Property & Casulaty Insurance Test Prep

Front 1

CONTRACT OF UTMOST FAITH

Back 1

Both insurer and insured must know all material facts and relevant information; neither may attempt to conceal facts or deceive the other party.

Front 2

UNILATERAL CONTRACT

Back 2

one in which only one party makes a legally enforceable promise

Front 3

CONDITIONAL CONTRACT

Back 3

the insurer's consideration is a promise to pay only if a certain condition is met. If the condition is not met, the insurer does not have to pay.

Front 4

PERIL

Back 4

Fire, Wind, Hail or collision.

Front 5

HAZARD

Back 5

Situation or Condition that increases the possibility of a loss. (a material, structural or operational feature)

Front 6

MORAL HAZARD

Back 6

Dishonest or character/ personality defects

Front 7

MORALE HAZARD

Back 7

Attitude of the insured. (carelessness)

Front 8

RISk

Back 8

Uncertainty regarding the occurrence of financial loss.

Front 9

REASONABLE EXPECTATION

Back 9

States that the insured should recover what a reasonable person would expect to recover under similar circumstances. - giving someone a false sense of what and what amount would be covered

Front 10

BINDER

Back 10

Written statement that provides immediate insurance protection for a temporary period.

Front 11

IDEMNIFICATION

Back 11

Process by which an insured is restored to a pre-loss condition. As a legal principle, it states that a person should not profit or collect more than the value of a loss but restored to the same financial position. NO MORE / NO LESS.

Front 12

CONTRACT OF ADHESION

Back 12

The insurance company writes the contract to be accepted or rejected. Courts generally hold that any ambiguity in contracts should be interpreted for insured to understand.

Front 13

IMPLIED AUTHORITY

Back 13

XYZ Insurance has allowed agents to bind coverage with past dates therefore making agents believe they have the authority to do that continuously because Authority was implied.

Front 14

ALIEN

Back 14

An alien insurance company is incorporated or organized under the laws of any foreign nation, province or territory.

Front 15

PURE RISK

Back 15

Pure risk involves only the chance of loss (not gain) ONLY PURE RISKS ARE INSURANBLE.

Front 16

SPECULATIVE RISK

Back 16

Involves chance of both gain and loss. (stock market ventures) NOT INSURABLE

Front 17

RETENTION

Back 17

When an individual retains the risk and must accept the economic loss if the risk becomes a reality. (self-insurance)

Front 18

SURPLUS LINES

Back 18

A nonadmitted or unauthorized insurance company that has not been authorized to transact business in a particular state. Brokers use this to obtain policies when an authorized company cannot provide coverage.
(ex: Lloyd's of London)

Front 19

FIDUCIARY

Back 19

Involving trust. An agent must trust both insured and insurer, act in good faith and preserve confidential info.

Front 20

MISREPRESENTATION

Back 20

Twisting...inducing a policyholder to cancel, lapse, forfeit or surrender an existing policy in order to purchase a similar policy from the selling agent. In which case, cancellation or change are not warranted.

Front 21

REINSURANCE

Back 21

The spreading or sharing of a risk too large for one insurer by ceding part of the risk to another company or insurer.

Front 22

RECIPROCAL EXCHANGE

Back 22

An unincorporated mutual organized for the mutual protection of its members. An association of subscribing members who exchange contracts of indemnity with each other.

Front 23

UNILATERAL CONTRACT

Back 23

Only 1 party (the insurer) makes any kind of enforceable promise to pay benefits when a certain event occurs (death or disability)

Front 24

MUTUAL INSURANCE COMPANY

Back 24

Owned by its policy owners from whom its resources are derived. Its assets and income are held for the benefit of policy holders who as contractual creditors have the right to vote for directors / trustees

Front 25

INSURABLE INTEREST

Back 25

Any property that will result in financial loss to an insured is an insurable interest.

Front 26

AVOIDANCE

Back 26

Avoiding having the risk of a loss by not engaging in a certain activity or owning property.
(ex: by not owning a car, Robert will not risk having it stolen)

Front 27

FOREIGN COMPANY

Back 27

A foreign company operates within a state in which it is not chartered and in which its home office is not located.

Front 28

REDUCTION

Back 28

May be accomplished through loss prevention and loss control. (ex: A burglar alarm)

Front 29

EXPRESS AUTHORITY

Back 29

The insurer gives the agent through means of the contract. This explicitly appoints the agent to act on behalf of the insurer.

Front 30

LAW OF LARGE NUMBERS

Back 30

Operates under the principle that the larger the number of similar risks combined into one group, the less uncertainty there will be to the amount of loss the group will incur.

Front 31

WORKERS COMPENSATION

Back 31

No-Fault insurance. Injured workers may receive benefits without having to prove that their employer was negligent. Provides compensation for injuries arising out of their employment. It is State regulated.

Front 32

OCCUPATIONAL DISEASE (WC)

Back 32

a disease that is not peculiar to the employment exposure will not be covered by WC. (ex: Chicken Pox)

Front 33

MONOPOLISTIC METHOD (WC)

Back 33

When insurance must be purchased from the state-run insurer. 5 Monopolistic states: North Dakota, Ohio, Washington, West Virginia and Wyoming.

Front 34

SURETY BONDS

Back 34

Provides monetary compensation if the bonded party fails to perform a certain act. It guarantees that the obligor has the financial means and expertise to fulfill the obligation to which he is bonded. Protects the obligee. a contract of obligation between 2 parties.

Front 35

PRINCIPAL (Surety Bonds)

Back 35

The one whose acts are being guarantee by the bond. The party who promises to do or not do a specific thing.

Front 36

OBLIGEE (Surety Bonds)

Back 36

The one who collects if the principal fails to perform as guaranteed.

Front 37

SURETY

Back 37

The one giving the guarantee. The agent is not a party to the bond.