Missouri Property and Casualty

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.

Speculative Risk

A chance of loss, no loss, or gain. Example: Gambling, These types of risks are not insurable.

Pure Risk

A situation in which there are only the possibilities of loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.

Wha tis a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

All of the following statements concerning coinsurance are true EXCEPT. A. The Coinsurance formula will also be applied to total losses. B. It is used to help adequacy and equity in rates. C. The insured agrees to maintain insurance equal to some specified percentage of value to the property. D. If the insurance carried is less than required, the insurance may not cover the whole loss.

A. The coinsurance formula will also be applied to total Losses.

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the....

Additional insured

Defined as the maximum limit of coverage available under liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?

Aggregate limit of liability

Indirect Loss

Also known as consequential losses, are losses considered as a result of direct loss. Such losses usually result from the time it takes to repair or replace damaged property. E.G. Extra living expenses that may be incurreed by the insured

Morale Hazards 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. (E.g. I'm not going to bother fixing this. If it breaks my insurance will pay to replace it)

What establishes the procedures for determining the amount of a loss when the insurer and the insured cannot agree on the value of property or amount of loss?

Appraisal clause

Insurable interest in a property policy must be proven....

At the time of loss

An insurance contract must contain all of the following to be considered legally binding EXCEPT... A. Competent Parties B. Beneficiary's consent C. Offer and Acceptance D. Consideration

B. Beneficiarfy's consent

Which of the following would NOT be considered a source of insurability information by an insurer? A. Insurance History B. The applicants marital status C. interviews with applicant's neighbors and friends D. Motor vehicle records

B. The applicants marital status

Which of the following is NOT the consideration in a policy? A. The promise to pay covered losses B. The application given to a prospective insured C. Something of value exchanged between parties D. The premium amount paid at the time of application

B. The application given to a prospective insured

Life and Health Example

Brenda has a health insurance policy of $20,000. After she was hospitalized, her medical expenses added up to $15,000. The insurance policy will reimburse brenda only for $15,000 (the amount of the loss), and not for the $20,000 (the total amount of insurance).

Property and Casualty Example

Brenda has a homeowners insurance policy for $200,000. After her home was destroyed, her expense to rebuild the home added up to $150,000. The insurance policy will reimburse Brenda only for $150,000 (the amount of the loss), and not for the $200,000 (the total amount of insurance).

What is an Occurrence?

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

Insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. What reason would a death benefit claim be denied?

Material misrepresentation

Direct Loss

Means direct physical damage to buildings and/or property. Includes other damage where the insured peril was the proximate cause of loss. E.g. When a building catches fire, the fire department will use water to put the fire out causing further damage. Although the water damage is not an insured peril, the damage is paid under the peril fo fire because fire was the proximate cause.

What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy?

Open Peril Policy

The causes of loss insured against in an insurance policy are known as

Peril

Hazards are classified as

Physical, Moral, Morale

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

Property insurance

Two types of Risk

Pure and Speculative

Depreciation

Reduction in value, particularly due to wear and tear.

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called?

Specific Coverage - One location is insured for a specific amount of insurance on the structure and contents.

The legal process that gives the insureer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as....

Subrogation

What is an Accident?

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

Exposure

Susceptibility to risk

Burglary is defined as...

Taking of property from within the premises leaving visible signs of forced entry.

If there were no insurance mechanism

The cost of a loss would have to be borne solely by the individual who suffered the loss.

Negligence is defined as....

The failure to do what a reasonable prudent person would do under given circumstances.

Law of Large Numbers

The larger the number of people with similiar exposure to loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss upon which insurance rates are calculated.

Premium

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

Tool that Insurance companies use to preduct time of death, loss, or event.

Law of Large Numbers

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

Casualty Insurance

What are Hazards?

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

All of the following are factors in the determination of actual cash value EXCEPT... A. Type and quality of property B. Age of the pproperty C. Replacement Cost D. Insurance premium paid

D. Insurance premium paid

Which of the following is used in the formula for calculating the actual cash value of a property? A. Stated Value B. Fair Market Value C. Agreed Value D. Replacement Cost

D. Replacement Cost

Mandatory part of an insurance policy that varies with each individual policy....

Declarations

The part of a property policy that shows the amount of insurance, premium, and policy term is the

Declarations

In property and casualty insurance, what is the term for the amount of loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?

Deductable

The part of a policy that clarifies terms in the policy is the...

Definitions

What are two types of property losses?

Direct and Indirect

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct loss

An insured has four seperate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay?

Each policy will pay $25,000 of the loss

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers

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

Life Insurance

Three Elements of insurable Risk

Financial (a monetary interest); Blood (a relative); and Business (a business partner)

What is named on the declarations page of a property or liability policy?

First Named insured

Physical Hazards are

Hazards arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it

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

Health Insurance

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

To purchase insurance, the policyowner must have financial interest in the property being insured. This is known as....

Insurable Interest

In property and Casualty insurance, this must exist at the time of the loss

Insurable interest

___________ is a transfer of risk of loss from an individual or business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals.

Insurance

Subrogation is

Insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Subrogation is based on the principle of idemnity by preventing the insured from collecting on the loss twice: Once from the insurer and a second time from the party that caused the damage.

Part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the...

Insuring Agreement

All of the following are conditions commonly found in the insurance policy EXCEPT A. Insuring agreement B. Cancellation and nonrenewal C. Subrogation D. Appraisal

Insuring agreement

For the Purpose of Insurance, Risk is defined as?

The uncertainty or chance of loss.

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 is

a provision in an insurance policy that states that in the event of loss, an insured or 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.

Moral Hazards refer to

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

Obsolescence

depreciation in the value of a property due to becoming outdated.

Indemnity means...

insureds cannot recover more than their loss.

Insurable Interest

something of value that, if lost, would cause you financial harm

Insurer (principal)

the company who issues an insurance policy

Risk

uncertainty concerning the occurrence of a loss