What is insurance?
protection against financial loss<\/p>\n\n\n\n
what is a premium
a scheduled amount to be paid for an insurance policy.<\/p>\n\n\n\n
What are premiums used for
premiums are collected into a “pool” or “reserve to pay out claimants when needed.<\/p>\n\n\n\n
how can insurance companies afford to pay for an individuals catastrophic loss?
the insurer collects premiums from all policy holders and uses them to pay out the claims of a few.<\/p>\n\n\n\n
what is Indemnity
payment for damages, that is not more or less than the amount caused by the damage.<\/p>\n\n\n\n
principle of idemnity
insurance will pay no more or less than the actual financial loss suffered<\/p>\n\n\n\n
indemnification may also include
repairs to property
reimbursement for additional living expenses
rental cars and hotels
costs directly associated with a loss<\/p>\n\n\n\n
4 Parts of Legal Contract<\/p>\n\n\n\n
legal contract – agreement
mutual intent by offeror and offeree<\/p>\n\n\n\n
six special characteristics of insurance contracts<\/p>\n\n\n\n
what kind of contract is an insurance policy?
Personal contract<\/p>\n\n\n\n
what is a contract of adhesion
the insured must accept the entire contract with all of its terms and conditions<\/p>\n\n\n\n
Utmost Good Faith
An obligation to act in complete honesty and to disclose all relevant facts.<\/p>\n\n\n\n
Aleatory Contract
a contract where the values exchanged may not be equal but depend on an uncertain event<\/p>\n\n\n\n
Unilateral Contract
insurance agrees that they must pay in event of a claim. the insured can stop paying premiums at any point.
only the insurer has promised to perform an action.<\/p>\n\n\n\n
Conditional Contract
A type of an agreement in which both parties must perform certain duties and follow rules of conduct to make the contract enforceable.<\/p>\n\n\n\n
Acronym for the four sections of an Insurance policy
DICE
D – declarations page
I – Insuring Agreement
C- Conditions
E – Exclusions<\/p>\n\n\n\n
Decelerations section
Always the first section – establishes the following
Names of both parties
Policy number
Location and description of insured item
Dates of the policy
Amount and limit of coverage
Deductible
Premium<\/p>\n\n\n\n
Definitions section
Defines terms used to write policy including “collusion” “decay” “like kind and quality”
Includes important language for adjusters to know<\/p>\n\n\n\n
Insuring agreement section
What is covered and how
Which causes of loss are covered
Any services provided
Any exclusions to coverage
The maximum limit of policy coverage in dollars<\/p>\n\n\n\n
Conditions section
Insurer specifies any limits or qualifications the policy holder must meet<\/p>\n\n\n\n
Exclusions section
losses for which the insured is not covered for<\/p>\n\n\n\n
Endorsements
Provision that modifies the coverage of the original contract
Add or subtract coverage
Synonyms – rider, addendum, attachment<\/p>\n\n\n\n
Certificate of Insurance
A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.<\/p>\n\n\n\n
Characteristics of social insurance
Non profit
Mandatory participation
Benefits prescribed by law
Designed to meet needs of public
Government has monopoly<\/p>\n\n\n\n
Private Insurers
Sell insurance based on needs and preferences
Wide variety of products
Exist to generate a profit
Insured party voluntarily participate<\/p>\n\n\n\n
Stock Insurance Companies
Always for profit
Publicly traded
Stockholder provide capital and participate in profit or losses
“Non participation” insurers – no dividends go to policy holders<\/p>\n\n\n\n
Mutual Insurance Company
No shareholders
Policy holders elect board of directors
“Participating” insurers – policy holders participate in dividends<\/p>\n\n\n\n
Re-insurer
Provides insurance for insurers to reduce exposure to loss
Pays percentage of insurers loss or any loss over a certain amount<\/p>\n\n\n\n
Reciprocal Insurers
Unincorporated
Non profit
Operated by attorney in fact
Members pay into individual accounts
Cost of claims shared by whole groups<\/p>\n\n\n\n
Fraternal Benefit Societies
Also called fraternal associations
Non profit mutual aid organizations
Engage in charitable activities
Provide some type of insurance to members
Typically consist of people with similar religion, ethnicity or occupation<\/p>\n\n\n\n
