What is Insurance? - ANSWER-A financial tool that protects people from their losses.
Transfers risk from one party to another:
1. Insured (people)
... [Show More] purchases an insurance policy
2. Insurer provides financial protection to the insured
How does Insurance work? - ANSWER-1. Insured pays a premium
2. Insurer promises to pay for specified losses if they occur
3. Insurer's promise gives peace of mind to insured
Spreading Risk (How Insurance works) - ANSWER-1. Collected premiums (from ALL insured) go into a pool called a "reserve"
2. Policyholder can file a claim for covered losses
3. After filing a claim, the insured becomes a claimant
4. Insurer pays for claims out of the "reserved" premiums
5. Reserve should always be enough to cover losses
Principle of Indemnity - ANSWER-Restoration to previous financial condition; no more, no less.
Indemnification - ANSWER-Being restored to the financial condition you were in before a loss
Insurance Policy (ACCL) - ANSWER-1. Contract to provide financial protection for a fee
2. Legally binding because it meets the 4 requirements of a legal contract
Four Qualification (Insurance Policy-Legal Contract) - ANSWER-1. Agreement: mutual consent (signature or handshake)
2. Consideration: all parties bring something of value (money in exchange for a car)
3. Competent parties: 18 years old, sober, and sane
4. Legal purpose: no contract for money laundering (has to be legal)
Insured - ANSWER-Individual or organization that pays premiums in exchange for protection
Insurer - ANSWER-Company, group, or government agency offering financial protection
Risk (meaning) - ANSWER-When an insurer issues an insurance policy, the actual item, person, or organization that is being insured.
Personal
(Six Special Characteristics of Insurance Contracts) - ANSWER-The insured person is protected from losses; not the covered property
D.I.C.E. - ANSWER-1. Declarations Page (aka "Dec Page")/Definitions Section
2. Insuring Agreement
3. Conditions
4. Exclusions/Endorsements
Declarations Page ("Dec Page") - ANSWER-Makes contract specific to the policyholder (names of both parties; location & description of insured item; value of insured item; dates of the policy (beginning and end); amount and limit of coverage; deductible; and premium.
Definitions Section - ANSWER-1. Not technically essential, but common in policies
2. defines terms used to write policy including:
- "collision," "decay," "like kind and quality."
3. includes important language for adjusters to know
Insuring Agreement Section - ANSWER-Insurer agrees:
- what is covered
- which causes of loss are covered
- any service provided
- any exclusions to coverage
- the maximum limit of policy coverage in dollars
Conditions Section - ANSWER-The Insurer specifies any limits or qualifications the policyholder must meet
(example)
Requiring a security guard for a jewelry store
How to file a proof of loss
How to protect the property after a loss
Exclusions Section - ANSWER-List what the policy DOES NOT cover:
Common Exclusions (in nearly all property policies)
- earthquakes
- flooding
- war
- nuclear hazards
- intentional acts
Endorsements Section
Synonyms:
Rider
Addendum
Attachment - ANSWER-Are additions to the policy that can:
- add or reduce insurance coverage
- change policy provisions
- change the premium price after the policy period ends
Types of Insurers - ANSWER-Insurance Companies
Other Private Groups
Government Entities
Government Insurers - ANSWER-Non-profit
Mandatory participation
Benefits prescribed by law
Designed to meet needs of general public
Government has monopoly (meaning government has control)
Private Insurers (Company) - ANSWER-Sell insurance based on consumer preferences
Offer a wide variety of insurance products
Typically exist to generate a profit or benefit a group (money)
Insured party voluntarily Participates
Types of Private Insurers - ANSWER-Private Commercial Insurers
Stock Insurance Companies
Mutual Insurance Companies
Re-insurer
Reciprocal Insurer
Private Commercial Insurers - ANSWER-Operate for profit
Collect premiums from policyholders
A portion of premiums is reserved to pay claims
Excess premiums become profit
Stock Insurance Companies - ANSWER-Always for profit
Usually publicly-traded
Stockholders provide capital and participate in profits or losses
"Non-participating" insurers: no dividends go to policyholders
Mutual Insurance Companies - ANSWER-Owned by policyholders (no shareholders)
Policyholders elect board of directors
"Participating" insurers: policyholders participate in dividends
Re-insurer - ANSWER-An insurer that provides insurance for other insurers
Reciprocal Insurer - ANSWER-A group of people or organizations that insure each other
Risk Retention Group (RRG) - ANSWER-A form of commercial insurer in which the members use their own capital to issue insurance policies
Risk Purchasing Group - ANSWER-A group of people with similar insurance needs who form an organization to buy insurance as a group
Private Non-Commercial Insurer - ANSWER-A not-for-profit insurance company that returns profits to policyholders by reducing premiums or expanding benefits (Blue Cross/Blue Shield)
Speculative Risk
(Insurers will NOT cover this Risk) - ANSWER-Is undertaken with no certainty of either gain or loss
Is made knowingly, by conscious choice
Cannot be insured
Pure Risk - ANSWER-Is a risk with no chance of gain
Can only result in either loss or no loss
Can be insured
Exposure - ANSWER-The possibility or likelihood of damage or loss
- ANSWER-
Hazard
(Storing dangerous materials in a building; a record of drunk driving; smoking) - ANSWER-Anything that increases exposure
Peril - ANSWER-The actual cause of loss or damage
Loss - ANSWER-1. Reduction in value of an insured item
2. Expenses caused by a covered peril
3. The amount an insurer pays to settle a claim
Two meanings of "Risk" - ANSWER-Potential for loss
The insured item [Show Less]