RMIN Test 2

  1. Insurance
    Pooling of fortuitous losses by a transfer of risk to insurers who agree to indemnify insureds for such losses, to provide other pecuinary benefits on their occurance, or to render services connected with the risk.
  2. Pooling
    the sharing of total losses among a group
  3. 6 General Requirements of an Insurable Risk
    • 1. Large Number of Homogeneous Exposure Units
    • 2. Accidental and Unintentional Losses
    • 3. Determinable and Measurable Losses
    • 4. Non-Catastrophic Losses
    • 5. Calculable Chance of Loss
    • 6. Economically Feasible Premium
  4. Indemnity
    insured is restored to approximate financial position as before a loss; there should be no gain after a loss
  5. Actual Cash Value (ACV)
    what the insurance company usually pays;ACV=Replacement Cost (RC) - Depreciation
  6. Insurable Interest
    insured must demonstrate a loss in order to collect
  7. When must insurable interest exist for property/ casualty insurance?
    Insurance can be purchased for anything; interest isn't checked until a claim is filed, and one cannot collect on a claim without insurable interest
  8. When must insurable interest exist for life insurance?
    Interest is only checked on the day the contract is signed, as long as premiums are paid, one can collect on a policy
  9. Subrogation
    substitution of the insurer in the place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance; reinforces the idea of indemnity
  10. Principle of Utmost Good Faith
    a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts
  11. Requirements of a Valid Contract
    legality, capacity, offer and acceptance, consideration
  12. Representations
    oral or written statements made before a contract starts to induce a party to enter the contract
  13. What can void a contract/ revoke coverage?
    false and material representations, concealment, breaches of warranty
  14. Concealment
    silence when there is an obligation to speak; generally involves an element of deception
  15. Warranty
    a statement that becomes part of the insurance contract and is guranteed by the maker to be true in all respects
  16. Types of Warranties
    Express, Implied, Promissory, Affirmative, Combination
  17. Promissory Warranty
    condition to continue throughout a contract period
  18. Affirmative Warranty
    exists at contracts inception and promises nothing about the future
  19. Who always makes the contract offer?
    the applicant
  20. When does property insurance coverage usually begin?
    as soon as the contract is signed; the agent has binding power
  21. When does life insurance coverage usually begin?
    as soon as the company accepts a signed offer; agents cannot bind agreements
  22. Consideration
    the value that each party gives to the other
  23. People not considered competent to enter into a contract:
    • 1. Intoxicated Persons
    • 2. Minors
    • 3. Mentally Insane Persons
    • 4. Corporations acting outside of the scope of its charter
  24. Distinguishing Characteristics of Insurance Contracts
    Aleatory, unilateral, conditional, personal, contract of adhesion
  25. Aleatory Contract
    Dollar outcome is unequal between parties, but this is not necessarily unfair
  26. Unilateral Contract
    only one party legally has to perform, the insurer
  27. Conditional Contract
    insurer only has to perform if the insured adheres to the conditions of the contract
  28. Personal Contract
    require privity of contract; contract is solely between insured and insurer, meaning coverage can't transfer with the sale of item
  29. Contract of Adhesion
    ambiguities are construed against the contract's writer (the insurance co)
  30. Benefits of Insurance
    • Reduced reserve requirements
    • Lower cost of capital
    • Reduced credit risk
    • Business and social stability
    • Facilitates offering of new products and services
    • Loss control activities (offer incentives of premium discounts)
  31. Costs of Insurance
    • Fraudulent claims
    • Inflated claims
    • Expense loading to insured (paying cost to run insurance business)
  32. Major parts of an Insurance Policy
    • Declaration
    • Insuring Agreement
    • Exclusions
    • Conditions
    • Definitions
    • Basis of Recovery
    • Clauses limiting the amount of recovery
  33. Declaration
    first page of the policy that provides information about the particular property or activity to be insured
  34. Insuring Agreement
    most crucial part of the agreement; states what the insurer agrees to do and major conditions under which it so agrees
  35. Named Perils Agreement
    covered perils are specified in contract; if a peril is not on the list, it isn't covered
  36. Open Perils Agreement
    states that it is the insurer's intention to cover risks of accidental loss to the described property except for perils specifically excluded
  37. Named Insured
    person or organization that is to receive the benefit of the coverage period; is often the person listen on the declarations page
  38. Exclusions
    used to define and limit the coverage provided by an insurer; used to restrict coverage of given perils, losses, property, and locations
  39. Excluded Perils
    • Perils that are basically uninsurable
    • Perils to be covered elsewhere
    • Perils covered under endoresement at an extra premium
  40. Specific Dollar Limits
    restrict payments to a maximum amount on any one type of loss
  41. Aggregate Dollar Limits
    restrict payments on any one group of property items or losses from the same peril to some overall maxiumum
  42. Deductible
    a specific dollar amount that will be brone by the insured before the insurer becomes liable; helps reduce the number of small claims
  43. Straight Deductible
    applies to each loss and is subtracted before any loss payment is made
  44. Aggregate Deductible
    applies for an entire year; the insured absorbs all losses until a certain dollar level is reached
  45. Calendar-year Deductible
    aggregate deductible in the health insurance industry
  46. Disappearing Deductible
    the size of the deductible decreases as the size of the loss increases
  47. Franchise Deductible
    expressed either as a percentage or dollar amount; there is no liability on the part of the insurer unless the loss exceeds the stated amount. once the loss exceeds this amount, the insurer pays the entire claim
  48. Coinsurance
    • Property-->device used to make the insured bear a portion of every loss when he or she is underinsured
    • Health-->functions like a straight deductible, expressed as a percentage (copayment)
Card Set
RMIN Test 2
RMIN Test 2 terms