Module C - Insurance Policy Terms & Definitions

Endorsement

(Rider) is a written amendment or addition that is attached to the policy to change coverage.

What are the three methods of the Other Insurance Clause?

- Pro-Rata Share - Contribution by Equal Shares - Primary and Excess Insurance

A document that temporarily obligates an insurance company to provide coverage while the issuance of a policy is pending is known as?

A binder.

Binding insurance coverage is granted by what?

A contract established between the "agent" and "principle".

Declaration Page

A list of endorsements that are attached to this policy.

What are insured's expected to provide if they experience a loss?

A loss notice the the insurance company or their agent right away. The company will provide the insured proof of loss forms, or instruction to access the forms online. The insured is expected to subkit those forms within the time period specified by law.

Insured

A person that is protected under an insurance contract. There can be several covered under a single insurance policy.

2 examples of when an insurance policy is suspended:

A policy might be suspended until the insured catches up on their unpaid premium or if the insured's home has not been brought up by resistant standard. The policy may be suspended until the insured makes the required changes.

Short Rate Basis

A portion that will be deducted from the returned premium as a penalty for cancelling midterm.

Which of these statements best describes the law of agency?

A relationship in which someone is authorized by contract to represent another party.

Loss Reserves

A sum of money that is set aside by insurance companies to meet its future obligations to pay claims and to return unearned premium in the event of a mid-term cancellation.

Loss

Actual i jury or damage sustained by the insured that forms the basis for an insurance claim.

Additional Insured

Added to the policy at the request of the first named insured. Usually entities that have an interest in what id being insured. Ex: Bank that holds a morgage on the insured's home.

Who has fiduciary responsibilities?

Agents, adjusters, and insurance companies have a responsibility to their clients in the collections and handling of premiums, claims payments, and return of unearned premium.

Subrogation

Allows the insurer to step into the insured's shoes to recover their losses.

Representation

Answers to questions on the application.

Named Insured

Any person or entity that is distinguished from the other insured on the policy that remain unnamed.

The provision in an insurance contract that outlines the process of bringing a contract dispute before an objective third party for resolution is known as?

Arbitration

What do some state laws require before mediation or litigation is permitted?

Arbitration

Subrogation Clause

Assigns to the insurance company the insured's right to claim damages from a third party only after the insurance company has paid the insured's claim.

When does nonrenewal occur?

At the end of the policy period

Agent

Authorized to act on behalf of the principle and third parties.

Which of the following is a general summary of a policy?

Certificate of Insurance

Chris is insured through Binders Keepers Insurance Company and his policy period ends in 12 months. However, Christ has decided that he wants to cancel his policy in order to purchase another from another insurance company. Christ calls his agent to cancel the policy and is informed that the unearned premium on the canceled policy will be returned to him by mail in a couple of weeks. When Chris received the check, he is surprised to find that it's made out for less than the amount of the unearned premium he should have received. What is most likely the reason for this?

Chris's policy has a provision stating the UEP must be returned on a short-rate basis.

Pro-Rata Shares Calulations Formula

Company A Limits --------------------- x Loss = Company A Payment Company A + Company B Limit

Certificate of Insurance

Contains a general summary of the policy. It is NOT the insurance policy itself. They are sometimes required as in the case of auto insurance, to be used to provide insurance coverage.

What is the purpose of insurance?

Cover exposures

Where in the insurance contract can an insured find the terms used throughout the policy and an explanation as to what they mean in the context of the policy?

Definitions

Arbitration Clause

Describes in the policy language the process of bringing a contract dispute before an objective third party for resolution.

The Law of Agency

Describes the relationship between two parties, the principle and the agent.

Franchise Deductible

Differs from an ordinary deductible in that once the deductible is met, the entire amount of the loss paid, subject to the policy limit. They may be listed on the policy as a percentage of the covered loss.

Contribution by Equal Shares

Each company pays an equal amount of the loss until the loss is covered, or the policy limit of any policy is reached. If one or more of the policy limits are reached, the equal shares principle applies to the remaining insurers until all policy limits are reached.

What can a deductible be applied to?

Each covered loss in the policy or it can be used as a fixed amount in the policy.

Pro-Rata Share (apportionment)

Each policy pays its portion of the loss, proportional to the percentage of coverage provided by that policy.

A written modification of an insurance policy is known as an?

Endorsement form

Third Party Administratiors

Firms the handle many dofferent administrative responsibilities for insurance companies, such as handling claims and risk management consulting. They are separate business entity from the insurance companies that hire then and are not subject to many state laws to which an insurer is subject. This lack of regulations has created a risk exposure that many states are mitigating through regulations that limit the tasks insurance companies are permitted to delegate to them.

Application for Insurance

Form on which an applicant for insurance provides representation. This application, together with sources, is used by the insured during the underwriting process.

Pro-rata Basis

Full premium for the unexpired term, if returned with no penalty.

Pro-Rata Shares Calculations

If an insured carriers more than one policy that covers the same loss, each insurer will pay its percentage of the loss based on their proportion of the coverage using a formula.

Legal Action Against Insurer

Imposes limitations on an insured's rights to sue their insurer for coverage under the policy. This provision requires the insured to meet all their duties under the policy before they are permitted to a law suit.

Transacting Insurance

Inidcating licenses necessary to participate in insurwnce transactions. General definition: Soliciation, inducement, preliminary negotiations affecting a contract of insurance and the subsequent business pertaining to carrying out the terms of the contract.

Who has the power to bind insurance coverage on behalf of their principle, the insurance company.

Insurance agents, producers, and adjusters

Vague Language

Insurance contract can lead to an insured misunderstanding what is and what is not covered under their policy. When this misunderstanding results in a law suit, the courts will usually resolved the ambiguous language in the favor of the insured.

What happens when a policy is voided?

It becomes unenforceable, and is handled as if the policy never existed.

What may endorsements contain?

Its own conditions, exclusions, and definitions section.

Ambiguous

Language that is vague and creates doubt.

Binder

Legal agreement that provides temporary evidence of insurance coverage until a policy can be issued. States laws require if this needs to be written or verbally stated. The state also determines how long it can be in effect.

Coverage Form

One of the standardized forms used to build an insurance contract. They usually contain their own insuring agreement, conditions, exclusions, and definitions.

When can an insured assigned his or her insurance policy over to another party?

Only with the written consent of the insurer.

An "other insurance" clause in insurance policies to deal with the problem of?

Overinsurance

What are the First Named Insured's responsibilities?

Paying the premium, providing the loss notice, and submitting proof of loss.

First Named Insured

Person or entity listed first on the policy. The person the insurance company contacts when necessary.

Fiduciary

Person or institution that is responsible for the money, property, or financial affairs of another.

Policy Territory (coverage territory)

Provision limits the coverage to specific geographical areas. If thebloss occurs outside this area, coverage will not apply.

Liberalization Clause

Provision that extends to persons already insured under a a policy that broadened features that may be introduced in subsequent editions of that form, with no additional premium.

What is a deductible sometimes called?

Self-Insured Retentions because it is part of the claim the insured has to pay.

When a policy is cancelled midterm, what specifies how much of the premium will be returned?

Short rate or Pro-rata

Exposures

State of being subjected to loss because of some type of hazard.

What does the Legal Action Against Insurer impose?

Statue of Limitation (time period)

After paying a claim submitted by an insured, an insurance company may have the right to pursue legal actions against the negligent party that caused the insured's loss. This is known as?

Subrogation

Gena purchased a policy to cover her home. Recently, she has been conduction business from the home and has hired several employees. She also has several clients per day coming to the home for business purposes. When Gena's insurer find out about the additional exposures she has introduced into her home, they decide to take action. Which of the following action is Gena's insurer most likely to take?

Suspend the policy until she moves the business out of her home.

Policy Experation

The actual date that the policy is no longer in effect.

Policy Inception

The actual date, and in some cases the hour, in which the policy goes into effect.

Deductible

The amount of money specified in an insurance policy that the insured must pay before an insurance company will pay a claim.

What are other forms that make up the policy, all that become part of the entire contract?

The application, definitions, endorsement, additional coverages, and supplementary payments.

Policy Provisions

The clauses in an insurance contract the determine how the coverage applies and in what amount.

What happens when a policy is suspended?

The coverage is terminated temporarily until the insured addresses the issue that caused the suspension, usually nonpayment of premium or significant change in risk.

The Entire Contract Clause

The entire agreement between the insured and the insurer is limited to the terms of the contract and no other terms outside of the contract.

Proof of Loss - NOT THE LOSS NOTICE

The formal statement submitted to the insurer listing the details if a loss such as: - The amount of the loss claimed - Documents supporting the amount of the loss claimed (receipt/ appraisal) - The parties claiming a loss under the policy - Date and cause of the loss - The people who have an interest in the claim

What is the common reason for voiding a policy?

The insured misrepresented material facts on the application for insurance. Many times, when an insured provides false information that is material to the risk, the policy will be voided to inception.

What is the insured responsible to do if the insurance company paid a claim prior to the policy being voided?

The insured would have to reimburse the insurer.

Limit of Liability (limit of insurance)

The most that will be paid by the insurer in the event of a covered loss under and insurance policy. This term is used frequently throught the course.

Policy Period

The period of time between the policy inception and the policy experation. This is the period of time that coverage is in effect.

What happens when a policy is cancelled?

The policy can be cancelled by either the insured or the insurance company, but only the insurance company is required to comply with state laws for cancellation based on the type of policy.

The time period after the policy inception and before the policy expiration is known as?

The policy period.

Primary and Excess Insurance

The policy that is considered primary pays first. The policies that are considered excess pay only after the policy limits are reached. This method is used mostly when policies purchased by different people cover the same loss, or with insurance not purchased directly by the insurer, such as employer of healthy insurance.

Helen has not paid her insurance premium for a significant amount of time. Which if the following is likely to happen in this scenario?

The policy will be cancelled.

Definitions

The scope of coverage depending on how particular terms and phrases are defined. Important terms and phrases that are used through-out the policy that may have different meanings pertaining to the coverage. Some policies have a separate section. Some listed in the conditions section of the policy and others spread them through-out the policy.

What are some responsibilities of the insurance company when the policy is cancelled?

The unearned premium must be returned by the insurance company if the insured cancels the policy in the middle of the policy period, however, if the insurance company cancels the policy, they must obeyed by state law in doing so. The state law dictates how many days notice the insurance company is required to provide, the methods that may be used to provide that notice, and reasons for which an insurer is permitted to cancel. Most of the time, the requirements to cancel a policy differ for personal lines policies from commercial lines policies.

When a policy is cancelled midterm (interim) what must be returned to the insured?

The unearned premium that was already paid for the remainder of the policy period.

What are the reasonings for deductibles?

They keep the number of small claims to a minimum. Insureds can chose a higher deductible to receive a lower premium.

Other Insurance Clause

This clause specifies how claims will be paid if there is more than one policy covering the same risk.

Assignment

Transfer of legal rights under an insurance policy to another party. Usually, this part of the policy requires the written consent of the insurance company.

What is an insurance policy made up of?

Various coverage forms to build the coverage the insured desires.

Insurance policies can be cancelled during the underwriting period "midterm" subject to the ....

guidelines in the policy provision and state laws.

The Arbitration Clause varies depending on what?

the type of policy