Property and Casualty License Exam
Terms in this set (80)
something that increases If the risk or chance of loss. 3 Types of Hazards. Physical hazard, moral hazard, and morale hazard.
Dead tree falling over and hurting your car
Dishonest client who intentionally damages their own property.
Careless client, or one with no pride of ownership in their property.
A cause of loss. Ex. Fire, lighting, wind, etc.
Reduction in the value of the insured property caused by an insured peril such as fire.
Retained, avoided, reduced, or transferred.
Risk Management (Retained)
When a person decided to assume financial responsibility for certain events.
Risk Management (Avoid)
A person might stay home rather than drive somewhere.
Risk Management (Reduced)
When a person practices living a healthier lifestyle, thereby reducing the change of major illness.
Risk Management (Transferred)
1. If someone's negligence causes an injury the person injured could sue the negligent party, transferring the burden of the risk to the negligent party.
2. Risk is accomplished through the use of insurance. The risk of loss is transferred to the insurance company.
Basically taking into the account the probably and statistics of a group of people having an accident. Accurate way of predicting potential losses.
Law of Large Numbers
As the sample size grows, its mean gets closer to the average of the whole population. Used in the pooling concept.
One can not insure just anything he wants. To be incurable a risk must involve the possibility of loss only and not gain. The applicant must have a legitimate interest in the preservation of the life or property insured.
An insurer doesn't cover something that will ultimately make them loose money. Such as flood insurance. Only those in potential danger of floods would purchase it so they would most likely end up loosing money.
Principle of Indemnity
Restores the insured person in whole or in part to the condition they enjoyed prior to the loss.
Types of Insurers
Private commercial insurer (Profit making) private noncommercial insurers (nonprofit service organizations) United States Government.
Stock holders provide capital for initial start up. They in turn get a share of the profit or loss.
Ownership in the company is by the policy holders. Funds not paid out after paying claims and not used in paying for other costs is given back to the policy holders via policy dividends. Not guaranteed and not taxable.
Run-incorporated gourds of people providing insurance for one another through individual indemnity agreements. Each member is a subscriber. Administration is taken care of by the attorney-in-fact.
A type of life insurance for individuals who have joined a fraternal group and gotten life insurance from that group.
A form of insurance between insurers. It occurs when an Insurers agrees to accept all or a portion of a risk covered by another Insurer.
Formed to serve the insurance needs of their stockholders while avoiding the uncertainties related to commercial insurance availability and costs.
If the risk is very large or unusual in nature, typical carriers may be unwilling to assume it. For some special risks the only market may be with specialty carriers.
Is an unincorporated group of individuals who band together to assume risks in the area of Surplus Lines.
The federal government provides life and health insurance through various sources. The federal government has offered a variety of military life insurance plans including United States Government Life Insurance and etc.
Private insurance policies exclude catastrophic events the federal government has stepped in to provide. War Risk Insurance, Nuclear Energy Liability Insurance, National Flood Insurance
The underwriter determines the individual rate using their intuition and experience instead of a rating manual.
The underwriter simply refers to rates as published in the Insurers rating manual which have been developed by actuaries based on the law of large numbers.
The underwriter starts with manual rather which is then modified based on pat loss experience or other factors unique to the risk involved. Lower premiums are given to those clients who have fewer prior losses.
A rating plan, subject to minimum and maximum premiums where the final premium is not determined until the end of the policy period and is based on the Insurers own prior loss experience.
Often used to calculate premiums on large group life or health insurance policies. This is a form of merit rating that modifies the manual premium based on the insured' own loss experience.
Loss Cost Rating
Often used by insurers who utilize rating plans developed by the ISO (insurance service office) who publishes fathers based only on expected losses, leaving insurers free to add in their own factors relating to expenses and profit.
The cost per unit, while premium is the number of units multiplied by the rate. For example, one unit of fire insurance is $100 of coverage. If the rate is $.25 per $100 of coverage, the premium for a $100000 fire policy would be $250 a year.
The cost per unit, while premium is the number of units multiplied by the rate. For example, one unit of fire insurance is 100 of coverage if the rate is .25 per 100 of coverage the premium for a 100,000 fire policy would be 250 a year.
Doctrine of Contributory Negligence
States that if you are partly at fault in an accident, you cannot recover from the other party at all. (Done away with in most states)
Replaced contributory negligence. A degree of fault is assigned to both parties. You can only collect if the other party is 50% or more at fault.
Special: Consist of medical expenses and lost wages. Exact and verifiable
General: Not exactly measurable. Trying to recover for things like mental and physical distress, paint and suffering.
Punitive: Awarded when the injury was caused by the gross negligence of the defendant. Usually much larger.
ACV (Actual Cash Value)
Replacement cost (RC)-Depreciation=ACV
Basically the cost to have your insurance pay a claim. Every time you file a claim you pay a deductible.
