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58 Cards in this Set

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Insurance

Transfers the risk of loss from an individual to an insurance company, which in turn spreads the cost of unexpected losses to many individuals.

Law of Large Numbers

The larger the number of people with a similar exposure to loss, the more predictable actual losses will be.


• Forms the basis for statistical prediction of loss upon which insurance rates are calculated

3 Elements of Insurable Risk

1. Financial (a monetary interest)


2. Blood (a relative)


3. Business (a business partner)

Risk

The uncertainty or chance of a loss occurring.

Pure Risk

Situations that can only result in a loss or no charge.


There is no opportunity for financial gain. • The only type of risk that insurance companies are willing to accept.

Speculative Risk

• Involves the opportunity for either loss or gain


• Not insurable

Gambling

Peril

The causes of loss insured against in an insurance policy

Hazard

Conditions or situations that increase the probability of an insured loss occurring

Physical Hazards

Arise from the material, structural, or operational features of the risk, apart from the persons owning or managing it.

Moral Hazards

Refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Morale Hazard

Refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance.

Indemnity (Reimbursement)

A provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.


• The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss.

Subrogation

The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss.

Insured (Incidental) Contract

A definition on liability forms that describes the types of contracts in which liability is assumed by the insured and included for coverage in the policy.

Ex. : Leases of premises, Elevator maintenance agreements, Easement agreements,

Accident

A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended

Occurrence

A broader definition of loss than accident because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected

Direct Losses

Mean direct, physical damage to buildings and/or personal property


• Covered by property insurance


• Also includes other damage where the insured peril was the proximate cause of loss

Indirect (Consequential) Losses

Related to the direct loss, and insurance coverage to protect against these often is added to property insurance policies


• Usually result from the time it takes to repair or replace damaged property

Peril

A specific cause of loss


• Those insured against in standard property policies Include: fire, wind, hail, and explosions

Named Peril

Describes the breadth of coverage provided under an insurance policy form that lists specific covered perils. No coverage is provided for unlisted perils.

Open Peril

Describes the breadth of coverage provided under am insurance policy form that insures against any risk or loss that is not specifically excluded

Negligence

The failure to use the care that a reasonable, prudent person would have taken under the same or similar circumstances

Burglary

The crime of forced entry into or out of the premises if another by a person or persons with felonious intent


• Insurance policies covering the peril of this require that, following a loss, there are visible signs of forced entry or exit from the premises

Robbery

The taking of property from the care and custody of a person by one who has caused or threatened to cause that person bodily harm, or committed an obviously unlawful act witnessed by that person

Theft

Any act of stealing and encompasses both burglary and robbery

Mysterious Disappearance

The disappearance of property without knowledge as to the location, time or how the property was lost


• Excluded from most insurance policies

Vacancy

Refers to an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy (usually 60 days)

If the insured moved

Unoccupancy (Nonoccupancy)

Refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored

If the insured went on vacation for 2 weeks

Valued Policies

Used when it is difficult to establish the value of insured property after a loss occurs, or when it is desirable to agree on a specific value in advance


• Provides for payment of the full policy amount in the event of a total loss without regard to actual value or depreciation


• Often are used in marine coverages because it is very difficult to establish value of the cargo loss after a ship sinks

Salvage

The amount of money realized from the sale of damaged merchandise

Absolute Liability

Imposed on defendants engaged in hazardous activities, such as harboring wild animals, using explosives, etc.


• The injured party does not need to prove negligence

Limits of Liability

• The insurer's liability for payment as stated in an insurance policy


• The maximum amount of money the insurance company will pay for a particular loss, or for loss during a period if time

Per Occurrence (Accident)

A sublimit in a liability policy that puts a ceiling on the repayment for all claims that arise from a single accident/occurrence

Per Person

The maximum amount available for repayment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims

Aggregate Limit

The maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims made or the number of accidents that occur


• Losses paid under coverages subject to these reduce the amount available for future losses


• Restored at the anniversary of the policy

Split Limits

Separately stated limits of liability for different coverages


• The limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury and property damage

