principles of insurance test 2

requirements of an insurance contract are

1. offer and acceptance 2. consideration 3. competent parties 4. legal purpose

what does the principle of insurable interest prevent

1. prevents gambling 2. reduces moral hazard 3. measures the amount of the insured's loss in property insurance

what are the three basic puposes of subrogation

1. prevents the insured from collecting twice from the same loss. 2. is used to hold the negligent person responsible for the loss. 3. helps to hold down insurance rates

state laws require what in relation to rate making

1. rates should be adequate for paying all losses and expenses 2. rates should not be excessive 3. rates must not be unfairly discriminatory

actual cash value methods

1. replacement cost less depreciation 2. fair market value 3. broad evidence rule

what are exceptions to the principles of indemnity?

1. valued policy 2. replacement cost insurance 3. life insurance 4. valued policy laws

principle of utmost good faith definition

a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

valued policy laws definition

a law that exists in some states that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law

what is lloyds of london

a marketplace for insurance that provides services and physical facilities for its members to write specialized lines of insurance

valued policy definition

a policy that pays the face amount of insurance if a total loss occurs

what is the difference between a property and casualty agent and a life insurance agent?

a property and casualty agent has the power to bind the insurer immediately with respect to certain types of coverage.

warranty definition

a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

balance sheet definition

a summary of what a company owns (assets), what a company owes (liabilities) and the difference between total assets and total liabilities (owner's equity)

binder definition

a temporary contract for insurance and can be either written or oral

life insurance definition

a valued policy that states an amount to the beneficiary upon the insureds death

legal purpose definition

an insurance contract that encourages or promotes something illegal or immoral is contrary to the public interest and cannot be enforced

an agent represents?

an insurer

gross rate definition

consists of the pure premium and a loading element

aleatory contract definition

contract where the values exchanged may not be equal but depend on an uncertain event

material definition

if the insurer knew the true facts, the policy would not be insured

concealment definition

intentional failure of the applicant for insurance to reveal a material fact to the insurer

loading definition

is the amount that must be added to the pure premium for other expenses, profit, and a margin for contingencies

policyholder's surplus definition

is the difference between an insurance company's assets and liabilities

loss reserve definition

is the estimated cost of settling claims for losses that have already occurred but that have not been paid as of the valuation date

fair market value definition

is the price a willing buyer would pay a willing seller in a free market

what is the fundamental purpose of the unearned premium reserve?

it is a liability item that represents the unearned portion of gross premiums on all outstanding policies at the same time of valuation.

unilateral contract definition

only one party makes a legally enforceable promise

gross premium definition

paid by the insured consists of the gross rate multiplied by the number of exposure units

actual cash value definition

replacement cost less depreciation

principle of utmost good faith legal doctrines are?

representations, concealment, and warranty

representation definition

statements made by the applicant for insurance

principle of insurable interest definition

states that the insured bust be in a position to lose financially if a covered loss occurs

the principle of indemnity definition

states that the insurer agrees to pay no more than the actual amount of the loss

principle of subrogation definition

substitution of the insurer in the place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance.

income and expense statement definition

summarizes revenues and expenses paid over a specific period of time

personal contract definition

the contract is between the insured and the insurer

broad evidence rule definition

the determination of acv should include all relevant factors an expert would use to determine the value of the property

in life insurance the insurable interest has to be met at?

the inception of the policy

a broker represents

the insured

contact of adhesion definition

the insured must accept the entire contract, with all of its terms and conditions. *the courts have ruled that any ambiguities or or uncertainties in the contract are construed against the insurer.*

conditional contract definition

the insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions

competent parties definition

the parties must have legal capacity to enter into a binding contract

pure premium definition

the portion of the rate needed to pay losses and loss adjustment expenses

rate definition

the price per unit of insurance

in property insurance insurable interest must be met at?

the time of the loss

exposure unit definition

the unit of measurement used in insurance pricing

consideration definition

the value that each party gives to the other

replacement cost insurance definition

there is no deduction for physical depreciation in determining the amount paid for a loss