Law of Large Numbers
The larger the number of people with a similar exposure to loss, the more predictable actual losses will
... [Show More] be.
Insurance
Transfers the risk of loss from an individual or business entity to an insurance company
The three elements of insurable risk are
1) Financial 2) Blood (relative) 3) Business
Risk
The uncertainty or chance of a loss occurring
Types of risks are
1) Pure risk 2) Speculative risk
What type of risk does insurance cover?
Pure risk
What is pure risk?
It can only result in a loss or no change
What type of risk is not insurable?
speculative risk
What is speculative risk?
Opportunity for loss or gain. For example, gambling.
What is a peril?
a specific cause of loss
What is a hazard?
conditions or situations that increase the probability of a loss occurring
What is a loss?
reduction, decrease or disappearance of value of the person or property insured.
What is indemnity?
provision in an insurance policy that states that in the event of loss, an insured can only collect to the extent of the financial loss. The insured is not allowed to gain financially.
Subrogation
insurer's legal right to seek damages from third parties after it has reimbursed the insured.
Accident
The sudden, unplanned and unexpected event not under the control of the insured. Neither expected or intended.
Occurrence
losses caused by continuous or repeated exposure to conditions neither intended or expected.
Direct loss
direct, physical damage to buildings and/or personal property
Indirect Loss (consequential)
results of a direct loss
What is the most prevalent indirect loss for homeowners?
Extra living expense that may be incurred by the insured while the home is being repaired.
What is the primary type of indirect loss for commercial property?
The loss of profits a business may suffer from closing business while repaired.
General damages
compensates an injured person for pain & suffering, mental anguish and disfigurement
Open Peril
ANY risk of loss not specifically excluded
Named Peril
Specific covered perils. There is no coverage for unlisted perils
Special damages
specific out-of-pocket expenses for medical, miscellaneous and loss of wages
Property damage loss
value of property and loss of use
Punitive damages
form of punishment for extreme, outrageous behavior, gross negligence or willful intent
Negligence
failure to use the care that a reasonable, prudent person would have taken under similar circumstances
Burglary
forced entry into or out of the premises of another with felonious intent. Must have visible signs of forced entry or exit
Robbery
taking of property from care or custody of a person through threatening or causing bodily harm.
Mysterious disappearance
disappearance of property without knowledge of how it disappeared. Excluded from most policies
Theft
any act of stealing that encompasses both burglary and robbery
Vacancy
No people and no property stored for a period of time (usually 60 days)
Unoccupancy
nobody living or working in structure for a period of time, but some property is stored.
Blanket insurance
A single property policy that provides coverage for multiple classes of property at one location or multiple classes at multiple locations.
Specific insurance
Property policy that covers a specific kind or unit of property for a specific amount of insurance.
Loss valuation
How a loss to an insured property will be valued at the time of loss. It is also a factor in determining the premium and amount of insurance required
Actual cash value
recognizes reduction of value as property ages and wear & tear
Formula for Actual Cash Value (ACV)
Current replacement-depreciation= ACV
Replacement cost
cost to replace damaged property with like kind and quality at today's price without deduction for depreciation. * May provide excess of acv
Market Value
amount a willing buyer would be willing to pay to a willing seller for the property prior to loss. seldom used [Show Less]