Insurance Fundamentals
The transfer of risk of loss from an individual to an insurer, spreading the cost among multiple policyholders.
What is insurance?
Identifies this type of risk, which features no opportunity for financial gain.
What is pure risk?
"If it's PURE you can INSURE!"
A policy structure that states "anything BUT this is covered" by listing only its exclusions.
What is an open peril (or special form) policy?
Calculated as replacement cost minus depreciation/wear-and-tear.
What is Actual Cash Value (ACV)?
The failure to exercise the level of care that a reasonable, prudent person would exercise under similar circumstances.
What is negligence?
This principle states that as the number of similar exposure units increases, reported losses align more closely with predicted probabilities.
What is the Law of Large Numbers?
A wet floor, lying on an application, and leaving food unattended on a stove represent these three hazard types.
What are physical, moral, and morale hazards?
The maximum amount an insurer will pay across an entire policy year, regardless of the number of claims.
What is an aggregate limit?
A hotel bill incurred because your house burned down is classified as this type of loss.
What is an indirect (or consequential) loss?
Legal Duty, Breach of Legal Duty, Proximate Cause, and Damages represent these requirements.
What are the 4 elements of negligence?
To have this, you must face a direct financial loss if property is damaged—and it must exist at the time of loss.
What is insurable interest?
The specific cause of damage or destruction, such as a fire, windstorm, or theft.
What is a peril?
In auto liability split limits of 25/50/20, the $20,000 figure covers this specific type of damage.
What is property damage per occurrence?
Fair Valuation policy type used for a classic 1965 Chevy where the payout amount is agreed upon in advance by both parties.
What is an agreed value policy?
Owning a swimming pool or a pet tiger falls under this type of responsibility due to inherent dangers.
What is absolute liability?
The three required elements of insurable interest.
What are financial, blood, and business interests?
The unbroken chain of events leading directly to injury or damage from a negligent act.
What is proximate cause?
The dollar amount an insured must pay out-of-pocket before their policy benefits kick in.
What is a deductible?
A policy limit set up front where the insurer pays up to that maximum, but adjusts down based on actual market value at the time of loss.
What is stated value?
The legal term for an employer being held financially responsible for the negligent actions of an employee.
What is vicarious liability?
Financial reimbursement that restores an insured to the exact position they held prior to a loss without profit.
What is the Principle of Indemnity?
While an accident is a sudden event, this broader term includes damage from continuous or repeated exposure to conditions.
What is an occurrence?
This rule requires property to be insured to at least 80% of its value to avoid partial loss penalties.
What is coinsurance (or insurance to value)?
The cost to replace it at todays prices
Replacement Cost
The right of an insurer to pursue a third party for damages after paying out a claim to their insured.
What is subrogation?