Personal Finance--Ch. 10

Umbrella Liability Insurance

A catastrophic liability policy that covers liability losses in excess of those covered by any underlying homeowner's, automobile, or professional liability coverage.

Insurance Claim

A formal request to the insurance company for reimbursement for a covered loss.

Renter's Contents Broad Form (HO-4)

A named perils policy that protects the insured from losses to the contents of a dwelling rather than the dwelling itself. It covers seventeen major perils and provides liability protection.

Older Home Form (HO-8)

A named perils policy that provides actual cash-value protection on the dwelling. It does not provide that the dwelling be rebuilt to the same standards of style and quality, as those standards may be prohibitively expensive today. Requires to be rebuilt to make it serviceable.

Broad Form (HO-2)

A named-perils policy that covers 18 property-damage-causing perils and provides protection from three liability related exposures.

Physical Hazard

A particular characteristic of the insured person or property that increases the chance of loss. An example is high blood pressure in a person covered by health insurance.

Subrogation Rights

Allow an insurer to take action against a negligent third party (and that party's insurance company) to obtain reimbursement for payments made to an insured. These are limited in no-fault states.

Expanded No-Fault

Allows the injured individual to sue the other driver and his or her insurance company regardless of the amount received from his or her own insurance company.

Risk Transfer

An insurance company agrees to reimburse you for a financial loss.

Release

An insurance document affirming that the dollar amount of the loss settlement is accepted as full and complete reimbursement and that the insured will make no additional claims for the loss against the insurance company.

Market Value Coverage

Another term for Actual Cash Value Coverage.

Open Perils

Another term for All Risks Homeowner's Insurance.

Malpractice Insurance

Another term for professional liability insurance.

Financial Loss

Any decline in the value of income or assets in the present or future. These can be measured objectively in dollars and cents.

Morale Hazard

Exists when a person is indifferent to a peril or does not care if it occurs. This exists if the injured party, knowing that theft insurance will pay for the loss, becomes careless about locking doors and windows.

Law of Large Numbers

As the members of a group increase, predictions about the group's behavior become more accurate, resulting in decreased uncertainty and risk.

Personal Loss

Can be directly suffered by specific individuals or organizations.

Insurable Interest

Exists when a person or organization stands to suffer a financial loss resulting directly from peril. For example, you can buy fire insurance on your home, but you cannot buy it on a friend's home.

Moral Hazard

Exists when an uninsured person wants and causes a peril to occur so that he or she can collect on an insurance policy.

Pure Risk

Exists when there is no potential for a financial gain but the potential for a financial loss.

Speculative Risk

Exists when there is the potential for a financial gain as well as a financial loss.

Automobile Insurance

Combines the liability and property insurance coverages needed by automobile owners and drivers into a single-package policy.

All Risks Homeowner's Insurance

Covers all risks unless specifically excluded by the policy. Provides broader coverage because hundreds of perils can cause property losses, but only a few would be excluded.

Automobile Medical Payments Insurance

Covers bodily injury losses suffered by the driver of the insured vehicle and any passengers regardless of who is at fault.

Named Perils Homeowner's Insurance

Covers only those losses caused by perils that are specifically mentioned in the policy.

Personal Injury Protection (PIP)

Covers the driver and any passengers for bodily injury losses as well as possibly lost wages and rehabilitation expenses. Under this, drivers and passengers that were injured collect directly from the driver's insurance.

Uninsured Motorist Insurance

Covers the insured and the insured's passengers from losses caused by an at-fault, uninsured motorist.

Underinsured Motorist Insurance

Covers the insured and the insured's passengers from losses when the at-fault driver has insurance but his/her coverage is insufficient to reimburse for losses.

Risk Avoidance

Deciding not to engage in activities that provide high degrees of risk.

Loss Severity

Describes the potential magnitude of the losses that may occur.

Pure No-Fault

Insured may not sue the other driver nor the other driver's insurance company.

