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26 Cards in this Set

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What are the characteristics of the ideally insurable risk?
Definable and measurable
Accidental
calculable exposure based on the Law of Large Numbers
Exposure must present Economic Hardship and Reasonable Insurance Cost
Is Not Inherently catastrophic.
What is an implied warranty?
is a fundamental condition that is deemed to be part of the policy even though it is not written into the contract.
What is concealment?
A concealment is the failure to communicate that which one knows and ought to communicate.
What is the diccerence between contract law and tort law?
Contract Law: determines whether a contract has the four required elements to be deemed a valid contract. It also deals with ensuring that the obligations of the contract are fulfilled.
Tort Law: is involved with obligations imposed on people by common law (case Law). It deals with compensating people for losses/injuries caused by the negligent or wrongful acts of others.
What is rescission?
Rescission is voiding or nullifying a policy. It is as if the policy never existed.
What is an expressed warranty?
It is a prepresentation or a promise that is included in the policy. It must be absolutely true.
Written into the Policy.
Why do insurers obtain reinsurance?
Insurers purchase reinsurance to reduce the risk of inadequate funds to pay for catastrophic losses. Reinsurance also helps insurers avoid capacity problems.
What is the difference between a peril and a hazard?
A Peril is a cause of loss. Fire, windstorm and riot are perils.
A Hazard is a condition or situation that increased the likelihood that a loss will occur.
What are Waiver and estopopel?
A Waiver is the giving up or voluntary abandonment of a contractual right or advantage.
Estoppel means that the party waiving the right is prevented from reasserting that right if it will harm the party that relied on the waiver.
When is a concealment or misrepresentation considered to be material?
A concealment/misrepresentation is material if it would have affected the other party's evaluation of the disadvantages of entering into the contract.
What are the four types of Hazards?
Physical: arise from the structural, material or operational characteristics of a risk. (wood shake roof)
Morale: Arise from human carelessness or indifference to potential losses.
Moral: arise from the insured's dishonesty.
Legal: arise from court cases in which juries make very large awards to plaintiffs. (lawsuits)
What is a risk?
Risk is the chance or possibility of financial loss when the outcome is uncertain.
What is a representation?
A representation is an oral or written statement made by the applicant before or at the time the policy goes into effect. A representation may be altered or withdrawn before coverage is effective, but not after.
What is an insurable event?
Under the Code one may insure against a contingent or unknown event which might create a financial loss for that person.
What are the four required elements of a contract?
Agreement
Competent parties
Valuable Consideration
Legal Purpose
What is Insurance?
Insurance is a social mechanism in which many persons transfer their individual risks to an insurer.
What is a Loss?
Loss is an unintentional decline in, or disappearance of, value.
What are the special characteristics of an insurance contract?
Contract of Adhesion: interpret ambiguities in favor of the insured.
Conditional Contract: Insured requirements.
Aleatory: The company's oblication to pay is dependent upon the occurrence of an uncertain event. The insurer does not pay claims unless there are losses.
Unilateral Contract: an act(the insured's payment of the premium) is exhanged for a promise(the insurer's promise to pay in the future if losses occur).
Personal contract: a policy purchased by a person who owns property does not insure the property;it insures that person against loss to the property.
Contract of Utmost Good Faith: the insurer should be able to rely on the truthfulness of the insured's representations about the risk and exposures.
Contract of Indemnity: the insurance policy is supposed to restore the policyholder to the financial position he would have been in had no loss occurred.
What is insurable interest?
Having an insurable interest in property means that you could sustain a financial loss if the property is damaged or destroyed.
When may an insurer rescind a policy?
when there has been a material concealment
when there has been a material misrepresentation.
when there has been a breach of a material warranty
when there has been an intentional or fraudulent omission which would prove the falsity or breach of warranty.
What is a misrepresentation?
A misrepresentation is a representation that is false.
What is reinsurance?
Reinsurance is an insurance contract obtained by an insurer froma third party to transfer part of its liabilities to that third party. It is sometimes called insurance for the insurance company.
What is the principle of indemnity?
Indemnification is restoring a person to the same financial condition he would have been in had no loss occurred, with no profit or gain.
What are the two kinds of risk?
Speculative Risk: is a risk where the outcome could be a loss or a gain.
Pure Risk: is a risk whose outcome could be a losss or no loss, without the possibility of gain.
What is subrogation?
Subrogation is the process by which an insurance company, after paying the claim of its insured, seeks to recover the amount paid from a third party who caused the loss.
What information must all policies specify?
The parties to the contract(insured and insurer)
The property or life insured
The nature of the insurable interest in the property if the plicyholder is not the owner(mortgagee, lifetenant, etc.)
The risks insured against
The policy period
The premium or the rate at which the premium is to be determinde.