Final Xcel Exam

Nature of insurance

-to provide financial protection against losses that may be incurred due to a chance happening or event such as death, illness, or accident -protection is provided through an insurance policy which is a simple device for accumulating funds to meet these uncertain losses

Unilateral Contract

A unilateral contract is a one-sided agreement in which only one party, the insurance company, is legally bound to do anything

Retention

A.k.a. self insurance When individuals have the financial ability to fine losses by themselves when they occur

Adhesion

Adhesion is also known as take it or leave it agreements because they are prepared by only one party, the insurance company

Legal Purpose

And insurance contract must be legal and not against public policy

Concealment

Concealment is a legal term for the intentional withholding of information, which is crucial in making a decision

Insurance Contract

Contract law defines a contract as a legally binding agreement between two or more parties where a promise of benefits is exchanged for a consideration In order for an insurance contract to be legally binding it must have four essential elements 1-offer and acceptance 2-consideration 3-legal purpose 4-competent parties

Conditional

Insurance contracts are conditional because certain conditions must be met by all parties when a loss occurs, otherwise the contract would not be legally enforceable

Valued

Life insurance is a valued contract, which pays a stated amount, regardless of the actual loss incurred

Elements of Insurable Risk

Not all risk is insurable Insurance companies will insure only pure risk The risk must be due to chance it cannot be catastrophic it must be randomly selected

Personal Contract

Personal contracts between an individual and the insurance company, and cannot transfer ownership without the insurance company's written consent

Representation

Representations are statements believe to be true, to the best of one's knowledge, but they are not guaranteed to be true for insurance purposes

Avoidance

Simply avoiding as many risks as possible Risk avoidance is effective but not always practical

Transfer

Transfer is the most effective way to handle the risk The risk is transferred to another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company

Sharing

When a group of individuals or businesses with similar exposures share the losses that occur within that group Reciprocal insurance exchange is a formal risk sharing agreement

Consideration

The consideration on the part of the insurance company is a promise to pay in the event of loss

Competent Parties

They must be of legal age, mentally capable of understanding the terms, and not under the influence of drugs or alcohol

Aleatory Contract

Insurance contracts are aleatory which means that there is not an equal exchange of value

Indemnity

Health insurance is an indemnity contract, it only pays the amount equal to the loss

Pure Risk

Hey situation I can only result in a loss there is no opportunity for financial gain This is the only type of risk that is insurable

Reduction

Since we cannot avoid risk entirely we often attempt to lessen the possibility of a loss by taking action to reduce the risk

Warranties

Statements that are guaranteed to be true and are a part of the legal contract

Law of Large Numbers

The larger the number of people the more predictable the actual losses will be

Insurable Interest

The most important aspect for establishing a legal insurance contract

Speculative Risk

The opportunity for either a loss or gain Not covered by insurance companies