39 terms

CPCU 500 Chapter 8

Insurable Interest
An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred
Insurable Interest Requirements
It supports the principle of indemnity
It prevents the use of insurance as a wagering mechanism
It reduces the moral hazard incentive that insurance may create for the insured
Principle of Indemnity
Ensures that only those parties who suffer financial loss are indemnified, and then only to the extent of their loss
Wagering Mechanism
Insuring an event from which they would not suffer a loss and then profiting when that event occurs
Moral Hazard Incentive
Because the insurable interest requirement limits insureds' ability to profit from insurance; the incentive to cause losses intentionally is reduced
Legal Bases for Insurable Interest
Ownership interest in property
Contractual Obligations
Exposure to Legal Liability
Factual Expectancy
Representation of another Party
Contractual Rights Regarding People
A contract may give one party the right to bring a claim against a second party without entitling the first party to any specific property that belongs to the second party
Unsecured Creditor
Do not have an insurable interest in debtors' property
Contractual Rights Regarding Property
Some contracts allow one party to bring a claim against specific property held by a second party
Factual Expectancy
A situation in which a party experiences an economic advantage if an insured event does not occur or, conversely, economic harm if the event does occur
In the agency relationship, the party that is authorized by the principal to act on the principal's behalf
Someone who has the legal title to a property but is responsible that it be used, handled, and transferred solely for the benefit of the beneficiary
The party temporarily possessing the personal property in a bailment
The owner of the personal property in a bailment
Joint Tenancy
Each owner owns the entire property and has right of survivorship
Tenancy by Entirety
Joint tenancy between a husband and wife
Tenancy in Common
Concurrent ownership of property, in equal or unequal shares, by two or more owners, no survivorship rights
Tenancy in Partnership
Concurrent ownership by a partnership and its individual partners of personal property used by the partnership
Insurance to Value
Insurance written for an amount approximating the full value of the asset(s) insured
Loss Frequency
The number of losses that occur within a specified period
Loss Severity
The amount of loss, typically measured in dollars, for a loss that has occurred
Insurance to Value Provision
A provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the property covered
Coinsurance Clause
A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property's value
Amount Payable
Limit of Insurance divided by (value of covered property at the time of loss times coinsurance percentage) times the total amount of covered loss
Agreed Value Optional Coverage
Optional coverage that suspends the Coinsurance condition if the insured carries the amount of insurance agreed to by the insurer or insured
Inflation Guard Protection
A method of protecting against inflation by increasing the applicable limit for covered property by a specified percentage over the policy period
Peak Season Endorsement
Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy period
Actual Cash Value
Cost to replace property with new property of like kind and quality less depreciation
Replacement Cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation
Reflects the value of the use that the insured has already received from the property
Market Value
The price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller
Broad Evidence Rule
A method for determining actual cash value based on court decisions that require all relevant factors to be considered
Agreed Value Method
A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss
Functional Valuation Method
A valuation method in which the insurer is required to pay no more than the cost to repair or replace the damaged or destroyed property with property that is its functional equivalent
Agreed Value Option Coverage
An arrangement for suspending the coinsurance clause in commercial property insurance coverages such as the building and personal property coverage form or the business income coverage form
Money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible
Risk financing technique that requires the insured to retain a portion of the loss that is being transferred to an insurer
Dollar Trading
An insurance premium and loss exchange in which the insured pays the insurer premiums for low value losses, and the insurer pays the same dollars back to the insured, after subtracting expenses
Self Insured Retention
A dollar amount specified in an insurance policy that the insured must pay before the insurer will make any payment for a claim