Fraternal Benefit Societies insurance
Used to fund altruistic activities
Must be assessable by law
Members are both providers and recipients
If claims payment ability is impaired, members help pay the difference<\/p>\n\n\n\n
captive insurers
Created by businesses in order to retain risk
Exist to provide insurance for their “parent”
All profit belongs to parent company
Permitted in some states<\/p>\n\n\n\n
Risk retention groups
Authorized by the federal liability risk retention act of 1986
Owned by their members
Provide commercial liability<\/p>\n\n\n\n
RRG Requirements
Members must be involved in similar business endeavors
Don’t need to be licensed in multiple states<\/p>\n\n\n\n
Classification based on location
Domestic Insurer – adhere to law of a state, located in that state<\/p>\n\n\n\n
Foreign insurer – adhere to laws in the US but can be located elsewhere<\/p>\n\n\n\n
Alien insurer – obey laws of another country all together<\/p>\n\n\n\n
Risk
Potential for financial loss
An insured item<\/p>\n\n\n\n
Two types of risk
Pure and Speculative<\/p>\n\n\n\n
Speculative risk
No certainty of gain or loss
Made knowingly, by conscious choice
Cannot be insured<\/p>\n\n\n\n
Pure risk
Risk with no chance of gain
Can only result in either loss or no loss
Can be insured<\/p>\n\n\n\n
Exposure
Extent to which an item, person, or organization is open to damage or loss<\/p>\n\n\n\n
Evaluating exposure
Expressed in dollars or units
Determining factor in issuing a policy and setting a premium<\/p>\n\n\n\n
Hazard
A condition increasing the likelihood or severity of a loss<\/p>\n\n\n\n
Peril
The actual cause of loss or damage<\/p>\n\n\n\n
Insurable risk
Adequate premiums
Definable risk
Unexpected losses
Substantial loss
Exclusions
Law of large numbers<\/p>\n\n\n\n
Adequate Premiums
Potential loss can’t be too much for insurer to pay
Insurer must b able to cover claims and expenses
If premiums must be set too high, the risk is not insurable<\/p>\n\n\n\n
Difneable risk
Insurer can define exact conditions under which the item is covered by the policy
Item it’s self is defineable
Item has precise value<\/p>\n\n\n\n
Unexpected loss
Unforeseeable
Unexpected
Reasonably unpreventable
Random in nature<\/p>\n\n\n\n
Substantial loss
Must cause substantial economic hardship<\/p>\n\n\n\n
Exclusions
Insurer must be able to exclude large scale disasters and catastrophic events<\/p>\n\n\n\n
Law of large numbers
Insurer must be able to cover large numbers of similar risks
Spreads risk across more policies
Helps insurers predict losses more accurately
Similar risks can mean, cars houses, persons lives, similar business etc<\/p>\n\n\n\n
Adverse Selection
when someone buys health insurance because they know they will probably file a claim<\/p>\n\n\n\n
4 risk management techniques
Avoidance
Reduction
Transference
Retention<\/p>\n\n\n\n
Risk avoidance
Eliminates risk by not taking action that involves risk<\/p>\n\n\n\n
Risk reduction
Taking measures to reduce risk that is involved
Also called risk mitigation<\/p>\n\n\n\n
Risk Transference
Management of sever risk by transferring risk to someone else
Most common example is Insurance<\/p>\n\n\n\n
Risk retention
Acknowledging the risks and preparing to handle the unexpected losses as they occur<\/p>\n\n\n\n
Policy Period
The time frame, beginning with the inception date to the expiration date, during which insurance coverage applies.<\/p>\n\n\n\n
Binder
Providing temporary coverage until the policy is issued<\/p>\n\n\n\n
Blanket coverage vs specific coverage
Blankets cover more than one property, type of property, or coverage under a single limit<\/p>\n\n\n\n
Specific limits – limits that apply to on specific type of property<\/p>\n\n\n\n
Representation
Statement of fact<\/p>\n\n\n\n
Missrepresentation
A false, distorted or deceptive statements<\/p>\n\n\n\n
Warranty
Promise or garuntee certain conditions are met
Warranties are found on the conditions page
If policy holder breaks up warranty the insurer can deny coverage<\/p>\n\n\n\n
Concealment
Concealment is hiding the truth
Deliberately withholding information<\/p>\n\n\n\n
Waiver
Voluntarily surrender of a right, claim, or privilege<\/p>\n\n\n\n
Expressed waiver
In writing or signed<\/p>\n\n\n\n
Implied waiver
assumed based on actions<\/p>\n\n\n\n