Other Insurance Clause (AKA Pro Rata Liability Clause)
I can have two policies to cover the same thing if one isn't enough. If I have a claim that falls under both policies they split the cost proportionally (does not mean equally)
IN order to have replacement cost coverage the client must insure at least 80% of value.
The insurer can change the policy at anytime given that it is for the benefit of the insured and that there is no increase in premium.
The insurer can sue a third party in behalf of insured after the insurer pays a claim to the insured.
When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be.... Proximate cause
Single Limit Policy
Not a split limit policy. Meaning that there is a blanket coverage of sorts when it comes to payment. Split policy means that the payment is broken into different parts and each of their own limit.
A policy modification that may be added to an insurance policy for an extra premium charge to the insured is called an endorsement.
The percentage of claims paid out during a particular period of time in comparison to the amount of premiums written during that same period.
Declarations, Insuring Agreement, Conditions, Exclusions
Declares the name of the insurance company, and the name of the insured, location, amount of coverage, the premium, and the policy period.
Basically the fact that it is something for something.
Loss incurred do to direct damage to property. Such as fire, or lighting, usually abrupt.
The aftermath of a direct loss. Since a fire (direct loss) burnt down my business building I have an indirect loss of profits I would have made if I could have used my building.
Insured having moved out, taking all of their furnishings with them.
Insured is temporarily gone and their furnishings are still on the premises.
Short Rate Penalty
A penalty that occurs when you cancel a policy before the period is over. They can keep slightly more than they earned by referring to the short rate penalty chart.
Prorate (pro rata)
The amount the insurer pays back the insured for cancelling a policy early.
Collateral Security Interest
The bank's insurable interest position in the property that you are mortgaging.
Three types. DP-1 (Basic) DP-2 (Broad) DP-3 (Special). A standard fire policy must have a DP form added as an endorsement.
Broken up into 2 sections. Section 1 is property coverages. section 2 is liability coverage. Section one has Coverage A, B, C, D, Section 2 has coverage E, F.
Named Peril Policy
A policy that must have perils names on it to be included. Anything not named is excluded. The forms that are a named peril policy are DP1 DP2, HO1, HO2, HO4, HO6, HO8
Everything is covered unless it is specifically excluded. The forms that follow this policy are DP3, HO3 and HO5
PAF (Personal Article Floater)
Items are scheduled (Listed) on the declarations page that the insured specifically wants covered in addition.
Named Peril form. Very similar to DP1 but theft is included. Seldom sold due to limited coverage.
Named peril form. Contains more named peril than HO1 and is very similar to DP2 except that theft is included.
Most popular HO coverage form. Providing the beset coverage for the money. It is all risk on the dwelling and other structures. Contents are still named peril but all risk coverage for contents may be added by endorsement.
Very similar to HO3 but it provided open peril coverage for the dwelling, other structures, and the personal property without the need to add an endorsement.
There is no HO7 form.
Typically used for older homes where the ACV is lower than the RC (replacement cost). Policy states that it will pay the amount necessary to repair or replace the loss or damage but not more than the cost of using common construction materials and methods that are functionally equivalent to and less costly than using obsolete, antique, or custom construction materials or methods. Named peril form.
HO4-Tenants or Renters
Covers mostly contents. Renters don't really care about the place they are living they just want their things to be okay.
Almost the same as an HO4 Renter form but covers a little bit of the inside structure. You have more ownership on the structure in a condo than you do when you rent.
Combined Single Limit (CSL)
A CSL is written with just one policy limit that applies to BI and PD. Basically a blanket coverage that avoids the 15/30/10 thing.
Personal Auto Policy (PAP)
Is the broadest type of personal lines auto policy sold. Three factors that influence policy. Rate: Based on age, gender, driving record, and territory, and from statistical data. Underwriting: Underwritting rules help keep the insurance company profitable and in business by keeping a balance between risk and the premium paid by the insured. Coverage: The PAP is the industry standard, it provides very broad coverage and is strictly underwritten.
It is the goal of the insurance company to be profitable. It is the underwriters job to make sure policies will be profitable. They protect the company by making sure the policies that the producers sell or good.
PAP Part A
Liability, the insurers will pay up to the policy limits, for BI or PD to others abused by any driver of a vehicle insured under the policy.
PAP Part B
Medical Payments, Pays medical and funeral expenses resulting from a covered event causing BI to you and your passengers.
PAP Part C
Uninsured Motorists, covers BI to an insured caused by the corner or operator of an at fault uninsured vehicle.
PAP Part D
Damage to your auto, Covers your insured vehicle for damage by collision and or other than Collins, if either or both are declared.
PAP Part E
Duties after an accident, insured must notify the insurer as soon as possible after loss and must cooperate with insurers investigation.
PAP Part F
General Provisions, Lays out various legal and financial obligations relation to both insured and insured.
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