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PA Property & Casualty
Definitions
31
Insurance
Professional
05/23/2015

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Term
Insurance
Definition
The transfer of risk from insured to insurer.
Term
Indemnity
Definition
To restore policy holder to pre-loss condition; make whole.
- No better - no worse
Term
Law of Large Numbers
Definition
▬Insurance companies take on many risks with a reasonable assurance of paying a certain number of claims.▬- As number of loss exposures increase, difference between actual & expected results becomes smaller. - This allows the insurance company to predict potential future losses more accurately. MORE PEOPLE INSURED MORE THEY CAN PREDICT LOSS
Term
Property Insurance
Definition
Covers the insured's real estate & personal property against damage or loss due to covered perils & consequential losses.
Term
Casualty Insurance
Definition
Protects insured from financial loss from non-property insurance losses.. - Non-property insurance coverage
Term
Reinsurance
Definition
The insurance company's insurance company.
- Insurance company determines retention limit & buys reinsurance for the balance. - Also known as "POOLONG THE RISK"
Term
Personal vs. Commercial Lines
Definition
▬Personal: Insurance for families & individuals (auto, homeowners, watercraft, inland marine, miscellaneous forms).
▬Commercial: Insurance for business of any size of professionals (doctors, lawyers). - Business Auto & truckers. - Commercial property, -Ocean/inland marine. - Workers compensation. - Crime forms. - Surety bonds. - Miscellaneous forms.
Term
Risk
Definition
Uncertainty of financial loss. - PURE RISK: chance of loss only, can be covered by insurance. - SPECULATIVE RISK: chance of loss or gain, gambling, cannot be covered by insurance
Term
Managing Risk (Risk Management)
Definition
The dollar amount of potential risk is determined by statistics of prior losses. -Statistics determine whether risk is insurable.- The analyzing of pure risks to the possibility of loss & determining how to handle these exposures. - Managing risks is a system of choices available to individuals, businesses, & insurance companies
Term
Methods Of Handling Risk (STARR)
Definition
▬Sharing: Chance of loss is shared among many individuals & called pooling the risk ▬Transfer: Shifting the financial burden of a loss from the insured to another party. THIS IS THE PURPOSE OF INSURANCE ▬Avoidance: Avoiding a particular activity that could turn into a loss ▬Retention: Accepting the possibility of a loss yourself. A deductible is a form of retention -the insured assumes part of the risk by insuring only above a certain dollar amount.▬Reduction: Taking action to reduce the possibility of loss.
Term
Elements of an Insurable Risk CANHAM
Definition
CANHAM - Lost must be:▬Calculable:prior loss statistics are available.▬Affordable:premiums must be affordable to the average consumer. ▬Non-catastrophic:No earthquakes, war, terrorism. Homogeneous exposures:Similar exposures. ▬Accidental:Not intentional. ▬Measurable: Number & dollar amounts
Term
Exposure
Definition
A condition or situation the presents the possibility of loss
Term
Perils
Definition
Causes of loss. - Common causes of loss include fire, wind & lightning. - A policy can be written jn one of two forms: ▬SPECIFIED (named), perils covered specifically listed in policy. ▬OPEN PERIL (all risk), Specifically lists exclusions; everything else is covered
Term
Hazard
Definition
Hazards increase the chance of loss. ▬Physical: material characteristics. ▬Moral: Dishonest tendencies. ▬Morale: Careless irresponsible attitude
Term
Hazard Examples
Definition
Physical: cracked sidewalk
Moral: Intentionally burn down house
Morale: Leave keys in unlocked car
Term
Loss
Definition
Unintended, unforeseen damage to property, injury, or amount paid. ▬Direct: Physical loss to property with no intervening cause. ▬Indirect: Consequential loss as the result from a direct loss
Term
Loss Examples
Definition
▬Direct: - Lightening strikes a house. - Auto collides with tree. ▬Indirect: - Loss of rental income. -Loss of profits
Term
Insurable Interest
Definition
All insurance contracts are required to contain an element of insurable interest. - Personal/financial interest - Economic loss required - For property & casualty must exist at time of loss
Term
Loss Valuation
Definition
The process of determining the value of the loss. ▬Replacement cost. Today's cost to fully replace lost or damaged property with like kind or quality property " without deduction for depreciation".