Estoppel
Legal principle that prevents an insurer from denying coverage if the insured has reasonably come to believe that he has such coverage based on insurers practices<\/p>\n\n\n\n
Types of hazards
Physical, Moral, Morale, legal<\/p>\n\n\n\n
Moral hazard
Results from the policy holders deliberate decision
Involves reckless behavior because of the financial security offered by insurance
Is a type of behavioral hazard<\/p>\n\n\n\n
Morale hazard
Occur when someone exhibits risky behavior because of having insurance.<\/p>\n\n\n\n
Physical hazard
Physical conditions that increase the chance of loss.<\/p>\n\n\n\n
Types of physical hazards
Environmental – pot holes in road
Material – asbestos in a old house
Operational – poorly managed engine
Occupant – working in a coal mine<\/p>\n\n\n\n
Legal hazard
Increased chance of loss because of legal action<\/p>\n\n\n\n
fraud
Deceiving an insurer to profit from an insurance policy<\/p>\n\n\n\n
Hard and soft fraud
Hard fraud – planning or faking a loss
Soft fraud – exaggerating a claim to inflate the indemnity<\/p>\n\n\n\n
proximate cause
Unbroken chain of events between an occurrence and a loss – then that occurrence is the proximate cause of the loss<\/p>\n\n\n\n
occurrence
An event, incident, or condition that causes damage<\/p>\n\n\n\n
Occurrence as proximate cause
The original occurrence causes damage that leads to more damage<\/p>\n\n\n\n
Direct loss
Physical harm to tangible property<\/p>\n\n\n\n
Indirect loss
Economic loss that results from the direct or physical loss<\/p>\n\n\n\n
Insurance claims
Demand for payment in accordance with terms of the policy<\/p>\n\n\n\n
First party claims
Claim filed by a policy holder against his or her own insurance policy<\/p>\n\n\n\n
Third party claims
Claim filed against an insurance policy by a third party not named on that policy<\/p>\n\n\n\n
acknowledgement
Insurer require by law to respond
Begin investigating all pertinent facts and issues<\/p>\n\n\n\n
Investigation
Finding the proximate cause of the loss
Examining all damages
Noting circumstances
Taking witness statements
Determining liability
Deciding wether claim is valid<\/p>\n\n\n\n
Evaluation
Consider policy limit and deductibles
Calculating lender interest
Determining the value of the loss
Applying all financial provisions of the policy<\/p>\n\n\n\n
Adjustment
If a claim is accepted, the insurer must pay promptly after notifying that the claim will be paid
If claim is denied the insurer must explicitly state reasons for denial<\/p>\n\n\n\n
Insurable Interest
Only parties with insurable interest can insure a property or person
You can only insure something that has some financial interest to you<\/p>\n\n\n\n
Lender interest
A lenders financial stake in an insured item<\/p>\n\n\n\n
Lender Interest Provisions
Allow the lender to be listed as a payee on the policy<\/p>\n\n\n\n
Endure the lender is notified if the policy is canceled, reduced, or expires<\/p>\n\n\n\n
Provide compensation for the lender in the event of an act or an omission by insurer party<\/p>\n\n\n\n
Permit lender to pay premiums to maintain coverage<\/p>\n\n\n\n
Limits on lender provisions
Lender may only collect up to its financial interest in a property<\/p>\n\n\n\n
Lender may never change or cancel an insurance policy<\/p>\n\n\n\n
Actual Cash Value
Same as fair market value and depreciation value
ACV offers lower premiums for less coverage
Formula: replacement cost minus depreciation<\/p>\n\n\n\n
Depreciation formula
allocation of original costs over the estimated useful life of a tangible asset<\/p>\n\n\n\n
3 Types of Deductibles
Fixed
Percentage
Franchise<\/p>\n\n\n\n
Fixed deductible
Specific set amount<\/p>\n\n\n\n
percentage deductible
Insured party pays a percentage of the total cost, insurance pays rest<\/p>\n\n\n\n
Franchise Deductible
Policy kicks in only after a loss exceeds a predetermined amount<\/p>\n\n\n\n
If losses are above the deductible then insurance pays 100%<\/p>\n\n\n\n
broad evidence rule
ACV does not simply come down to RC minus depreciation<\/p>\n\n\n\n
Takes into account any evidence available to determine value<\/p>\n\n\n\n
Coinsurance<\/p>\n\n\n\n
Valuation
Process of estimating an items worth<\/p>\n\n\n\n
Replacement cost policy
No depreciation.
