General Insurance Definitions

Front 1

What is insurance?

Back 1

The transfer of risk

Front 2

What is a Direct loss?

Back 2

Loss of physical property

Front 3

What is an Indirect loss?

Back 3

Loss of potential property, e.g. rent, business income, inability to use an item (Same as Consequential loss)

Front 4

What is Consequential loss?

Back 4

Loss of potential property, e.g. rent, business income, inability to use an item (Same as Indirect loss)

Front 5

How many times does insurable interest need to be established?

Back 5

Twice - when the application is made, and when a claim is submitted

Front 6

What is insurable interest?

Back 6

A person's stake in an insured object, where they derive some financial or other kind of benefit from the object.

Front 7

At which two times does insurable interest need to be established?

Back 7

When the application is made and when a claim is submitted

Front 8

What kind of risk can be insured, pure or speculative risk?

Back 8

Pure risk

Front 9

What is the difference between pure and speculative risk?

Back 9

Pure risk involves only the chance of loss, whereas speculative risk can result in either loss or gain

Front 10

What are the three types of peril?

Back 10

Natural, Human, and Economic

Front 11

What is peril?

Back 11

The actual cause of a loss

Front 12

What is a Natural peril?

Back 12

Loss due to natural causes, e.g. fire, lightning, wind, rain, etc.

Front 13

What is a Human peril?

Back 13

Loss due to human causes, e.g. vandalism, theft, arson, etc.

Front 14

What is an Economic peril?

Back 14

Financial loss, e.g. loss of rent, business income, etc.

Front 15

What is a hazard?

Back 15

A condition that increases the chances of loss

Front 16

What are the three types of hazard?

Back 16

Physical, Moral, and Morale

Front 17

What is a Physical hazard?

Back 17

Hazard due to material characteristics, e.g. swimming pool, pit bull, old fuse wiring, etc.

Front 18

What is a Moral hazard?

Back 18

Hazard due to a person doing dishonest or illegal things, e.g. drunk drivers, or a person about whom predictions cannot be made, e.g. no previous insurance

Front 19

What is a Morale hazard?

Back 19

Hazard due to a person being careless or negligent, e.g. a person who leaves their car unlocked because it is insured

Front 20

What is Adverse Selection?

Back 20

The tendency for people who are most likely to file claims to also be the most likely to try to buy insurance

Front 21

What is an Extension to an insurance policy?

Back 21

Additional coverages extensions granted by the insurance contract without additional premium

Front 22

What is an Endorsement to an insurance policy?

Back 22

An addition, deletion, or modification of coverage, for an adjustment in premium.

Front 23

What is the difference between an Extension and an Endorsement?

Back 23

Extensions do not change the premium of the policy, and Endorsements do.

Front 24

What are the six elements of an Insurable risk?

Back 24

Calculable, Affordable, Non-Catastrophic, Homogenous exposures, Accidental, and Measurable

Front 25

What is reinsurance?

Back 25

Insurance purchased by insurance carriers

Front 26

What does it mean to Indemnify a person?

Back 26

To restore them to their pre-loss condition.

Front 27

What are the four sections of an insurance contract?

Back 27

Declarations, Insuring Agreement, Conditions, and Exclusions

Front 28

What information is included on an insurance contract's Declarations page?

Back 28

Property to be covered, Policy Period, Policy limit, and Premium required

Front 29

What is Actual Cash Value?

Back 29

The cost of replacing property minus deprecation from wear and tear or obsolescence

Front 30

What is Replacement Cost?

Back 30

The cost of replacing property with no deduction for depreciation

Front 31

When would Agreed Value be used as the basis of claim settlement?

Back 31

When the value of the property is hard to determine precisely, e.g. works of art

Front 32

What are the eight duties of the Insured?

Back 32

Prompt notice, Cooperation, No abandonment, Property removal, Repairs, Inventory, Questions under oath, and Proof of Loss.

Front 33

What rights does an Insurer have?

Back 33

Subrogation and Salvage

Front 34

If an insurance policy is cancelled by the *Insured*, what happens to the excess premium?

Back 34

It is repaid to the Insured on a *short-rated* basis - a penalty *is* applied.

Front 35

If an insurance policy is cancelled by the *Insurer*, what happens to the excess premium?

Back 35

It is repaid to the Insured on a *pro-rated* basis - *no* penalty is applied.

Front 36

If more than one insurer insures the same property, how are claim payments distributed between them?

Back 36

Each pays out a proportional amount - e.g., if there are two, each pays half.

Front 37

What is the coinsurance rule?

Back 37

If an insured does not have high enough limits to cover their replacement costs, a penalty is applied to the claims they receive.

Front 38

What is the standard coinsurance rate?

Back 38

80% of the replacement cost

Front 39

What is liability?

Back 39

A legal obligation to pay for damage caused to others

Front 40

In tort liability, what are Special Damages?

Back 40

Payments to cover measurable costs, e.g. medical bills, lost wages, damage to property

Front 41

In tort liability, what are General Damages?

Back 41

Payments to cover subjective costs, e.g. Mental anguish, Pain & Suffering

Front 42

In tort liability, what are Punitive Damages?

Back 42

Payments made to deter others from behaving in the same way

Front 43

If you see a Split Limit of "100/300/50", what are the limits of liability?

Back 43

$100,000 Bodily Injury liability per person, $300,000 Bodily Injury liability per accident, $50,000 Property damage liability per accident.

Front 44

What is the difference between a Single Limit and an Aggregate Limit?

Back 44

Single Limit applies to each accident, and Aggregate Limit caps the amount paid across all claims during a policy period

Front 45

What is the difference between an Accident and an Ocurrence?

Back 45

An Accident has a specific time and place, whereas an Occurrence is a series of Accidents that are linked and occur over a period of time

Front 46

What are the four elements of a legal contract?

Back 46

Legal objective (nothing illegal), Agreement (One party offers, the other accepts), Competent parties (no minors or deceased), Consideration (Payment is involved)

Front 47

What is a Warranty?

Back 47

Guarantee that states a fact or condition that must remain true for the contract to be in force.

Front 48

Why should you never answer hypothetical questions from insureds? What is this legal principle called?

Back 48

Estoppel - If the agent makes a statement, it is binding on the insurer.

Front 49

What is Subrogation?

Back 49

The insured waives their right to recover damages from a negligent third party, and transfers this right to the insurer.

Front 50

What kind of Misrepresentation is considered fraud?

Back 50

Material misrepresentation - misrepresenting facts relevant to the insurance policy

Front 51

What is the difference between misrepresentation and concealment?

Back 51

Misrepresentation - the insured gives incorrect information; Concealment - the insured gives no information

Front 52

What is an insurance Binder?

Back 52

A temporary written or oral agreement, issued by the agent in the name of the insurance company, which covers the insured until the policy can be issued.