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Insurance Terms and Concepts
Terms in this set (57)
reduction in value, particularly due to wear and tear
susceptibility to risk
a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer's expectations
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
the company who issues an insurance policy
depreciation in the value of a property due to becoming outdated
the money paid to the insurance company for the insurance policy
Law of Large Numbers
the larger number of people with similar exposure to loss is more predictable of future losses;
Must exist at time of loss; 3 Elements (Financial, Blood, Business)
The transfer of the possibility of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.
uncertainty regarding financial loss; 2 types of risk (pure and speculative)
insurable because it involves a chance of loss only
not insurable because it involves a chance of gain (gambling)
A circumstance that increases the likelihood of a loss; hazards give to a peril. there are three types of hazards: physical, moral, morale.
a physical condition that increases the chance of loss
a tendency toward increased risk (lied in a previous policy with another insurance company)
a tendency toward increased risk (like in a previous policy with another insurance company)
A provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.
The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Also prevents the insured from collecting twice.
sudden, unplanned and unexpected event resulting in injury or damage
includes losses caused by continuous or repeated exposure to conditions resulting from injury or property damage
comprised of bodily injury or property damage. broken into 3 categories: special damages, general damages, and punitive damages.
out-of-pocket expenses for medical, misc. expenses or loss of wages.
compensation for pain and suffering, mental anguish, or disfigurement
punishment for extreme behavior, gross negligence or willful intent.
Failure to use reasonable prudent care
4 Elements of Negligence
Legal duty, standard care, unbroken chain of events, and actual loss and damage
A factor in determining the premium charged and the amount of insurance required.
Actual Cash Value (ACV)
Current Replacement Cost - Depreciation = Actual Cash Value
the cost to replace damaged property with like kind and quality at today's price without any deduction for depreciation.
rarely used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss; takes into account the value of land and location.
A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. Works best for items whose value doesn't fluctuate much.
An amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss
the estimated value of a fixed asset at the end of its useful life
Direct, physical damage to buildings and/or personal property.
Indirect Loss/Consequential Loss
losses considered to be a result of a direct loss; may also be covered. Loss of housing or business due to fire eg.
Specific cause of loss
the breadth of coverage provided under an insurance policy form that lists specific covered perils
Term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against "any risk of loss" that is not specifically excluded.
responsible under law
often applied to product liability cases; when a person or business that manufactures or sells a product makes an implied warranty that the product is safe, the business is then liable for defective products regardless of fault or negligence.
Liability imposed by law on one person for acts committed by another; ex. a parent and their child or an employer and their employees.
Imposed on defendants engaged in hazardous activities, such as harboring wild animals, using explosives, etc. The injured party does not need to prove negligence.
Limits of Liability
The maximum amount of money the insurance company will pay for a particular loss, or for loss during a period of time.
Per Occurrence (Accident)
A "sub-limit" in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurence.
The maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims.
The maximum limit of coverage available under a liability policy during a policy year regardless of the number of claims that may be made or the number of accidents that may occur.
Split limits are separately stated limits of liability for different coverages. ex. 25/50/25
A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.
cause of bodily injury or property damage is natural and reasonably foreseeable; for injured part to collect damages, negligence must have proximate cause
$ amount must be met by insured before insurer provides coverage; higher deductible usually means a lower premium
Insured maintains a minimum amount of insurance on property; partial loss paid in full if minimum is met; coinsurance clause not affected in total loss.
Loss Payment =
(insurance carried divided by insurance required) x Loss Amount
Insurance to Value
replacement cost settlement for policyholders who carry minimum insurance
estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures.
Deposit Premium Audit
Insurer may audit insured's books and records to determine adequate premium
Certificate of Insurance
Written evidence showing that an insurance policy or policies have been issued; lists amounts and types of insurance provided but doesn't bind the insurer to the insured.
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