Auto liability policies

Combined Single

A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence

Bodily Injury Liability

Legal liability arising from physical trauma to a person or death arising from the negligent or purposeful act and omissions by an insured

Property Damage Liability

Legal liability arising from physical damage to tangible property of others caused by the negligence of an insured

Personal Injury Liability

Includes injury to the character of another person caused by libel, slander, false arrest, invasion of privacy and other acts


• Less physical than those covered under bodily injury liability

Loss Valuation

A factor in determining the premium charged and the amount of insurance required

Actual Cash Value (ACV)

Method of valuation that reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence


• Current Replacement Cost - Depreciation = Actual Cash Value

Loss Valuation

Replacement Cost

Defined as the cost to replace damaged property with like kind and quality st today's price, without any deduction for depreciation


• Contrary to the basic concept of indemnity because following a loss, it may provide the insured with a settlement in excess of the property's actual cash value

Loss Valuation

Market Value

A seldom-used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss


• Takes into consideration the value of land and location, rather than just the cost of rebuilding the structure itself

Loss valuation

Stated Value

An amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss


• This scheduled amount is the maximum amount the insurer will pay in the event of a loss

Loss valuation

Salvage Value

The estimated value an asset will realize upon its sale at the end of its useful life.


• The property may be sold as a whole or in part

Loss valuation

Proximate Cause

An act or event considered a natural and reasonably foreseeable cause of the damage or event that occurs and damages property or injures a plaintiff


• The negligence must have been the proximate cause of the damage if the injured party is to collect for the damage.

Deductible

A dollar amount an insured must pay on a claim before the insurance policy provides coverage


• A higher amount usually lowers the amount of the premium

Coinsurance

In consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. This encourages the insured to insure the property closer to its full value. In case of a partial loss, the insurer will pay the partial loss in full if the insured has maintained the required percentage of insurance with relation to the value of the property. If the amount of insurance maintained is less than the coinsurance clause requirement, the insurer will only pay the percent of the loss that the insurance bears in relation to the amount of insurance that should have been carried. In the event of a total loss, the coinsurance clause does not operate, and the face amount of the policy is paid • (Insurance Carried ÷ Insurance Required) × Loss Amount = Loss Payment


maintain a certain minimum amount of insurance on the insured property. This encourages the insured to insure the property closer to its full value. In case of a partial loss, the insurer will pay the partial loss in full if the insured has maintained the required percentage of insurance with relation to the value of the property. If the amount of insurance maintained is less than the coinsurance clause requirement, the insurer will only pay the percent of the loss that the insurance bears in relation to the amount of insurance that should have been carried. In the event of a total loss, the coinsurance clause does not operate, and the face amount of the policy is paid • (Insurance Carried ÷ Insurance Required) × Loss Amount = Loss Payment


paid


• (Insurance Carried ÷ Insurance Required) × Loss Amount = Loss Payment

Insurance to Value

Provides a replacement cost settlement to the policyholder who carries adequate insurance, which means that the property is insured to the exact dollar amount or percentage of value


• If the amount of insurance is less than the value assumed in the premium rate calculation, the insured would still be indemnified at least to the amount of the actual cash value of the loss

Deposit Premium/Audit

An estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures. The actual premium can be determined by the audit of the insured's records at the end of the insuring period. If the audit determines that the initial premium collected was too low, additional premium will be assessed, and vice versa, if the audit shows that the initial premium to the insured was too high, the insured will receive a return premium

Deposit Premium Audit

A condition that allows the insurer to audit the insured's books or records at the end of the policy term to make sure adequate premium has been collected for the exposure

Certificate of Insurance

Written evidence showing that an insurance policy or policies have been issued. Indicates both the amounts and types of insurance provided, but does not obligate the insurer to the person to whom the certificate was issued

Insurable Interest

This means the insured would incur a financial loss if the insured property was damaged. As a result, an insurable interest may be created by the ownership, custody or control of a property

Life Insurance

Insures against the financial loss caused by the premature death of the insured

Health Insurance

Insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury

Property Insurance

Insures against the loss of physical property or the loss of its income-producing abilities

Casualty Insurance

Insures against the loss and/or damage of property and resulting liabilities