Insurance Terms and Related Concepts

Example of Speculative Risk

gambling

strict liability - examples

hot coffee at McDonalds without specific label.

Coinsurance Penalty Formula

(Insurance Carried / Insurance Required) x Loss Amount = Loss Payment

3 elements of insurable risk ***

1. Financial (a monetary interest) 2. Blood (a relative) 3. Business (a business partner)

Coinsurance***

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Per Occurence (Accident)

A "sub-limit" in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence.

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. (up to 3 years)

Loss valuation

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

Fair Credit Reporting Act

A federal law that established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant and properly used.

Hazard, Physical - Example ***

A house or car breaking on its own.

Hazard, Moral - Example

A person lying and saying they don't have any health issues. to get life insurance.

Hazard, Morale - Example

A person not doing upkeep their car because if it breaks then the insurance will fix it.

Specific insurance

A property insurance policy that covers a specific kind or unit of property for a specific amount of insurance.

Agreed Value

A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written.

Unoccupancy

A property that contains personal property but has no occupants.

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.

Blanket insurance

A single property insurance policy that provides coverage for multiple classes of property at one location, or provides coverage for one or more classes of property at multiple locations.

Pure Risk

A situation in which there are only the possibilities of loss or no loss

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.

General damages

Compensate the injured person for pain and suffering, mental anguish, disfigurement, and other similar types of losses.

Stated Amount

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

salvage value

An estimate of an asset's value at the end of its useful life.

Hazard, Physical

Arising from material, structural, or operational features the risk.

indemnity - Example Property & Casualty

Brenda has a policy for 200k, she burns her house down (on accident). to rebuild is 150k. insurance will only pay her 150k. She is pissed.

indemnity - Example Life & Health

Brenda has a policy for 20k. her medical bills are 15k. Insurance will only pay 15k for her bills and will not give her extra money.

hazard

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

Bodily Injury

Covers medical, lost wages, disfigurement, pain and suffering, mental anguish and loss of consortium.

Actual Cash Value Formula

Current Replacement Cost - Depreciation = Actual Cash Value

Property Damage

Damage to or destruction of property, including loss of use of the property

Direct loss

Direct, physical damage to buildings and/or personal property.

Mysterious Disappearance

Disappearance of property without knowledge as to location, time or how property was lost

indirect loss example

Extra living expenses while house is being repaired.

direct loss example

House fire damage

Vicarious Liability

Legal doctrine under which a more powerful party can be held liable for the wrongful actions of another less powerful party. (employer/employee or parent/child)

Example of the law of large numbers

Life insurance - We can predict when someone might die, based on a group of similar people.

Indirect Loss

Loss that is a result or consequence of a direct loss

indemnity - fun fact

Means insurers cannot recover more than their loss.

According to the law of large numbers "As the number of people in a risk pool increases, future loss becomes.

More predictable.

Depreciation

Reduction in Value, Particularly due to wear and tear.

Hazard conditions - Examples

Slippery floors or congested traffic.

Why is subrogation used?

So the insured does not get paid out twice. once by insurance and once from the other party involved.

What are the two types of risk

Speculative and Pure

split

Split limits are separately stated limits of liability for different coverages. The limits may be stated on per person, per occurrence, or per policy period bases, or can be split between bodily injury and property damage.

Open Peril

The breadth of coverage provided under an insurance policy form that insures against "any risk of loss" that is not specifically excluded.

Punitive Damages

form of punishment for extreme outrageous behavior, gross negligence or willful intent

Replacement Cost

The cost to replace damaged property with like kind and quality at current price, without any deduction for depreciation.

Hazard, Morale

The effect a person's indifference concerning loss has on the risk to be insured.

burglary

The forced entry into another's premises with felonious intent.

Example of vacancy

The insured moved out and took all his belongings.

Insurable Interest ***

The insured would incur a financial loss if the insured property was damaged.

Subrogation

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

per person

The maximum amount available for payment 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 that may be made or the number of accidents that may occur.

Premium

The money paid to the insurance company for the insurance policy.

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insured against.

Risk

The uncertainty or chance of a loss occurring.

What is the usual period of time required in a policy to determine "vacancy"

Usually 60 days.

Certificate of Insurance

Written evidence showing that an insurance policy or policies have been issued

insurance policy

a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

implied warranty

a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer's expectations

indemnity

a payment for damage or loss. But only to restore finances to their original state, not a profit.

Strict Liability

a person or busines that manufactured or sells a product makes an implied warranty that the product is safe. the business is then liable for defective products, regardless or fault or neglect.

Speculative Risk

a situation in which either profit or loss is possible.

Deductible

a specified amount of money that the insured must pay before an insurance company will provide coverage.

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.

Hazard, Moral

applicants that may lie on an application for insurance. OR applicants that submitted fraudulent claims against an insurer in the past.

In property & Casualty, insurable interest must exist ***

at the time of the loss.

What does theft encompass

both burglary and robbery.

peril

causes of loss insured against in an insurance policy

Indirect loss is also known as

consequential loss

Deposit Premium

estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures.

Negligence

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

Burglary - insurance requirements

following a loss, there are visible signs of forced entry or exit from the premises.

Absolute Liability

imposed upon a person or company engaged in hazardous or potentially dangerous business who, by negligence or by an omission, causes harm or injury to another person or property

Vacancy

insured structure in which no people have been living or working, and no property has been stored for a period of time required as stated in the policy

Peril in Life Insurance

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

Peril in Casualty Insurance

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

Peril in Property Insurance

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

Peril in Health Insurance

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

occurrence

losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

Two types of perils

named perils and open perils

Three hazard classes

physical, chemical, microbial

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.

What type of risk is insurable?

pure risk

What is indemnity sometimes called?

reimbursement.

Actual Cash Value (ACV)

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.

two types of compensatory damages

special and general

Special Damages

specific out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages

The law of large numbers

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

Theft

stealing

Exposure

susceptibility to risk

absolute liability - examples

swimming pool, wild animals, explosives.

Market Value

the amount a willing buyer would pay to a willing seller for the property prior to loss (seldom used)

Named Peril

the breadth of coverage provided under an insurance policy form that lists specific covered perils

Insurer (principal)

the company who issues an insurance policy

Example of unoccupancy

the insured went on a 6 month cruise and left all his belonging and cat in his house.

Limits of Liability

the insurers liability for payment as stated in an insurance policy

Robbery

the taking of property from a person's possession by using force or threats.

insurance

transfer of risk from a person or business to an insurance company. Which spreads the cost of unexpected losses to many individuals.