TX Personal Lines Property & Casualty Insurance - Section 1: Insurance Terms and Related Concepts

Insurance

Transferring pure risk (no gain) from individuals to a group. Pools large numbers of individual risks. Charges a small premium to each in the pool in exchange for protection.

Law of Large Numbers

The basic principle of the law that the larger number of separate risks of a like nature combined into one group, the more predictable the number of future losses of that group within a given time period.

Insurable Interest

This is based upon economics or an equity position. This is required at the time of loss in order to recover on a policy.

Risk

The uncertainty of loss.

Pure Risk

No chance of gain, only chance of loss. CAN ONLY insure this type.

Speculative Risk

You may gain, you may lose. CANNOT insure this type.

Hazard

Something that increases the risk.

Physical Hazard

Results from material or structural features of a risk.

Moral Hazard

Circumstances of morals or habits that increase the probability of a loss from an insured peril.

Morale Hazard

Risk arising from the insured's indifference to loss because of the existence of insurance.

Peril

The cause of loss.

Loss

Damage caused by a peril.

Actual Cash Value (ACV)

Replacement cost (at the time of loss, also known as current value) minus depreciation (based on age of the structure) equals...

Replacement Cost

Starting with the DP-02 broad form fire insurance policy, the contract promises to pay all covered property insurance losses to the building structure in full (without deduction for depreciation), if the insured carries 80% of the full...

Stated Value

A policy insured at a _________ means that the insured chooses a limit of coverage for the property.

Salvage Value

The amount that the insurer can get for the salvage left after a total loss.

the insurer and the insured.

The right to salvage belongs to both...

Proximate Cause

A party's negligence must be the ___________ _________ or reason for the resulting injury to others.

Deductible

The amount the insured must pay on every claim.

Indemnity

The insured may not recover more than he or she actually lost.

Limits of Liability

The policy limits.

Policy Limits

The ______ _______ are shown in the policy's declarations (on the first page of the contract).

Coinsurance/Insurance to Value

The insured MUST insure his building structure for at least 80% of the current replacement cost, sometimes called the 80% clause. This clause is designed to ensure that the insured carries adequate policy limits.

Occurrence

Over a period of time, but still covered by the policy.

Cancellation

_________ is done mid-term.

Short rate

Insured cancelled the policy.

Pro-rata

Insurer cancels the policy.

Non-Renewal

Occurs at the policy anniversary date and no premium refund is due.

Vacancy

Occurs when the insured has moved out and taken his or her belongings.

Unoccupancy

When the insured is on a vacation or trip.

DP/HO

After 60 days of vacancy, only vandalism is suspended.

SFP

After 60 days of vacancy OR unoccupancy, all coverages are suspended.

Liability

Covers bodily injury (BI) and property damage (PD) to others caused by the negligent acts of the insured; this portion of coverage has no deductible.

Absolute (liability)

________ liability occurs without negligence. An example of this is keeping a pet tiger. The claimant does not have to prove anything. You are automatically liable for keeping that pet tiger. Another example is the responsibility for handling explosives i

Strict (liability)

Liability without fault.

Vicarious (liability)

Situations where one party may be responsible for the negligent activities of another party. For example, asking a secretary to drive her own car for the company's business, if she gets into an accident, the claimant can sue the company instead of her for

Negligence

Failure to act as a reasonable person would in the same set of circumstances.

Binder

A temporary insurance contract that may be verbal or written.

Endorsement

This is added to a policy to modify its terms.

Medical payments

A no-fault type coverage designed to prevent lawsuits; is a good will gesture.

Blanket insurance

Provides small amount of insurance for all properties at a specific or multiple locations.

Specific insurance

Insures one property at a designated time and place.

Burglary

Evidenced by marks of forcible entry or exit.

Robbery

Taking property from the care and custody of a person by someone who has caused or threatened to cause bodily harm.

Theft (larceny)

Any act of stealing; includes burglary and robbery.

Mysterious Disappearance

Property that is gone without any apparent reason, an unspecified loss. Often the probability of theft.

Warranty

Guarantee of truth: is a literal truth.

Representation

Truth to the best of their knowledge: is a substantial truth.

Concealment

The failure to disclose a material fact; lying by omission.

Deposit Premium/Audit (Workers' Compensation and CGL)

This type of premium you pay by deposit; you will be subject to audit annually and premium adjustments.

Certificate of Insurance (COI)

States who is insured, who the insurer is, what the policy coverage is for, including limits. It does NOT have the premium listed on it. It does have the policy effective time and date.

Damages

Awarded by courts to parties injured due to the negligent acts of others.

Special Damages

Consists of medical expenses and lost wages; are an exact and verifiable figure.

General Damages

Compensating the injured party for his or her mental and physical distress, including pain and suffering disfigurement and loss of consortium.

Punitive Damages

Awarded when the injury was caused by the gross negligence of the defendant and often are triple the amount of the general damages awarded and are sometimes not covered by insurance.

Pre-notification & Post-notification

To prevent abuse in consumer reporting, there is a federal law called the Fair Credit Reporting Act which requires __________ and ___________.

Perils

Wind and fire are examples of __________.

listed in the policy.

A named peril policy covers the peril if it is...

not excluded.

An all-risk policy covers a peril only if it is...

direct loss.

Your house burning down is an example of a...

indirect loss.

The additional expenses incurred to live in a rental property after your house burned down is an example of an...

Proximate Cause

Is the beginning of the chain of events that has a resulting loss.

Proximate Loss

Would be the end of the chain of events that has a resulting loss.

Deductible

There is a __________ on every property claim.

Deductible

The __________ makes insurance more affordable and eliminates small claims.

limits of liability.

The most the policy will pay is found in the policy...

Contents

are always ACV on the test.

DP-2

Beginning with the _________ the dwelling is covered at replacement cost.

is to others.

On a homeowner policy, medical payments coverage ________ ____________ __________.