▬ Actual Cash Value (ACV): Replacement cost minus depreciation due 2 wear,tear obsolescense
▬Functional replacement cost: Cost to repair or replace with functionally equivalent materials.
▬Market value: the price a buyer would pay & a seller would accept in a competitive market
▬Agreed value: the value of the described property agreed on by both insurer & insured
▬Stated amount: An amendment to the valuation provision of a policy that provides a stated maximum amount for payment of any loss.
▬Valued policy: Valued policy is an exception to the principle of indemnity. Under this provision,the insurer is liable for the full amount of damages up to the policy value
Term
Proximate Cause
Definition
The cause responsible for the loss: ▬closely related to direct loss; insured peril is required. ▬Unbroken chain of events. - "Had it not been for this occurring. This would not have occurred"
Term
Limits of Liability
Definition
Insurance contracts state the max amount of coverage agreed to be paid in the event of a loss. Limits are stated in 3 diff. ways:▬Combined Single Limit (100K) ▬Split Limits (100/300/50) ▬Aggregate Limit (100K per ocurrence/300K aggregate)
Term
Deductible
Definition
▬Requires the insured to pay a specific amount or percentage of loss. ▬Retention limit ▬ Insurer pays in excess of deductible. Reduces premium
Term
Accident
Definition
▬Requires the insured to pay a specific amount or percentage of loss. ▬Retention limit ▬ Insurer pays in excess of deductible. Reduces premium
Term
Occurrence
Definition
An event that happens over time. - Can be a series of accidents. - Can be continuous or repeated exposure to conditions. - Result in injury or disease (i.e. black lung disease)
Term
Termination of Policies
Definition
▬Cancellation: Insurer or insured cancels contract before end of policy period. - Premium refunds: Earned, company keeps proportionate premium used. Unearned premium, proportionate premium not used is returned to the insured. Short-rate, company keeps penalty (service change). Pro rata, Insurer cancelled; insured received full unearned premium; no penalty.
▬Non-renewal: Happens at end of policy period
Term
Types of premiums
Definition
▬Initial premium: Down payment can be full amount or partial payment. - Subject to rating/ underwriting charge.
▬Deposit/audit premium: Certain types of commercial policies are subject to premium audit. - Insured pays a deposit premium at policy inception. - "True up" after audit completed at end of policy term. - If different than estimated premium, applicable refund or charge to insured
Term
Subrogation
Definition
The act of assigning or substituting the rights of one party to another for the purpose of collecting a debt or claim.
Term
Assignment
Definition
▬Involves the transfer of a legal right or interest in an insurance contract to another party. ▬ valid only with written consent of insurer
Term
Four Elements of a legal Contract CLAC
Definition
▬Competent parties, Who's not: minors, mentally/legally incompetent, alcohol/drug influence,enemy aliens. ▬Legal objective: legal purpose. ▬Agreement: offer & acceptance. ▬Consideration: exchange of values(money=promises)
Term
Policy Structure (DICEE)
Definition
▬Declarations: contains 5 P's: person/property, policy number, policy term, policy limit, premium + mortgage. ▬Insuring agreement: describes coverage provided by insurer & perils covered. ▬Conditions: Obligations of each party to the contract; are stated ground rules. ▬Exclusions: What's not covered. ▬Endorsements(riders): Add, modify or take away coverage
Term
Insured
Definition
The insured is the policyholder, person, business or entity whose interest is protected in the policy. ▬Named Insured: Person, business, or other entity specifically designated by name (named in the declarations) as the insured to whom the policy is issued. ▬First Named Insured: first person listed in the declarations as an insured; the first named insured may have a higher level of duties or rights under the policy. ▬Additional Insured: An individual or company, in addition to the insured, who is listed in the declarations & has an insurable interest in the property insured (mortgage of a home or lien-holder of car)
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