Property insurance
protects you from financial losses resulting from damage to or destruction of your property or possessions.
Legally liable
being held responsible for losses suffered by others
Liability insurance
protects you from financial losses suffered by others for which you are legally liable
Risk
is uncertainty about the outcome of the situation or event
Speculative risk
exists in situations where there is potential for gain as well as for loss.
Pure risk
exists when there is no potential for gain, only the possibility of loss. (fires, accidents, theft)
Risk management
is the process of identifying and evaluating situations involving risk to determine and implement the appropriate means for its management. The goal is to minimize any risk or potential risk through advance planning.
Exposures
are items you own and the activities in which you engage that expose you to potential financial loss.
Peril
is any event that can cause a financial loss.
Loss frequency
refers to the likely number of times that a loss might occur over a period of time.
Loss severity
describes the potential magnitude of the loss(es)
Risk avoidance
the simplest way to handle a risk is to avoid it, you refrain from owning items or engaging in activities that expose you to possible financial loss
Risk retention
a way to handle risk is to retain or accept it.
Deductible clause
requires that the policyholder pays an initial portion of any loss.
Loss control
the handling risk method that is designed to reduce loss frequency and loss severity
Risk transfer
a way to handle risk where an insurance company agrees to reimburse you for a financial loss
Risk reduction
a way to handle risk is to reduce it to acceptable levels insurance is used by policyholders when they arrange for all or a portion of their risk to be covered by an insurance company, thereby reducing the level of risk
Largeloss principle
a risk management rule that states that you should pay for small losses out of your own pocket and purchase as much insurance as necessary to over large, catastrophic losses that will ruin you financially.
Insurance
a mechanism for transferring and reducing pure risk through which a large number of individuals share in the financial losses suffered by members of the group as a whole.
Premium
comparatively small, predictable fee which individuals share in the financial losses suffered by the members of the group as a whole.
Insurance policy
the contract between the person buying insurance and the insurance company.
Hazard
any condition that increases the probability that a peril will occur.
Physical hazard
a particular characteristic of the insured person or property that increases the chance of loss
Morale Hazard
exists when a person is indifferent to a peril. (keeping doors unlocked just because he/she knows that they are insured)
Moral Hazard
exists when an insured person wants a peril to occur so that he or she can collect on an insurance policy
Fortuitous losses
unexpected losses in terms of both their timing and magnitude.
Financial loss
any decline in the value of income or assets in the present or future.
Personal losses
losses that can be directly suffered by specific individuals or organizations rather than society as a while.
Principle of indemnity
states that insurance will pay no more than the actual financial loss suffered.
Policy limits
specify the maximum dollar amounts that will be paid under the policy.
Deductible
an initial portion of any loss that must be paid before the insurance company will provide coverage.
Coinsurance
a method by which the insured and the insurer share proportionately in the payment for a loss.
Deductible and coinsurance reimbursement formula
can be used to determine the amount of loss that will be reimbursed when the policy includes a deductible and a coinsurance clause. R = (1-CP)(L-D), reimbursement= (1- coinsurance percentage required of the insured)(loss-deductible)
Hazard reduction
an action taken by the insured to reduced the probability of a loss occurring.
Loss reduction
the action taken by the insured to lessen the severity of loss if a peril occurs (fire extinguishers).
Law of large numbers
as the number of members in a group increases, predictions about the groups behavior become increasingly more accurate (statistics) larger group, better prediction of what will occur by averaging their loss events.
Insurance agents
represent one or more insurance companies that have the power to enter into, change, and cancel insurance policies on behalf of these companies.
Independent insurance agents
independent business people who act as third party links between insurers and insureds. Usually get commission from the companies he/she may advise people to go to, is it meets their best needs.
Exclusive insurance agents
represent only one insurance company for a specific type of insurance.
Direct sellers
insurance companies that market their policies through salaried employees, mail-order promotions, newspapers, and internet.
Homeowners insurance
combines the liability and property insurance coverages needed by homeowners and renters into a single-package policy.
Named perils policies
cover only those losses caused by peril that are specifically mentioned in the policy.
All risk policies
cover losses caused by all perils other than those specifically Excluded by the policy!
Homeowners general liability protection
applies when you are legally liable for the loses of another person (a guests son gets burned by the stove).
Homeowner's no fault medical payments protection
will pay for bodily injury losses suffered by visitors regardless of who was at fault.
Homeowners no fault property damage protection
will pay for property losses suffered by visitors to your home (a chewed leather coat by your dog to a visitor)
Basic form (HO 1)
a named perils policy that covers 11 property damaging causing perils and provides three areas of liability related protection: personal liability, property damage liability, and medical payments.
