Caib 1 - Chapter 1 (Key Terms)

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Insurance

Back 1

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 insurance may be exposed...or to pay sum of money or other thing of value upon the happening of a certain event. Contract

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Contract

Back 2

An agreement between two or more persons which creates an obligation to do or not do a particular thing.

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Consideration

Back 3

An exchange of something of value between parties.

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Insurable Interest

Back 4

One has an insurable interest in the subject matter of the insurance when they will suffer financially by a loss.

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Risk

Back 5

Chance of financial loss to which an object of insurance is exposed.

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Speculative Risk

Back 6

The chance of a financial loss or gain.

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Pure Risk

Back 7

The chance of financial loss, but no chance of financial gain.

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Utmost Good Faith

Back 8

The law requires insurance contracts maintain a higher standard of honesty than is needed of other contracts. (This duty applies to the insured, insurer and the broker)

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Indemnity

Back 9

Application of the principle of Indemnity ensures people receive the actual amount of their loss, no more and no less.

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Insurance Binder

Back 10

A temporary agreement in which the insurer agrees to provide certain coverages pending the issuance of the policy.

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Agency Agreement

Back 11

A written agreement or contract between the insurer and the brokerage which acknowledges their relationship.

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Void Contract

Back 12

One which is unable in law to support the purpose for which it was intended. Such contracts are deemed never to have existed.

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Voidable Contract

Back 13

A contract that may be voided at the option of the wronged party only and not the wrongdoer.

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Peril

Back 14

The cause of a loss.

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Direct Loss

Back 15

A direct loss occurs when the peril insured actually attacks the object of insurance.

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Indirect Loss

Back 16

Losses which arise as a consequence of a direct loss.

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Actual Cash Value

Back 17

New or replacement cost of the property at the time of the loss, less depreciation.

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Replacement Cost

Back 18

The cost to repair or replace the lost or damaged property of like kind and quality, without deduction for depreciation.

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Valued Policy

Back 19

Both the insured and insurer 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.

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Blanket Coverage

Back 20

Policy which provides a single limit of insurance for all property falling within a specific class.

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Scheduled Coverage

Back 21

Covered property is itemized on the policy.

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Fiduciary

Back 22

One who occupies a special position of trust or confidence in the handling or supervising of the affairs or funds of another.

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Unearned Premiums

Back 23

Premiums not yet earned by the insurer. Such premiums are deemed to be held in trust in order to refund the insured since the event the policy is cancelled prior to expiry date.

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Fire

Back 24

Involves the presence of a visible flame or glow, actual ignition or burning is required.

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Friendly Fire

Back 25

A fire that is contained in its proper receptacle.

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Hostile Fire

Back 26

A fire that passes outside of the limits assigned to it. Ex. Spark thrown from a fireplace that burns a carpet is considered hostile fire).

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Proximate Result

Back 27

Damage which arises from a natural or continuous sequence of the peril causing the loss.

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Material Change

Back 28

Is any change within the control and knowledge of the insured and which arises after the policy has been issued and serves to increase the chance of loss.

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Pro Rata

Back 29

Basis of return premium calculation when the insurer cancels a policy. The amount of the return premium is arrived at by dividing the amount of premium paid by the number of days in the policy period. The number so obtained is then multiplied by the number of days remaining in the policy period.

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Short Rate

Back 30

The basis of return premium calculation when the insured cancels the policy. The amount of the return premium is equivalent to that provided on a pro-rata basis, less any administrative charge or cancellation penalty.

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Notice of Loss

Back 31

Immediate report of loss to insurer by the insured or his representative (agent) in writing.

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Proof of Loss

Back 32

A formal verification, under oath, of the details and amounts being claimed under the policy.

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Fraud

Back 33

Is a deliberate attempt to deceive, with a view to securing some profits.

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Deductible

Back 34

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.

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Subrogation

Back 35

When the insurer has paid a claim for loss caused by a third party, the Insurance Act allows the insurer to place itself “in the insureds shoes” in respect of their right to recover the amount of the loss from the responsible party.

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Proprietary Insurers

Back 36

Insurance companies which exist to make a profit or return on their investment.

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Non-Proprietary Insurers

Back 37

Insurance companies which are organized for reasons other than profit. They are owned and controlled by their policyholders and their mandate is to secure insurance at as low a cost as possible.