Basic Insurance and Texas Licensing
Terms in this set (155)
A device for the transfer of risk from an individual to a large group with similar risk.
The company that sells the insurance and as a party to the contract agrees to indemnify an insured for a covered loss.
The individual or entity that purchases insurance.
Law of large numbers
States that the larger the number of similar (homogenous) risks, the more accurate and reliable a prediction of loss will be.
The uncertainty regarding financial loss.
Involve the possibility of both gain and loss.
Not covered by traditional insurance policies.
Involve the possibility of loss, gain is not possible.
Insurable by traditional insurance policies.
Reasons people purchase insurance
-to transfer risk
-peace of mind
-required by law
-required by a vendor
Most importantly, insurance companies exist to
A company formed under the laws of another country, other than the United States.
Essential elements of a contract (CALICO)
To present for acceptance or rejection.
-the actual submission of an application for insurance by a potential insured to a potential insurer.
-can be either written or oral agreement between two competent and interested parties.
The act of receiving a submitted offer with the intention of retaining or accepting the offer.
The payment of (or the promise to pay) the premium.
The promise to pay claims as specified in the contract, conditioned on the occurrence of covered losses.
Contracts are only enforceable if both parties are legally competent.
- parties are usually considered to be legally competent unless they are one of the following: minors, under the influence of drugs or alcohol, or mentally incompetent.
Exists when the applicant for insurance stands to suffer a loss or an injury as a result of an event which is to be insured against.
Contract of adhesion
A contract issued on a take it or leave it basis with the insured having no involvement in the preparation of the contract.
- any ambiguity in policy language will be interpreted in favor of the insured to find coverage.
Contract based on the exchange of unequal amounts or uncertain events.
- will not always be equal.
Contract in which the identities of the parties involved in the insurance contract are very important to the insurer.
The process of restoring a customer to the same financial condition that they were prior to their loss, or to make them whole.
- no gain or profit by the insured.
Expected of both the customer and the insurer.
A written or verbal statement the applicant makes that is true to the best of their knowledge.
An important fact that would influence whether the insurer accepts the risk.
e.g. Accidents, violations, age, driving record, etc.
The actual cause of loss.
e.g. Tornado, fire, flood, hail, etc.
A character defect that causes some people to exaggerate or fabricate losses in order to collect money from an insurance company.
i.e. Fraud, exaggerating injuries, etc
The disposition of some people to be careless or irresponsible because they have insurance
i.e. Leaving keys in car, wreckless driving, starting fire in home, etc.
A hazard that exists due to the nature of the property itself, such as those inherent in the construction, occupancy and exposure.
i.e. Potholes, tree branch over home, spill on floors, dead tree in yard, etc.
Policy components (DECIDE)
- Insuring agreement
Provide identifying information regarding the insured and insured location serving to personalize and individualize the insurance policy.
-the name insured and their address
-the policy term or period
- the amount of insurance or limits of liability
-the property insured
- the policy premium
- any applicable deductibles
Used to explain important terms used throughout the policy.
States what the insurer promises to do for the insured
An outline of what the insured must do in order to make use of the policy. This section also identifies and describes some responsibilities of the insurer.
Property and casualty contracts are personal contracts between the insured and the insurer. The insured cannot assign or transfer their policy to another person without the written consent of the insurer.
This provision provides dispute resolution in the event that an insurer and insured do not agree on the amount/value of the loss.
- two appraisers chosen, one from each party.
- if appraisers cant agree on a value of loss, umpire is introduced to make final ruling.
Subrogation (right to recovery)
The pursuit of a responsible party for payment of damages that the insurer has to pay for on behalf of the insured in cases where the insured is not at fault.
Prohibits the insured from turning over property to the insurer and demanding payment for total loss.
No benefit to bailee
A party that holds property that others have entrusted in them does not have the right to collect on the loss of another party's property.
A form attached to add to, delete from or otherwise change the insurance policy.
Common auto endorsements
Rental car coverage, tow coverage, glass breakage deductible reduction or elimination, uninsured motorist property damage, customized equipment
Common property endorsements
Contents replacement cost coverage, personal articles floater, home child care extension
Immediate but temporary coverage pending issuance of the policy.
- can be oral or written.
The deliberate relinquishment of a known right.
An action performed by an individual with a deliberate intent to harm another person or another persons property.
*generally, liability insurance policies do not cover this.
The failure to act as a reasonable and prudent person would under the same or similar circumstances.
*most liability insurance claims fall into this category of law.
Steps in establishing negligence
-legal duty owed
-breach of legal duty
Defense against negligence stating if a person contributes to his or her loss in any way, the other party cannot be held liable.
Defense against negligence allowing recovery even when both parties contribute to the loss, with an award based in the extent of each party's negligence.
Assumption of risk
This defense is often used for injuries incurred by spectators at sporting events.
