Study Guide

Question 1

A social device of protecting personas and businesses against certain types of loss by transferring the risks of loss from from the individual persons or businesses to a group. Involves pooling a large number of risks, and the sharing of the potential of loss.

Answer 1

Insurance

Question 2

Company or entity assuming risks and agreeing to pay claims.

Answer 2

Insurer

Question 3

The person or business who pays the premium.

Answer 3

Insured

Question 4

The contract that establishes the terms of agreement between the insurer and the insured.

Answer 4

Insurance Policy

Question 5

Demand for payment of a loss that may be covered by the insurance policy.

Answer 5

Insurance Claim

Question 6

The uncertainty about loss that exists when more than one outcome is possible. (Chance of Loss)

Answer 6

Risk

Question 7

Subject of insurance: involves the certainty of loss without possibility of gain.

Answer 7

Pure Risk

Question 8

Uninsurable: Involves uncertainty of loss as well as possibility of gain. ex. stock market investments, gambling

Answer 8

Speculative Risk

Question 9

the reduction in the quality , quantity, or value of life or property.

Answer 9

Loss

Question 10

The cause of loss. ex. fire, flood, theft

Answer 10

Peril

Question 11

Increases the frequency of or severity of loss.

Answer 11

Hazard

Question 12

Arise from the material, structural, operational, or any other physical features of the risk. ex. slipppery floors, stored gas

Answer 12

Physical Hazards

Question 13

Arise from the actions of people. ex. dishonesty

Answer 13

Moral Hazards

Question 14

Arise from carelessness or inattention. ex. failure to lock doors, daydreaming while driving

Answer 14

Morale Hazard

Question 15

Arise out of court actions that increase the size or possibility of loss. ex. puntitive damages

Answer 15

Legal Hazards

Question 16

loss must define as to time, place, cause, and definable as to the value.

Answer 16

Loss: Definite and Definable

Question 17

Loss is insurable if it may or may not occur.

Answer 17

Loss: Accidental

Question 18

Insurance companies must be able to calculate the frequency and severity of the loss.

Answer 18

Loss: Calculable

Question 19

The larger the number of separate-but-similar risks, the more predictable the potential loss.

Answer 19

Law of Large Numbers

Question 20

Insurance is purchased when a potential loss cannot be paid out of savings or current income without creating economic hardship.

Answer 20

Loss: Financial Hardship

Question 21

The insurance premium must be low in relation to the cost of the potential loss.

Answer 21

Reasonable Cost

Question 22

Losses are uninsurable if large numbers of insureds are subjected to the same loss at the same time. It is the purpose of insurance to spread the risk of loss over a large area.

Answer 22

Spread the Risk of Loss

Question 23

In order to purchase insurance, one must have financial interest (insurable interest) int he subject of insurance.

Answer 23

Insurable Interest

Question 24

insurable interest exists at the time of loss

Answer 24

Property and Casualty Insurance

Question 25

insurable interest exists at the inception of policy.

Answer 25

Life Insurance

Question 26

To restore the insured to the same financial condition that existed prior to the loss.

Answer 26

Principle of Indemnity

Question 27

Often referred to as 1st party coverage. Covers loss to Real Property (structural) and Personal Property.

Answer 27

Property Insurance

Question 28

Often referred to as 3rd party coverage, Covers financial obligations incurred as a result of injuries or damages to others.

Answer 28

Casualty (Liability) Insurance

Question 29

A statement of utmost good faith.

Answer 29

Representations (in policy provisions)

Question 30

The failure to disclose a material fact.

Answer 30

Concealment (in policy provisions)

Question 31

declarations, definitions, agreement, exclusions, conditions, endorsements (optional)

Answer 31

Policy Structure

Question 32

"All about ME", name and address, policy period, description of coverage, limits of coverage, deductibles, name of insurer.

Answer 32

Declarations (in policy structure)

Question 33

describes obligations assumed by the insurance company in contract.

Answer 33

Insuring Agreement (in policy structure)

Question 34

Person or Business first named on the the Declarations, normally have more responsibilities and obligations under a policy.

Answer 34

First Named Insured (in policy structure)

Question 35

If a change is made to a policy that broadens coverage at no additional premium, all exisiting policies will include coverage immediately.

Answer 35

Liberalization Clause

Question 36

sudden and unexpected happening vs. exposure to same conditions over a period of time.

Answer 36

Accident vs. Occurrence

Question 37

Prevents the insured from collecting twice for the same loss.

Answer 37

Subrogation

Question 38

Transfer of policy ownership from one insured to another.

Answer 38

Policy Assignment

Question 39

If the policy wording is ambiguous (unclear) it will always be interpreted in favor of the insured.

Answer 39

Adhesion

Question 40

Temporary contract of insurance, can be issued for up to 30 days.

Answer 40

Binder

Question 41

(of liability policies) are always paid in addition to the limit of liability.

Answer 41

Supplementary Payments

Question 42

Covers direct losses and Indirect (Consequential) Losses.

Answer 42

Property Insurance

Question 43

Cause of loss

Answer 43

Perils

Question 44

How the financial loss is measured.

Answer 44

Property Valuation

Question 45

AVC

Answer 45

Actual cash value - the replacement cost of the damaged property at the time of loss.

Question 46

Cost to replace with comparable material and quality with out deduction of depreciation

Answer 46

Replacement Cost

Question 47

Cost of replacing damaged property with property that is functionally equivalent.

Answer 47

Functional Replacement Cost

Question 48

The residual value of property after a loss.

Answer 48

Salvage Value

Question 49

Specific, Scheduled, and Blanket Coverage

Answer 49

Methods of Writing Limits

Question 50

= list, different amount of insurance on different types of property at one or more locations.

Answer 50

Schedule

Question 51

A single amount of insurance applying to different types of property and/or locations.

Answer 51

Blanket Coverage

Question 52

to insure that the insured is not using insurance for maintenance purposes.

Answer 52

Purpose of Coinsurance

Question 53

limit of insurance must meet or exceed the value of property at time of loss.

Answer 53

Requirement of Coinsurance

Question 54

A private wrong

Answer 54

Tort

Question 55

a public wrong

Answer 55

Crime

Question 56

The failure to use such care as a reasonably prudent and careful person would under similar circumstances.

Answer 56

Negligence

Question 57

CSL

Answer 57

Combined Single Limit - how policies are written on a basis of per loss or per occurrence.

Question 58

a maximum limit for the policy period.

Answer 58

Aggregate Limit