can the consumer modify a contract of adhesion?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

First part of insurance contract

A

insurable interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

2nd part of insurance contract

A

-determinable actual cash value
-amount recovered cannot be greater than the loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

3rd part of insurance contract

A

Subrogation- the insurance co must have the right to collect from a negligent 3rd party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Most property, liability and health insurance contracts are what

A

contract of indemnity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Contract of indemnity means what re:payment amount

A

payment only to the extent of financial loss or legal liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Misrepresentation (contract of good faith)

A

if insured made a false statement, contract may be voided

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Warranties (contract of good faith)

A

breach of warranty may cause contract to be voidable. warranty is a statement that is made part of the policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Concealement (contract of good faith)

A

FAILURE of the insured to DISCLOSE MATERIAL FACTS concerning subject matter of the insurance could cause to be VOIDED

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Dynamic risks

A

result from CHANGING ECONOMY (change in biz cycle, consumer taste), insurance doesn’t cover these risks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Estoppel

A

WHEN ONE PARTY IS NOT ALLOWED TO ASSERT A RIGHT due to having MISLED someone, and action is required by the other party

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Financial risk

A

exposure to risk that may cause financial loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Fundamental Risk

A

impersonal and usually a group risk (recession or earthquake) affects large segments of society at same time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Group insurance

A

insurance for more than one person through single contract issued to someone, usually employer, other than persons insured.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the contract called in a group insurance situation

A

master contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What do people receive as proof of coverage in group insurance

