What is insurance? - ANSWER-protection against financial loss
what is a premium - ANSWER-a scheduled amount to be paid for an insurance policy.
What
... [Show More] are premiums used for - ANSWER-premiums are collected into a "pool" or "reserve to pay out claimants when needed.
how can insurance companies afford to pay for an individuals catastrophic loss? - ANSWER-the insurer collects premiums from all policy holders and uses them to pay out the claims of a few.
what is Indemnity - ANSWER-payment for damages, that is not more or less than the amount caused by the damage.
principle of idemnity - ANSWER-insurance will pay no more or less than the actual financial loss suffered
indemnification may also include - ANSWER-repairs to property
reimbursement for additional living expenses
rental cars and hotels
costs directly associated with a loss
4 Parts of Legal Contract - ANSWER-1. Agreement
2. Consideration
3. Competent Parties
4. Legal Purpose
legal contract - agreement - ANSWER-mutual intent by offeror and offeree
six special characteristics of insurance contracts - ANSWER-1. Personal
2. adhesion
3. utmost good faith
4. aleatory
5. unilateral
6. conditional
what kind of contract is an insurance policy? - ANSWER-Personal contract
what is a contract of adhesion - ANSWER-the insured must accept the entire contract with all of its terms and conditions
Utmost Good Faith - ANSWER-An obligation to act in complete honesty and to disclose all relevant facts.
Aleatory Contract - ANSWER-a contract where the values exchanged may not be equal but depend on an uncertain event
Unilateral Contract - ANSWER-insurance agrees that they must pay in event of a claim. the insured can stop paying premiums at any point.
only the insurer has promised to perform an action.
Conditional Contract - ANSWER-A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.
Acronym for the four sections of an Insurance policy - ANSWER-DICE
D - declarations page
I - Insuring Agreement
C- Conditions
E - Exclusions
Decelerations section - ANSWER-Always the first section - establishes the following
Names of both parties
Policy number
Location and description of insured item
Dates of the policy
Amount and limit of coverage
Deductible
Premium
Definitions section - ANSWER-Defines terms used to write policy including "collusion" "decay" "like kind and quality"
Includes important language for adjusters to know
Insuring agreement section - ANSWER-What is covered and how
Which causes of loss are covered
Any services provided
Any exclusions to coverage
The maximum limit of policy coverage in dollars
Conditions section - ANSWER-Insurer specifies any limits or qualifications the policy holder must meet
Exclusions section - ANSWER-losses for which the insured is not covered for
Endorsements - ANSWER-Provision that modifies the coverage of the original contract
Add or subtract coverage
Synonyms - rider, addendum, attachment
Certificate of Insurance - ANSWER-A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.
Characteristics of social insurance - ANSWER-Non profit
Mandatory participation
Benefits prescribed by law
Designed to meet needs of public
Government has monopoly
Private Insurers - ANSWER-Sell insurance based on needs and preferences
Wide variety of products
Exist to generate a profit
Insured party voluntarily participate
Stock Insurance Companies - ANSWER-Always for profit
Publicly traded
Stockholder provide capital and participate in profit or losses
"Non participation" insurers - no dividends go to policy holders
Mutual Insurance Company - ANSWER-No shareholders
Policy holders elect board of directors
"Participating" insurers - policy holders participate in dividends
Re-insurer - ANSWER-Provides insurance for insurers to reduce exposure to loss
Pays percentage of insurers loss or any loss over a certain amount
Reciprocal Insurers - ANSWER-Unincorporated
Non profit
Operated by attorney in fact
Members pay into individual accounts
Cost of claims shared by whole groups
Fraternal Benefit Societies - ANSWER-Also called fraternal associations
Non profit mutual aid organizations
Engage in charitable activities
Provide some type of insurance to members
Typically consist of people with similar religion, ethnicity or occupation
Fraternal Benefit Societies insurance - ANSWER-Used to fund altruistic activities
Must be assessable by law
Members are both providers and recipients
If claims payment ability is impaired, members help pay the difference
captive insurers - ANSWER-Created by businesses in order to retain risk
Exist to provide insurance for their "parent"
All profit belongs to parent company
Permitted in some states
Risk retention groups - ANSWER-Authorized by the federal liability risk retention act of 1986
Owned by their members
Provide commercial liability
RRG Requirements - ANSWER-Members must be involved in similar business endeavors
Don't need to be licensed in multiple states
Classification based on location - ANSWER-Domestic Insurer - adhere to law of a state, located in that state
Foreign insurer - adhere to laws in the US but can be located elsewhere
Alien insurer - obey laws of another country all together
Risk - ANSWER-Potential for financial loss
An insured item
Two types of risk - ANSWER-Pure and Speculative
Speculative risk - ANSWER-No certainty of gain or loss
Made knowingly, by conscious choice
Cannot be insured
Pure risk - ANSWER-Risk with no chance of gain
Can only result in either loss or no loss
Can be insured
Exposure - ANSWER-Extent to which an item, person, or organization is open to damage or loss
Evaluating exposure - ANSWER-Expressed in dollars or units
Determining factor in issuing a policy and setting a premium
Hazard - ANSWER-A condition increasing the likelihood or severity of a loss
Peril - ANSWER-The actual cause of loss or damage
Insurable risk - ANSWER-Adequate premiums
Definable risk
Unexpected losses
Substantial loss
Exclusions
Law of large numbers
Adequate Premiums - ANSWER-Potential loss can't be too much for insurer to pay
Insurer must b able to cover claims and expenses
If premiums must be set too high, the risk is not insurable
Difneable risk - ANSWER-Insurer can define exact conditions under which the item is covered by the policy
Item it's self is defineable
Item has precise value
Unexpected loss - ANSWER-Unforeseeable
Unexpected
Reasonably unpreventable
Random in nature
Substantial loss - ANSWER-Must cause substantial economic hardship
Exclusions - ANSWER-Insurer must be able to exclude large scale disasters and catastrophic events
Law of large numbers - ANSWER-Insurer must be able to cover large numbers of similar risks
Spreads risk across more policies
Helps insurers predict losses more accurately
Similar risks can mean, cars houses, persons lives, similar business etc
Adverse Selection - ANSWER-when someone buys health insurance because they know they will probably file a claim
4 risk management techniques - ANSWER-Avoidance
Reduction
Transference
Retention
Risk avoidance - ANSWER-Eliminates risk by not taking action that involves risk
Risk reduction - ANSWER-Taking measures to reduce risk that is involved
Also called risk mitigation
Risk Transference - ANSWER-Management of sever risk by transferring risk to [Show Less]