Chapter 1 - Intro
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List the 5 functions of insurance:
1) Spread of risk
2) Basis of credit system
3) Eliminate worry and develop
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4) Loss reduction and prevention (road safety, alarms, etc.)
5) Employment opportunity
Definition of insurance (3 parts)
1) insurance provides a means of shifting ones financial responsibility from a loss to another party
ii) payment will be made only in the event of the happening of a certain risk or peril
iii) the amount of the payment is restricted to the amount required to indemnify the insured
5 points of insurance
1) Shift financial responsibility for a loss
2) payment made only in the event of a loss
3) Payment restricted to amount to indemnify (no more, no less)
4) Cover loss to which object of insurance may be exposed (accidental and future)
5) Indemnify in form of money or other thing of value (rebuild/repair)
3 types of property and casualty insurance
Auto, property (home and business), and liability (injury or damage to a third party)
What are the 2 major types of insurers and provide an example for each
Private (stock profit or mutual policy holder), or government (ICBC, employment insurance)
What is the difference between mutual companies and stock companies?
Stock - main purpose is to derive a profit, ownerships in the hand of the company's shareholder. Money to operate comes from private funds and public sales of stock
Mutual - main purpose is to provide insurance at the lowest cost possible, corporation owned by policy holders, money made goes to policyholders
What is known as the major function of insurance?
Spread of the losses of the few among the many
Where is the definition of insurance usually found
The Insurance Act
Define peril
Cause of loss
Define risk
Chance of loss to which the object of insurance is exposed
At what point in time is indemnity calculated?
Moments before the loss
What two factors regarding losses must be present for them to be insured?
Future and accidental
Who retains the option to repair or replace damaged property rather than pay cash settlements?
Insurer
Main purpose of stock companies?
Profit maximization
Identify the two main distribution methods used by insurers for their products
Direct writers (work for one insurance company) and independent brokers (work for multiple insurance companies - can offer multiple options for insurance, not limited)
Major function of insurance is to:
Share losses of the few among the many
Does insurance allow payment to be in another form than money?
Yes, replacement or repair
Chapter 2 - Insurance Contracts
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There are 4 ways changes can be made to a policy. What are the 4 ways?
1) Rider (adding additional coverage)
2) Floater (provides coverage for items not on the insured premise)
3) Endorsement (acknowledges changes in the actual contract)
4) Separate policy (additional coverage, but no change in the original contract - new policy altogether)
4 ways to deal with risk
1) Avoidance (don't buy the car in the first place)
2) Controlling (car alarms)
3) Retention (increase in deductible or putting money aside)
4) Transfer (buying insurance)
3 categories of risk insurance
Personal (health, anything directly affecting you), property (house, care), and liability (3rd party)
Define contract
An agreement between two or more parties, enforceable at law
What are the 2 kinds of risk? Which one is not insurable?
Pure risk (no chance for profit gain, insurable), and speculative (chance for profit or loss, for example gambling or starting a new business, not insurable)
Identify four options people have when dealing with risk
Avoidance, risk control, retention, transfer
What type of risk control reduces loss frequency?
Loss prevention
Which method of dealing with losses and risk is most practical?
Insurance
What type of risk is insurable?
Pure risk
Identify 5 elements that must be present in all contracts
Agreement (offer and unconditional acceptance), consideration (exchange of something of value), legality of object (not illegal), legal capacity of the parties (not children, not mentally incompetent), genuine intention (no inducement, needs to be intended)
What is consideration?
Exchange of something of value
3 unique elements of insurance contracts
Insurable interest (insured person derives a financial or other kind of benefit), indemnity (no more no less), utmost good faith (honest, trust each other)
What are binders?
Temporary insurance placed by brokers on behalf of clients, written or oral commitment by the broker to provide a contract of insurance on the subject matter under discussion
How are endorsements different than riders?
Endorsements are extra sheets or slips of paper that change the terms of an existing contract. Riders add additional coverage to those already in place - to have a rider you must endorse the contract
Who would not have insurable interest?
Business partner
Heir or beneficiary
Bailee
Mortgagee
Heir or beneficiary
Property with a high degree of mobility associated with it is generally insured under a:
Floater
Chapter 3 - The Role of Government in Insurance
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What is solvency, how is it different than insolvency?
Solvency is when insurers are capable of fulfilling their financial obligations. If they are unable to meet these obligations, they are insolvent
What 3 things does the basic fire policy cover?
Fire (hostile), lightning, and explosion due to natural gas, coal and manufactured gas
Define fiduciary
One who handles other people's money insurers and brokers are both fiduciaries
3 conditions (rules) of removal coverage change - 3 conditions when someone needs to move their insured property
1) Removed to protect from future or further loss
2) Amount of coverage is whatever is left over
3) Up to 7 days of coverage maximum (or expiry of policy, whichever is first)
What are the 6 contents of insurance policies legislated? (first page of policy - declaration)
1) Parties to the contract
2) Policy period (policy takes effect art 12:01Am local time at the address of the name insured)
3) Loss payable (mortgagee)
4) Type of coverage and amount
5) Rate and premium
6) Subject matter (what is being insured)
What is the fiduciary responsibility of insurers? When is the full premium earned?
To clients. Premium not fully earned until expiry of policy
What is the role of the property and casualty insurance compensation corporation (PACICC) what up to what monetary value will they pay out if required?
PACICC provides insurers protection in case of insolvency (bankruptcy). They will pay up to $250,000 for single claim or 70% in premiums
Why must unearned premiums be held in trust by the insurance company?
In order to refund to the clients when they cancel prior to expiry (pro rata)
3 components of the removal clause:
1) Coverage provided when property is removed to protect it from further loss
2) Coverage amounts are the remaining coverage after loss at named location
3) Coverage provided for 7 days or the unexpired term of policy, whichever is less
Right of subrogation
Right of insurer to go after 3rd parties for damage they had to pay to client in claim
What are 2 kinds of fires and which type is insurable?
Friendly and hostile, only hostile is insurable
Is what situations may a new party benefit from a policy of insurance? ie. not named on the policy itself (4)
Authorized assignment in the bankruptcy act, change in title due to succession (inheritance), operation of law, or death
What methods may insurers use to cancel fire policies? (to provide notice)
15 days notice by registered letter, 5 days notice when personally delivered
Solvency refers to
Ability of an insurer to pay insured losses
What is a major fiduciary responsibility placed on brokers by law?
Unearned commissions must be held in trust to refund to the insured in the event the policy is cancelled prior to expiry date [Show Less]