Last clear chance
The party who has the last clear chance to avoid damage or injury to another is liable for any resulting loss, because negligence in failing to take this last opportunity to avoid injury to another is the proximate cause of the loss.
When a person experiences a loss, he or she is responsible for take reasonable precautions to prevent any further damages.
Any damages in which a receipt can be provided.
- direct and specific expenses involved in a particular loss.
i.e. Medical bills, lost wages, repair expenses, rental/towing bills.
Compensate for such things as pain and suffering and disfigurement.
Intended to punish the wrongdoer and make an example out of him or her to discourage others from behaving in a like manner.
Similar to an agent, can sell insurance and may be authorized to collect premiums.
-cannot issue or countersign policies.
Investigate coverage for the loss
The first step in resolving a claim
Field claims representatives
Staff claims handlers who do "out of the office" work and are hired by the insurer.
Office claims representative
Staff claims handlers who do "in the office" work and are hired by the insurer.
Adjusters that are not employed directly by just one insurance company. Hired by the insurer for a fee.
Do not offer their services to insurance companies. Usually hired under contract by insurers to handle property losses.
A person who is a resident of your household and related to you by blood, marriage or adoption.
"You" and "your"
In a homeowners policy, refers to the "named insured" shown on the declarations page and the spouse if a resident of the same household.
Covered anywhere in the world under the Homeowners policy.
Under the special limits of liability, what is the total limit of liability for each loss of money/bank cards?
Under the special limits of liability, what is the total limit of liability for each loss of bullion/valuable papers?
Under the special limits of liability, what is the total limit of liability for each loss of jewelry/watches/furs?
Under special limits of liability, what is the total limit for each loss on business personal property?
Animals or birds
Property not covered under homeowners insurance.
Under this extension of coverage, insurer will pay expense for removal from the residence premises of debris of covered property if a Peril Insured Against causes the loss.
Loss of use
This extension of coverage provides additional living expense so your household can maintain it's normal standard of living in the case that a loss caused by Peril Insured Against makes the residence premises wholly or partially untenantable.
Fire and lightning
Which two perils were covered by the Standard Fire policy
Rain, snow, sand or dust
The Windstorm, Hurricane and Hail peril does not cover these four elements unless the direct force of wind or hail makes an opening in the roof or wall and the elements enter through this opening and causes the damage.
Insured's Duties after loss
-give prompt written notice to insurer of facts relating to the claim.
-protect the property from further damage
Reasonable and fair
In case of loss to an item which is part of a pair or set, the measure of loss shall be a ____ & _____ proportion of the total value of the pair or set.
If a building has been vacant for more than 60 consecutive days and a substantial part of the personal property is removed from the dwelling.
Named perils policies
A loss is only covered if the cause of loss (or peril) is listed.
Cover any losses unless the cause of the loss is specifically excluded or limited by the policy.
Loss that is not a direct result of a peril.
i.e. lost wages after a fire, smoke damage, etc
Loss that is a direct result of a peril.
i.e. Fire, tornado, lightning, etc.
Replacement cost value (RCV)
The cost to replace an item with an item of like kind and quality without a deduction for depreciation.
An amount deducted from the replacement value due to an item's age and/or condition.
- may be refunded to the customer after damage has been repaired or replaced if the policy provides it is recoverable.
Actual cash value (ACV)
The Replacement Cost value of an item with a deduction for depreciation.
Liability and theft coverages can be added to the policy by endorsement
Dwelling policies (3)
- Basic form
- Broad form
- Special form
Miscellaneous property schedule
This endorsement is used to add additional coverage for jewelry, furs, collectibles, etc.
HO 101- Replacement of personal property
Adds replacement cost to personal property as well as cloth awnings and wall-to-wall carpeting.
- Does not add replacement cost for fences.
A clause within a policy that states the agreement between the insured and the insurance company, which usually provides a reduced premium for the insurer.
Insurers will often offer boat owner a premium credit during the winter months when the boat is in storage and out of use during those months.
Under this policy, a separate deductible will apply to the building and contents.
Medical payments to others coverage
Under this coverage, payments will be made to others to cover medical expenses within three years from the date of an accident occurring on the insured location.
The transportation Expense coverage in the auto policy begins __ hours after the theft
The appraisal process is for disputes in ____.
Any auto -- broadest coverage
Commercial General Liability (CGL)
Coverage provides protection for some of the major liability exposures of a business.
- bodily injury and property damage
- personal injury and advertising liability
- medical payments
Exists when a third party is injured or their property is damaged while at the insured's business location or on the business premises.
Ex. Slip & fall at store
Exists when a third party is injured or their property is damaged while on or off the insured's business premises while completing normal business operations.
Ex. NFM employee damages piano during delivery.
Provides protection if the insured manufactures, distributes or sells a product and the product injures a third party or their property is damaged.
ex. food recalls or defective products
Completed operations liability
offers protection if the insured's operations cause injury to a third party or damages their property after work is finished.
ex- company installs tv improperly and tv later falls off the wall causing damage.
includes damage to a person's character or mental state.
