Insurance

Front 1

Financial definition of insurance

Back 1

A financial arrangement that redistributes the costs of financial losses.

Front 2

Legal definition of insurance

Back 2

A contractual arrangement where one party agrees to compensate another party for losses.

Front 3

Insurable loss

Back 3

An undesired, unplanned reduction in economic value arising from chance.

Front 4

Peril

Back 4

The cause of a loss.

Front 5

Hazard

Back 5

A condition that increases either the frequency or the severity of losses.

Front 6

Variability concept of risk

Back 6

Emphasizes the statistical aspects of risk and insurance.

Front 7

Uncertainty concept

Back 7

Emphasizes the behavioral aspect of people exposed to risk.

Front 8

Law of Large Numbers

Back 8

The accuracy of an insurance company's predictions increases as the number of exposure units in the insurance pool increases.

Front 9

Types of risk responses

Back 9

1. Risk avoidance
2. Risk reduction
3. Risk retention
4. Risk transfer

Front 10

Adverse selection (online definition)

Back 10

When one party to a transaction has more relevant information, or more control of outcomes than the other party, the party with superior information or control can take advantage of the situation.

Front 11

Adverse selection (book definition)

Back 11

The tendency of persons whose exposure to loss is higher than average to purchase or continue insurance to a greater extent than those whose exposure is less than average.

Front 12

Risk management

Back 12

Involves six steps:

1. Establish objectives
2. Identify loss exposure
3. Measure loss exposure
4. Develop a plan
5. Implement the plan
6. Regularly review the plan

Front 13

Legal liability insurance

Back 13

Protects against the financial impact of lawsuits.

Front 14

Negligence

Back 14

Involves doing something a reasonable person would not do, or not doing something a reasonable person would do, which results directly in injury to another person.

Front 15

Negligence lawsuits

Back 15

Burden of proof is on the plaintiff to prove negligence with facts.

Front 16

Negligence suit defenses

Back 16

Defendant has two main defenses:
1. Contributory negligence.
2. Assumption of risk.

Front 17

Contract

Back 17

A legally binding agreement creating rights and duties for the parties to it.

Front 18

Voidable contract

Back 18

Allows one party the option of breaking the contract because of a breach by the other party.

Front 19

Void contract

Back 19

A contract that a court will not enforce from its beginning because it lacked one or more elements of a valid contract.

Front 20

Binder

Back 20

A temporary contract used in property insurance, often before the issuance of a formal insurance policy.

Front 21

Conditional receipt

Back 21

Provides temporary coverage contingent upon the applicant's ability to present evidence of insurability.

Front 22

Contract valid elements

Back 22

A valid contract must include:

1. Offer and acceptance
2. Consideration
3. Capacity
4. Legal purpose

Front 23

Principle of indemnity

Back 23

States that the insured should be in the same financial position after the loss as before.

Front 24

Exceptions to the rules of indemnity

Back 24

1. Life insurance
2. Replacement cost insurance
3. Valued insurance

Front 25

Discharge of contracts

Back 25

May be done on the ground of:

1. Performance
2. Condition Precedent
3. Condition subsequent
4. Rescission
5. Reformation

Front 26

Condition precedent

Back 26

Something one party must do before the other party has a duty to perform.

Front 27

Condition subsequent

Back 27

An act, event or other condition that ends the existing duty of immediate performance.
-e.g. date before which suit must be brought lapses.

Front 28

Rescission

Back 28

An agreement (contract) between both parties to end the contract.

Front 29

Reformation

Back 29

If mistakes have been made in a contract, the contract may be reformed so that one party may not take advantage of those mistakes.

Front 30

Homeowner's insurance

Back 30

Coverage A: Dwelling
Coverage B: Other Structures
Coverage C: Personal Property
Coverage D: Loss of Use
Coverage E: Personal Liability
Coverage F: Medical Expense

Front 31

Real property

Back 31

Land and anything permanently attached to land (built-in home appliances count).

Front 32

Single limit vs. split limit

Back 32

Single limit auto policies provide a single limit of coverage for all types of damage an insured might cause in one occurrence. This may provide more compensation to the insured's victim than split limit.

Front 33

Uninsured motorist

Back 33

1. Drivers without insurance
2. Drivers with less insurance than the minimum required by state law.
3. Hit-and-run drivers
4. Drivers with coverage provided by insolvent insurers.

Front 34

Underinsured motority

Back 34

One who is insured for less than the amount of the insured's Coverage C (uninsured motorist) coverages.

Front 35

Ocean marine insurance loss exposures

Back 35

1. Hull (damage to the ship)
2. Cargo (value of the goods)
3. Freight (lost income)
4. Liability

Front 36

Inland marine insurance

Back 36

Used for five types of property:

1. Property designated for export
2. Imported property until it reaches its destination
3. Domestic property in the process of shipment
4. Property used to facilitate transportation, such as bridges, tunnels, pipelines, or electrical transmission towers
5. Personal property that is easily moved and of significant value, such as jewelry, furs, cameras, some types of electronic data processing property.

Front 37

Collision

Back 37

Collision of an automobile with another object while in use.

Front 38

Comprehensive general liability insurance

Back 38

Insures a business against accidents and injuries that occur on its premises, as well as exposures related to its products. It is the last line of defense against claims for things over which the business has little or no control.

