General Insurance Principles
Insurance is the transfer of
Risk
The failure to use reasonable, prudent care.
Negligence
Current replacement cost - depreciation = ?
ACV - Actual cash value
Owning a swimming pool, harboring wild animals, or selling explosives is an example of what type of liability
Absolute liability
Deductible
(Term/phrase) states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
Law of large numbers
The crime of theft with visible signs of forced entry.
Burglary
Remember: Robbery is theft by threat of bodily harm.
Cost to replace damaged property with like kind and quality at todays price, without deduction for depreciation.
Replacement cost
Defective products would fall under which type of liability?
Strict liability
Remember: Strict liability is commonly applied in product liability cases.
Document provided as written evidence showing that an insurance policy has been issued.
Certificate of insurance
Remember: Proof of insurance is correct, however please remember Certificate of insurance as this is what its called in your exam.
Subrogation
Broad definition of loss to describe losses caused by continuous or repeated exposure to conditions.
Occurrence
Remember: an accident, is a sudden, unexpected event not resulting from continuous exposure.
Accident ex: A truck, runs over a bridge a single time resulting in collapse
Occurrence ex: a truck runs over a bridge multiple times, and on the 7th time it results in collapse.
Seldom used method of valuing based on the amount a willing buyer would pay to a willing seller for the property prior to the loss.
Market value
This method takes into consideration the value of land and location, rather than just the cost of rebuilding the structure itself.
Type of liability in which an principle (business) is responsible for the actions of their agent (employee).
Example, A parent held responsible for the actions of their child.
Vicarious liability
An act or event considered to be the natural and reasonably foreseeable cause of the loss or event that caused damage is considered to be the
Proximate cause of loss
What are the 2 types of risk.
Pure risk:refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.
Speculative risk: involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.
Medical bills, Lost wages, repair bills are all an example of what type of damages?
Special damages
The estimated value an asset will realize upon its sale at the end of its useful life.
Think about: An insurance company that sells a totaled vehicle for parts.
Salvage Value
A type of limit of liability in which there are 2+ numbers to describe a separate limit for different damages is called what type of limit?
Example: Liability coverage $30,000 per person, $60,000 per accident (A 30/60/XX)
Split Limits
Clause that states, in consideration for a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property.
Think about: 80%, this is typically what you'll see in most test examples.
Coinsurance clause
The 3 elements of insurable risk are:
Financial: (a monetary interest);
refers to situations where a person has a direct financial stake in the property or person that is insured. If the subject of the insurance is damaged, destroyed, or lost, the person with the financial interest will suffer a financial loss.
Blood (A relative);
This type of interest applies when a person has an insurable interest in the life of a family member, because the death or injury of that person could result in financial or emotional harm.
Business risk:
Refers to a relationship between business entities or partners. In this case, a business or its owners have a financial interest in protecting the business's assets or key individuals who contribute to its success. This is important for ensuring continuity in the business if something unexpected happens.
An insured structure in which no people have been living or working for the period required by the policy and no property has been stored.
Vacancy
remember; Unoccupancy is when property IS stored at the location.
What is the difference between agreed value and stated value?
Stated value can fluctuate based on depreciation, while Agreed Value is fixed and will not change regardless of depreciation.
Maximum limit payable by an insurance policy during a policy year, regardless of the number of claims made or the number of accidents that occur.
Aggregate limit
Estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures.
Deposit Premium
Remember: Deposit premium is paid in advance, and then an audit is/can be performed at the end of the insuring period to adjust the premium paid to match actual exposure.