A

certificate of insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Hazard

A

increases probability that a loss will occur

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Physical hazard

A

physical characteristics of the person or property that increase the chance for loss (diabetic, house in flood zone)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Moral Hazard
-chance of loss from dishonesty -OVERSTATES loss or INTENTIONALLY causes loss -can happen when insured has weakened financial capacity
26
Morale Hazard
indifference to loss WHEN INSURANCE IS IN PLACE - creates carelessness and increases chance for loss (failure to lock doors)
27
Insurance broker
rep of the insured and not of insurance co. Broker has no authority to bind the insurer
28
Insurable interest
-right or relationship to subject matter of the contract such that OWNER would SUFFER FINANCIAL LOSS from damage, loss or destruction
29
Insurable interest is used to decrease what
moral hazard, prevent gambling, help measure actual losses
30
Property insurable interest needs to exist when
at the time of loss
31
Life insurance insurable interest needs to exist when
at the time insurance is purchased
32
Joint and several liability
negligence caused by 1 or 2 or more parties - each party can be held fully liable - party paying more than its own legal share can seek contribution from the others who have not paid their proportional share
33
Liability Risk
getting sued for intentional or unintentional injury to property or others (tort liability or civil suit)
34
Loss
partial or complete disappearance or reduction in value - undesired end result of risk
35
Negligence
failure to act how a reasonably prudent person would act
36
Negligence per se
act itself constitutes negligence - thereby relieving the burden to prove negligence (drunk driving)
37
particular risk
affects only the individual or small group at the same time, like if your home was burglarized
38
Peril
anything that causes a financial loss - unemployment, illness, old age, death, theft, fire, earthquake
39
Personal Risk
loss of income/asset from loss of ability to earn income through death, disability or sickness
40
Pure Risk
only the chance of loss or no loss at all
41
Res ipsa loquitor
"speaks for itself" - ie in a plane crash the negligence does not have to be proven by the injured party - affords reasonable evidence if the specific explanation of negligence isn't readily available
42
Risk
possibility of an adverse deviation from an expected desired outcome
43
Speculative Risk
involves chance of loss or gain - gambling
44
Static Risks
-Factors other than change in economy (death of family breadwinner) -tend to occur with regularity and can be insured against
45
Strict Liability
-resulting from extraordinarily dangerous activity -negligence doesn't have to be proved, however defenses may be allowed to refute or lessen liability -strict parents wont let you do crazy shit
46
Tort
infringement on the rights of another. Wrongdoer is the tortfeasor - creates right for damaged party to bring civil action
47
Tort results in 2 forms of injury
bodily injury and property damage
48
What type of tort liability can be waived in banruptcy
general tort liability other than an intentional tort
49
4 elements to prove in tort
-duty owed by defendant - must be breach of that duty - damage or loss suffered by plaintiff - breach of duty must be proximate cause of damage
50
Unilateral contract
insurance contract - only the insurer promises to do anything as there is no promise of the insured to pay the premium
51
Vicarious Liability
one person may become legally liable for the torts (negligence) of another - parent/child, employer/employee
52
Waiver
one party voluntarily relinquishes a right “I waive mt right to” and no action is required by the other party
53
Law of Large Numbers
-larger sample will improve the insurers estimate of the underlying probability -In a perfect world premiums would equal losses -As actual events differ from predictions, risk exists for the insurer
54
What type of liability is workers comp?
Absolute liability
55
Adverse Selection example
people in california purchase earthquake insurance more than people in new york
56
4 Elements of insurable risk
1. reasonably predictable 2. definite and measurable 3. fortuitous or accidental 4. must not be catastrophic
57
Biz Self insurance
-biz sets aside own funds to cover certain non-catastrophic risks -Biz predicts exposure and sets aside cash to cover -needs to purchase catastrophic risk insurance as well
58
Risk Management Process
1. Identify risk 2. Measure frequency, severity and variability 3. Choose method to treat - avoid, retained and/or transferred to ins. co 4. Evaluate and review effectiveness of choices
59
Essential coverage
ins. required by law for possibly disastrous results required for biz or household
60
Desirable coverage
losses that would seriously impair but not totally wipe out the financial position of the household or biz.
61
Available coverage and cash flow available for premiums
evaluate all available insurance coverage and establish budget to pay premiums
62
Risk control
actions taken to minimize exposure to risk. - loss prevention and control efforts
63
Risk avoidance/Strict liability
risk has catastrophic potential and can't be reduced or transferred - athlete piloting a plane, bungee jumping etc.
64
Risk diversification
duplication of assets or activities at different locations - separate buildings, inventory at various warehouses, duplicate record of will
65
Risk Reduction
all techniques designed to reduce loss - security systems, fire detectors, physical exams, seatbelts
66
Risk financing
guarantees that funds are available to meet losses when they occur - 2 ways to do this - risk retention and risk transfer
67
Risk retention
you retain the risk of loss arising out of the exposure, either intentional or unintentional
68
Risk transfer
shift as much of the $ burden of the risk to another person or entity. when insurance in used a premium payment is required
69
What type of contract is insurance contract?
Contract of adhesion
70
Can a common law contract be modified?
Yes
71
What would someone with moral hazard do?
Overstate loss or intentionally cause loss
72
Does a broker have the power to bind the insurer?
No - they are an agent of the insured
73
Loss is the end result of what
risk
74
Subrogation
Insurance companies right to collect $
75
In a tort, the wrongdoer is the what
tortfeasor
76
What does a tort create for the damaged party
creates right for damaged party to bring civil action
77
Insurance is regulated at what level?
The state level
78
Enforceable Contracts Must have What
Competent parties, legal purpose, consideration, offer and acceptance
79
Is a tort civil or criminal in nature?
Civil
80
An agent is responsible to ____ not to the _______
Their Principal, not to the client
81
A condition that increases the probability loss will occur
Hazard
82
An event that causes loss such as fire, lightning, smoke or theft
Peril
83
The possibility of an adverse deviation from an expected outcome
Risk
84
Adverse selection says people who are what are the most likely to purchase insurance
Most in need of insurance
85
Required elements to make a risk insurable
-must be reasonably predictable -definite and measurable -must be fortuitous or accidental
86
Low Severity of loss and high probability of loss - what should you do with the risk
Reduce the risk
87
High severity of loss and high probability of loss what should you do with the risk
Avoid the risk
88
Low severity of loss and and low probability of loss what should you do with the risk?
Retain the risk
89
High severity of loss and low probability of loss what should you do with the risk
Transfer the risk
90
When must insurable interest exist for property and casualty insurance?
when the policy is written and when the loss happens
91
Can you reinstate your life insurance policy if the premiums lapsed?
Yes as long as the insurable interest still exists and the insured is still insurable
92
What rule states the damages assessed against the negligent party won't be reduced because they have insurance in place?
Collateral source rule
93
speculative risk can be described how
risk that results in an uncertain degree of gain or loss
94
Hazard that deals with negligence or carelessness
Morale hazard

Insurance CFP (14 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions