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