General Insurance/Property and Casualty Insurance Basics and Contract Law

What are the four elements of insurance contract?

1. Agreement (offer and acceptance) 2. Consideration 3. Competent Parties 4. Legal Purpose

What are the methods of managing risk?

1. Avoidance 2. Transfer 3. Sharing 4. Retention 5. Reduction

What are the three types of agent authority?

1. Expressed 2. Implied 3. Apparent

What are the three type of hazards?

1. Physical 2. Moral 3. Morale

What is consideration on the part of the insurer?

A promise to pay in the event of a loss.

What does the term "unilateral contract" mean?

A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise.

What is it called when risks with a higher probability of loss are seeking insurance more than their risks?

Adverse Selection

According to the Law of Agency, who represents the principal?

Agent or Producer

What type of insurer is formed under the laws of another country?

Alien

What is a warranty in an insurance contract?

An absolute true statement upon which the validity of the policy depends.

How do the courts treat ambiguous insurance contract?

Any ambiguity in an insurance contract is interpreted in favor or the insured.

What type of authority is based on the agent's actions, or words?

Apparent

In property insurance, when must insurable interest exist?

At the time of loss

What does the term "reasonable expectations" mean in insurance?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language.

What document is required for an insurance company to transact insurance?

Certificate of Authority

What is consideration in an insurance contract?

Consideration is something of value that each party give to the other. Consideration on the part of the insurer is binding.

Insurers are classified according to their domicile. What are three types of insurers?

Domestic, Foreign, and Alien

Insurance is used to transfer what to an insurance company?

Financial Responsibility For Loss

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?

Foreign

What type of insurer is formed under the laws of another state?

Foreign

What do individuals use to transfer their risk of loss to a larger group?

Insurance

In the agent/insurer relationship, who is considered the principal?

Insurer

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

Law of Large Numbers

Insurance is a contract that protects the insured from what?

Loss

A person who does not lock the doors to his or her house show indifferent attitude. What type of hazard does this represent?

Morale

A tornado that destroys a property would be an example of what?

Peril

What is the term for the causes of loss insured against in an insurance policy?

Peril

What is the fee a person pays an insurance company to receive coverage?

Premium

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure Risk

Wagering on a sporting event is known as what type of risk?

Speculative

The type of insurance company organized to return any profits to its stockholders is known as what?

Stock Company

Who owns stock companies?

Stockholders

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act

What does the principle of utmost good faith imply?

There is no fraud, misrepresentation, or concealment between the parties to a contract.

What does "indemnify" means in insurance?

To restore an insured to the same financial status as before a loss.

For the purpose of insurance, what is risk?

Uncertainty of Loss

What is the name of the process insurers use to determine whether or not a policy should be issued and on what terms and conditions?

Underwriting.

Insurance contracts are aleatory in nature. What does that mean?

Unequal values are exchanged between the parties to a contract.

When would a misrepresentation on an insurance application considered fraud?

When it is intentional and material

In insurance contracts, when is the offer usually made?

When the insurance application is submitted.

Self-insuring is typically used for what type of insurance?

Workers Compensation

What is the difference between cancellation and non renewal?

Cancellation is the termination of an insurance policy by either party prior to the policy's expiration date. Nonrenewal is the termination of a policy at its expiration date by not offering an continuation of the existing policy.

A state-issued document empowering an insurance company to become an admitted insurer is called what?

Certificate of Authority

Conditions that increase the chance of a loss are known as what?

Hazards

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

What are the five characteristics of an ideally insurable risk?

Loss must be (1) due to chance, (2) definite and measurable, (3) statistically predictable, (4) not catastrophic, and (5) coverage cannot be mandatory.

An insurer discovers that an applicant for a policy has submitted a fraudulent insurance claim in the past. What type of hazard does this represent?

Moral

An insurance policy paid a nontaxable dividend to the insurance one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Mutual

The type of insurance company organized to return any surplus money to its policy holders is known as what?

Mutual Company

In insurance contracts, when does acceptance usually occur?

When the insurer approves a prepaid application