Based on replacement cost at the time of loss
Higher premiums
Used on home insurance mostly<\/p>\n\n\n\n
Replacement cost
Cost to replace at today’s market value<\/p>\n\n\n\n
Actual Cash Value (ACV)
Replacement cost minus accumulated depreciation<\/p>\n\n\n\n
Annual Depreciation
Replacement cost divided by items useful life span<\/p>\n\n\n\n
Accumulated Depreciation
An items annual depreciation Multiplied by its age<\/p>\n\n\n\n
Valued Policy
Assigns a set value to each insured item<\/p>\n\n\n\n
Co-insurance penalty
If property is underinsured, the insurer will only cover a percentage of partial losses<\/p>\n\n\n\n
If multiple partial losses occur, the low premiums are not enough for the insurer to cover all the damages<\/p>\n\n\n\n
Calculating co insurance penalty
Had \/ should X the loss<\/p>\n\n\n\n
Negligence
Failure to use a reasonable degree of care in a particular situation- includes both wrongful acts and acts of omission<\/p>\n\n\n\n
4 elements of negligence<\/p>\n\n\n\n
Degrees of Liability
Full liability- the insured party is 100% at fault for damages to a third party<\/p>\n\n\n\n
Partial liability – the insured party is only partially at fault, or shares fault, with a third party. The third party had some parts in his own damages<\/p>\n\n\n\n
No liability – the insured party has 0% or no liability<\/p>\n\n\n\n
Assumption of risk
Claimant knew he had the potential to experience damage<\/p>\n\n\n\n
Contributory Negligence
A legal defense that may be raised when the defendant feels that the conduct of the plaintiff somehow contributed to any injuries or damages that were sustained by the plaintiff.<\/p>\n\n\n\n
Comparative Negligence
A theory in tort law under which the liability for injuries resulting from negligent acts is shared by all parties who were negligent (including the injured party), on the basis of each person’s proportionate negligence.<\/p>\n\n\n\n
Dangerous Instrumentality Doctrine
States that anyone involved in the use of inherently dangerous products or machines is held 100% liable for their own damages.<\/p>\n\n\n\n
strict (absolute) liability
liability is imposed regardless of negligence or fault<\/p>\n\n\n\n
Policy limit
The maximum amount the insurance company will pay for covered losses<\/p>\n\n\n\n
Single limits
Establishes maximum payout for liability damages caused by the policy holder<\/p>\n\n\n\n
Split limits
Establishes 3 different limits on how much the policy will pay out<\/p>\n\n\n\n
Aggregate limits
2 limits<\/p>\n\n\n\n
Res Ipsa
Means “the thing speaks for itself” and is only applied n rare instances when no one knows how exactly the accident happened<\/p>\n\n\n\n
Statutory law
Based on written laws<\/p>\n\n\n\n
Common law
Based on court decisions and customs when statutory law does not provide an answer<\/p>\n\n\n\n
Tort
Any civil wrongdoing, whether intentional or unintentional<\/p>\n\n\n\n
Tort law
Body of law that addresses and provides remedies for any civil wrongdoing performed on another party.<\/p>\n\n\n\n
Tortfeasor (defendant)
person who commits a tort<\/p>\n\n\n\n
Joint Tortfeasors
two or more people who join together in committing a tort<\/p>\n\n\n\n
Intentional tort
A premeditated act that causes injury to a third party<\/p>\n\n\n\n
Negligent tort
A negligent act that causes unintentional injury to a third party<\/p>\n\n\n\n
Reservation of rights letter
Must include<\/p>\n\n\n\n
Non-waiver agreement<\/p>\n\n\n\n
Two types of damages
punitive and compensatory<\/p>\n\n\n\n
Compensatory Damages