No-Fault

Insured's insurer pay for his or her losses first and then the insurance company seeks reimbursement from the at-fault driver and his or her insurer.

Condominium Form (HO-6)

Is a named perils policy protecting condominium owners from the three principle losses they face: losses to contents and personal property, losses due to additional living expenses that may arise if one of the covered perils occurs, and liability losses.

Basic Form (HO-1)

Is a named perils policy that covers 11 property-damage-causing perils and provides three areas of liability related protection: personal liability, property damage liability, and medical payments.

Loss Control

Is designed to reduce loss frequency and loss severity. It involves installing deadbolts on your house, installing a security system in the house monitored by a third-party; build a wooden or iron fence around your backyard pool; fire extinguishers in the house; defensive driving courses

Indemnity

Means to restore value without providing a profit.

Automobile Bodily Injury Liability

Occurs when a driver or car owner is held legally responsible for bodily injury losses suffered by other persons, including pedestrians.

Automobile Property Damage Liability

Occurs when a driver or car owner is legally responsible for damage to the property of others. Such damage can include damage to another vehicle, a building, or roadside signs and poles.

Mutual Insurance Companies

Owned by their policyholders, are not for profit organizations, and may pay policyholder dividends on "Participating Policies"

Stock Insurance Companies

Owned by their stockholders, are for profit organizations, and may pay stock cash dividends

Towing Coverage

Pays the cost of having a disabled vehicle transported for repairs.

Modified No-Fault

Permits a lawsuit only if a threshold has been reached.

Comprehensive Automobile Insurance

Protects against property damage losses from perils other than collusion and rollover (fire, theft, falling objects, hail, windstorms, earthquakes, collision with an animal and vandalism); also covers contents in the automobile.

Professional Liability Insurance

Protects individuals and organizations that provide professional services when they are held liable for the losses of their clients.

Floater Policies

Provide all-risk protection for accident and theft losses to movable personal property (such as cameras, sporting equipment, and clothing) regardless of where the loss occurs.

Rental Reimbursement

Provides a rental car when the insured's vehicle is being repaired after an accident or the vehicle is stolen.

Special Form (HO-3)

Provides open-perils protection for four types of property losses (except war, earthquake, and flood): losses to dwelling, losses to other structures, landscaping losses, and losses generating additional living expenses.

Automobile Physical Damage Insurance

Provides protection against losses caused by damage to your car from collision, theft, and other perils.

Risk Reduction

Reduce risk to acceptable levels.

2 parts to insurance

Reduction in risk and sharing of losses

Loss Frequency

Refers to the likely number of times that a loss might occur over a period of time.

Collision Insurance

Reimburses an insured for losses resulting from a collision with another car or inanimate object or from a rollover; may cover rental cars if denoted as such on the policy

Replacement Cost Coverage

Represents the current cost of constructing a similar new home in your area; seeks services of a qualified appraiser (SRA); consult with your insurance agent.

Actual Cash Value Coverage

Represents the replacement cost less depreciation.

Deductibles

Requires that you pay an initial portion of any loss

The Principle of Indemnity

States that insurance will pay no more than the actual financial loss suffered. This principle prevents a person from gaining financially from a loss.

Apportionment Clause

The insurance company will not allow you to collect more than 100% of the loss.

Coinsurance

The insured and the insurer share proportionately in the payment for a loss.

Claims Adjuster

The person designated by the insurance company to asses whether the loss is covered and to determine the dollar amount that the company will pay.

Underwriting

The process by which the insurance company decides which applicants to accept.

Special Automobile Policy (SAP)

Was a basic insurance policy that no longer exists.

Family Automobile Policy (FAP)

Was a broad insurance policy that was replaced in the 1970's by the current Personnel Automobile Policy (PAP).

Fortuitous Loss

Unexpected in terms of both their timing and their magnitude. A loss caused by a lightening strike is an example of this.

Risk Retention

You accept the risk of loss and prepare for it. You understand that it's part of everyday life.