- Defamation of character
- Invasion of privacy
- False arrest or detention
- Malicious prosecution
- Wrongful eviction
Builder's Risk Coverage Form
This coverage form provides coverage for buildings that are under construction.
Peak Season Endorsement
endorsement providing different amounts of insurance for different time limits during the policy period.
Can raise the limit of insurance for this time period to a higher rate without having to maintain that rate of insurance throughout the entire policy period.
Covers damage to perishable stock caused by breakdown or contamination and power outages (on and off premises).
Covers farms structures including barns, farm outbuildings, silos, granaries, pasture fences, etc.
Any act of stealing
Forcible entry for the purpose of commiting a felony
Forcible removal of property by use or threat of violence.
Ocean Marine Insurance
Known to be the oldest form of insurance.
The act of disposing cargo overboard to protect the ship or crew from harm.
Occurs when cargo is abandoned due to extenuating circumstances and the cost to recover the cargo would exceed the cargo's value.
Commercial Articles Coverage Form
Provides coverage for equipment used in photography and musical instruments used by professionals.
Contractors Equipment Floater
The most predominant type of Commercial Inland Marine Coverage.
-Covers all construction equipment from small hand tools to large cranes.
BOP Ineligible Businesses
-Banks, Credit Unions
-Car dealerships, auto body repair shops
The primary difference between auto insurance and aircraft insurance.
How many parties are involved in a surety bond
The person that takes out the bond (the insured)
The person who may be able to benefit from the bond if the principal does not perform as required.
-protected by the surety bond
The bonding company that provides the financial assurance that the principal will perform as promised.
The coverage amount or limit of the bond.
Cover losses due to employee dishonesty (usually fraud or theft by employee)
Primary concern of insurance regulation
monitoring the financial condition and operations of insurance companies so they can meet their obligations to policyholders.
An adjuster in training can work under his supervisor's license for up to how long?
What is the fee for a Texas adjuster's license?
Qualifications for an Adjuster's License
- At least 18 years of age
- Trustworthy; no felony conviction
- Successfully passed an examination
Length of an emergency license
A Texas adjusters license renews every _____
The cost to renew a Texas adjuster's license
The Continuing Education requirement for adjusters to complete _____ of continuing education every renewal cycle.
How many hours must be completed in classroom or its equivalent under the Continuing Education requirement?
Number of hours required in ethics under the the Continuing Education requirement.
$500 and/or 6 months in jail
maximum penalty if an adjuster is found guilty of working without an adjusters license.
Maximum imposable fine if an insurer is found to be in willful violation of the TX insurance code.
The Unfair Claims Settlement Practices Act
Prohibits adjusters from:
- Misrepresenting facts or policy provisions related to a coverage issue
- Failing to promptly settle claims in which liability is clear
- Regularly offering claimants much lower settlement than may be later won in court
- Refusing to pay claims without properly investigating
- Attempting to obtain a full release when only partial payment has been issued
If additional time is needed to settle a claim and the adjuster requests additional time with a statues letter to the insured, how much time does the adjuster now have to settle the claim?
How many days does an adjuster have to notify an insured if a claim will be paid, denied or more information is needed if arson is suspected?
Once a claim is filed, an adjuster has 15 days to ____ the claim.
How long does the adjuster have to settle a claim after it has been acknowledged?
The authority specifically granted to an agent either orally or in writing by the insurer
The authority given by the insurer to the agent that has not been formally expressed
The idea that an agent has whatever authority a reasonable person would assume they have been granted.
What is the statute of limitations under the DTPA?
Deceptive Trade Practices Act (DTPA)
- Misrepresentation of benefits, uses or characteristics of goods/services
- Advertising goods while not intending to sell them as advertised
- False or misleading statements about price reductions
Involves 3 levels: Express, Implied, Apparent
The illegal practice of one making derogatory statements or distributing maliciously critical information against anyone in the insurance business.
The practice of inducing a policyholder to lapse or cancel one policy to replace it with another to the detriment of the insured.
The return by an agent to an insured of part of the premium in order to obtain business including:
- giving, selling or purchasing stocks
- paying or offering to pay the premium in an insurance contract
- offering anything of value not specified in the insurance contract
A false statement
The required limits of liability for auto insurance in the state of Texas
How much coverage would an insured have for Personal Property if they carry $100,000 on the Dwelling?
What percentage of Dwelling coverage may be used for Other Structures, such as a detached garage?
If Personal Property covers $300,000, how much will be covered for Personal Property Off Premises?
Based on age, gender, driving record, and territory, from statistical data provided to the State Department of Insurance "who is driving the car and where is the car being driven"
Help keep the insurance company profitable and in business by keeping a balance between risk and the premium paid by the insured
PAP is industry standard, provides broad coverage and is strictly written