RMIN Test 2

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.

the sharing of total losses among a group

• 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

insured is restored to approximate financial position as before a loss; there should be no gain after a loss

what the insurance company usually pays;ACV=Replacement Cost (RC) - Depreciation

insured must demonstrate a loss in order to collect

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

Interest is only checked on the day the contract is signed, as long as premiums are paid, one can collect on a policy

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

a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

legality, capacity, offer and acceptance, consideration

oral or written statements made before a contract starts to induce a party to enter the contract

false and material representations, concealment, breaches of warranty

silence when there is an obligation to speak; generally involves an element of deception

a statement that becomes part of the insurance contract and is guranteed by the maker to be true in all respects

Express, Implied, Promissory, Affirmative, Combination

condition to continue throughout a contract period

exists at contracts inception and promises nothing about the future

the applicant

as soon as the contract is signed; the agent has binding power

as soon as the company accepts a signed offer; agents cannot bind agreements

the value that each party gives to the other

• 1. Intoxicated Persons
• 2. Minors
• 3. Mentally Insane Persons
• 4. Corporations acting outside of the scope of its charter

Aleatory, unilateral, conditional, personal, contract of adhesion

Dollar outcome is unequal between parties, but this is not necessarily unfair

only one party legally has to perform, the insurer

insurer only has to perform if the insured adheres to the conditions of the contract

require privity of contract; contract is solely between insured and insurer, meaning coverage can't transfer with the sale of item

ambiguities are construed against the contract's writer (the insurance co)

• 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)

• Fraudulent claims
• Inflated claims
• Expense loading to insured (paying cost to run insurance business)

• Declaration
• Insuring Agreement
• Exclusions
• Conditions
• Definitions
• Basis of Recovery
• Clauses limiting the amount of recovery

first page of the policy that provides information about the particular property or activity to be insured

most crucial part of the agreement; states what the insurer agrees to do and major conditions under which it so agrees

covered perils are specified in contract; if a peril is not on the list, it isn't covered

states that it is the insurer's intention to cover risks of accidental loss to the described property except for perils specifically excluded

person or organization that is to receive the benefit of the coverage period; is often the person listen on the declarations page

used to define and limit the coverage provided by an insurer; used to restrict coverage of given perils, losses, property, and locations

• Perils that are basically uninsurable
• Perils to be covered elsewhere
• Perils covered under endoresement at an extra premium

restrict payments to a maximum amount on any one type of loss

restrict payments on any one group of property items or losses from the same peril to some overall maxiumum

a specific dollar amount that will be brone by the insured before the insurer becomes liable; helps reduce the number of small claims

applies to each loss and is subtracted before any loss payment is made

applies for an entire year; the insured absorbs all losses until a certain dollar level is reached

aggregate deductible in the health insurance industry

the size of the deductible decreases as the size of the loss increases

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

• 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)