Money awarded for tangible and intangible economic losses<\/p>\n\n\n\n
Special damages – money awarded for tangible losses – proven by medical bills etc<\/p>\n\n\n\n
General damages – awarded for non quantifiable damages<\/p>\n\n\n\n
Punitive damages – money awarded to punish egregious misconduct<\/p>\n\n\n\n
The Statute of Limitations
Law limiting time an injured party has to file a complaint after an occurrence<\/p>\n\n\n\n
Wrongful death act
when someone dies because of a negligent act, allows family to sue<\/p>\n\n\n\n
Workers compensation
Restrict right of an employee to sue his employer for injuries that occurred on the job<\/p>\n\n\n\n
Automobile no fault laws
Restrict an individual’s rights to sue the driver of a motorized vehicle<\/p>\n\n\n\n
Breach of product warranty
If a product is not suitable for its intended purpose and causes injury or damage.<\/p>\n\n\n\n
Waiver of Sovereign Immunity
Allows individuals to sue gov entities in certain cases<\/p>\n\n\n\n
Agent
One who receives the authority to act on behalf of someone else<\/p>\n\n\n\n
Sales agent
Contracted to sell and service insurance policies on behalf of the insurer<\/p>\n\n\n\n
Adjusters
Contracted to settle claims that arise against the insurer<\/p>\n\n\n\n
Power to bind
What the agent says or does can bind the insurer
Agents should take the utmost care in what they say and do
Even if the agent makes mistakes, the insurer may have to accept them<\/p>\n\n\n\n
Responsibilities of an agent
Adhere to or follow the contract
Use reasonable judgement
Provide all necessary information and documentation to the insurer<\/p>\n\n\n\n
Three types of authority
express, implied, apparent<\/p>\n\n\n\n
Express Authority
Authority directly granted to an agent via the contract
-sell polices
-collect premiums
-issue binders<\/p>\n\n\n\n
Implied Authority
A form of indirect authority
The authority that the public reasonably believes the agent to have<\/p>\n\n\n\n
Apparent Authority
When the insurer does not correct its agent even when the agent may be acting in error<\/p>\n\n\n\n
Types of sales agents
Independent agent
Exclusive agent
General agent
Direct writer<\/p>\n\n\n\n
Independent agent
Self employed<\/p>\n\n\n\n
Offer insurance form more than one company at a time<\/p>\n\n\n\n
They can compare and give rate quotes from different companies.<\/p>\n\n\n\n
Find a policy that suits the customer<\/p>\n\n\n\n
Exclusive agent
Also called a captive agent<\/p>\n\n\n\n
General agent
Works for one insurance company<\/p>\n\n\n\n
Trains and supervises agents for that company<\/p>\n\n\n\n
Direct writer
Salaried employee
Works for one company<\/p>\n","protected":false},"excerpt":{"rendered":"
What is insurance?protection against financial loss what is a premiuma scheduled amount to be paid for an insurance policy. What are premiums used forpremiums are collected into a “pool” or “reserve to pay out claimants when needed. how can insurance companies afford to pay for an individuals catastrophic loss?the insurer collects premiums from all policy […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[],"tags":[],"class_list":["post-110740","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/110740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=110740"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/110740\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=110740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=110740"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=110740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}