Front 39

Types of commercial liability insurance

Back 39

1. General liability
2. Special liability.
3. Workers compensation

Front 40

Occurrence-based form

Back 40

Payment for damages is made by the insurer providing coverage at the time of injury.

Front 41

Claims-made form

Back 41

Payment for damages is made by the insurer providing coverage at the time of the claim back to a retroactive date specified in the policy.

Front 42

Supplemental tail coverage

Back 42

Provides coverage for claims made after the policy period for injuries that occurred during the policy period.

Front 43

Professional liability

Back 43

Also called malpractice liability or errors and omissions coverage.

Front 44

Employment practices liability

Back 44

Arises from hiring, firing and supervising personnel.

Front 45

Reasons employers have been sued

Back 45

1. Negligent hiring
2. Invasion of privacy
3. Negligent supervision
4. Negligent discharge
5. Wrongful discipline
6. Negligent evaluation

Front 46

Basic medical expense insurance

Back 46

Covers hospital expenses, surgical expenses and physician expenses.

Front 47

Major medical insurance

Back 47

Aimed at providing for costs above those of basic medical insurance. Three characteristics distinguish major medical insurance from basic medical expense insurance:

1. High deductible
2. Participation (co-insurance)
3. High limit of liability

Front 48

Health Maintenance Organization (HMO)

Back 48

Operate in limited geographic areas, providing members with broad comprehensive coverage in exchange for a fee (capitation payment). The insurers are also the providers.

Front 49

Preferred provider organization (PPO)

Back 49

Usually an association of hospitals and physicians, they agree to provide employers with health care services to their employees at discounted rates.

Front 50

Total disability, own occupation

Back 50

The inability to perform the essential functions of your own job.

Front 51

Total disability, any occupation

Back 51

Inability to engage in any gainful occupation in which you may reasonably be expected to engage based on education, experience or training.

Front 52

Presumptive disability

Back 52

The insured is considered totally disabled, even if working, if sickness or injury results in any of the following:

1. Loss of sight in both eyes.
2. Loss of hearing in both ears.
3. Loss of the ability to speak.
4. Loss of use of any two limbs.

Front 53

Disability insurance benefit provisions

Back 53

1. Elimination period
2. Benefit period
3. Monthly indemnity

Front 54

Disability insurance benefit arrangements

Back 54

1. Definition of disability
2. Waiver of premium
3. Transplant benefit
4. Rehabilitation benefit
5. Non-disabling injury benefit
6. Principal sum benefit

Front 55

Residual disability benefit

Back 55

Provides partial indemnity when the insured returns to work at lower pay. The payment is a proportion of the full monthly indemnity based on the insured's reduced income.

Front 56

Long-term care

Back 56

Provides for medical assistance, as well as personal and social services, for people who cannot care for themselves because of some impairment. Not just for the old and needy.

Front 57

Life insurance required provisions

Back 57

1. Grace period
2. Reinstatement privilege
3. Incontestable clause
4. Entire contract provision
5. Misstatement-of-age provision
6. Annual apportionment of divisible surplus
7. Suicide clause

Front 58

Life insurance optional provisions

Back 58

1. Dividend options
2. Non-forfeiture options
3. Policyholder loans
4. Settlement options

Front 59

Accelerated death benefits

Back 59

1. Insured must be terminally ill
2. Reduction of the remaining face value of the policy is limited
3. Cash value of the remaining death benefit may not be reduced

Front 60

Cross-purchase plan

Back 60

Each partner/shareholder purchases life insurance on each other partner/shareholder's life.

Front 61

Entity plan

Back 61

The partnership/corporation purchases life insurance on each partner/shareholder's life.

Front 62

Property ownership rights

Back 62

1. Possession
2. Control
3. Disposition

Front 63

Absolute assignment

Back 63

A complete transfer of ownership and all rights in the policy.

Front 64

Collateral Assignment

Back 64

A temporary transfer of only some policy rights to another personal. Usually used in connection with loans.

Front 65

Viatical settlement model act

Back 65

Outlines the ethical concepts that prevent abuse of the viatical settlement transaction. Defines pricing and taxation.

Front 66

Catastrophic illness coverage

Back 66

Provided when the insured is diagnosed with any of the following:

1. Cancer
2. Renal failure
3. Heart attack
4. Coronary artery surgery
5. Stroke

Front 67

Terminal illness coverage

Back 67

Requires that the insured is reasonable expected to die in some specified amount of time. Evidence can be given in the form of:

1. Hospital or nursing home records
2. Certification by a physician
3. Medical examination paid for by the insurer

Front 68

Benefits of insurance

Back 68

1. Financial protection
2. Assists in making savings possible
3. Encourages thrift through savings plans
4. Furnishes a safe and profitable investment
5. Furnishes an assured income in the form of annuities
6. Helps preserve and estate by providing funds for estate taxes

Front 69

Main rules for selecting insurance

Back 69

1. Insure first exposures to loss
2. Never over-expose
3. Never risk great loss

Front 70

Risk management information systems

Back 70

1. Record, track, analyze losses
2. Maintain records of how assets are protected from loss
3. Statistically analyze past losses and predict future losses