Broad form (HO 2)
a named perils policy that covers 10 property damaged perils and provides protection from three liability related exposures.
Special form (HO 3)
provides open perils protection for four types of property losses; losses to the dwelling, losses to other structures, landscaping losses, and losses gathering additional living expenses.
Renters contents broad form (HO 4)
a named perils policy that protects the insured from losses to the contents of a dwelling rather than the dwelling itself.
Condominium form (HO 6)
a named perils policy protecting condominium owners from the three principle losses they face: loss to contents and personal property, losses due to the additional living expended that may arise if one of the covered perils occurs, and liability losses.
Older home form (HO 8)
the replacement value of an older home may be much higher than its market or actual cash value. It is a named perils policy that provides actual cash value protection on the dwelling. It provides it to be rebuilt to a serviceable level.
Replacement cost requirement
insurance policies usually contain this policy that stipulates that a home MUST be insured for 80 percent of its replacement value.
Inflation guard protection
protection to have your insurance company increase your coverage automatically each year.
Personal property inventory
all the contents of your home are time consuming but important tasks.
Actual cash value
purchase price of the property less depreciation.
Actual cash value formula
ACV=P-[CA x (P/LE)], ACV = purchase price of the property-[current age of the property in years x (purchase price of the property/Life expectancy of the property in years)]
Content replacement cost protection
an option sometimes available in homeowner's insurance policies that pays the FULL replacement cost of any personal property.
Automobile insurance
combines the liability and property insurance coverages needed by automobile owners and drivers into a single-package policy.
Automobile bodily injury liability
occurs when a driver or car owner is held legally responsible for bodily injury losses suffered by other people, including pedestrians.
Automobile property damage liability
occurs when a driver or car owner is held legally responsible for damage to the property of others (another vehicle, a building, signs, or poles).
Family auto policy (FAP)
the vehicle owner, relatives living in the vehicle owners household, and people who have the owner's permission to drive the vehicle.
Split liability limits
usually three numbers such as 100/300/50, with each number representing a multiple of $1000. The first number gives maximum pay, second number is the total of everyone's payments, third number is the maximum coverage you will receive.
Single liability limit
policy where all property and bodily injury liability losses resulting from an accident would be paid until the limit is reached.
Automobile medical payments insurance
covers bodily injury losses suffered by the driver of the insured vehicle and any passengers regardless of who is at fault.
Personal injury protection (PIP)
- medical payments coverage for the driver and any passengers for bodily injury losses as well as possibly lost wages and rehabilitation expenses common in no fault accident states.
Subrogation rights
allow an insurer to take action against negligent third party (and that party's insurance company) to obtain reimbursement for payments made to an insured.
Uninsured motorist insurance
protects the insured and the insured passengers from bodily injury losses resulting from an automobile accident caused by an uninsured motorist.
Underinsured motorist insurance
protects the insured and his/her passengers from bodily injury losses when the at fault driver has insurance but the coverage is insufficient to reimburse the losses.
Automobile physical damage insurance
provides protection against loses caused by damage to your car from collision, theft, and other perils.
Collision insurance
reimburses an insured for losses resulting from collision with another car or object or from a rollover.
Comprehensive automobile insurance
protects against property damage losses caused by perils other than collision. (fire theft vandalism hail wind)
Towing coverage
pays the cost of having a disabled vehicle transported for repairs.
Rental reimbursement coverage
provides a rental car when the insured's vehicle is being repaired after an accident or has been stolen.
Comprehensive personal liability insurance policy
insurance for a personal accident that may have occurred outside of the home and car.
Adverse selection
policies that don't included certain coverage because you are excluded from the people who are most likely to suffer such losses that they are and those that are least likely to know that, too.
National Flood Insurance Program
a federal government program that makes flood insurance available in countries where flood is common.
Earthquake insurance
This is an insurance coverage that can be purchased only from a private insurance company either as a separate policy or as an endorsement to an existing homeowners or renters insurance policy, it covers california.....
Professional Liability insurance (malpractice insurance)
protects individuals and organizations that provide professional services when they are held liable for the losses of their clients.
Umbrella liability insurance
a catastrophic liability policy that cover liability losses in excess of those covered by any underlying homeowner's automobile or professional liability policy. Work great to cover the rest of the costs that are not covered with other target specific ins
Floater policies
provide all risk protection for an accident and theft losses to movable property (cameras sporting equipment MP3 players) regardless of where the loss occurs.
Insurance claim
a formal request to the insurance company for reimbursement for a covered loss.
Claims adjuster
the person designated by the insurance company to asses whether the loss is covered and to determine the dollar amount that the company will pay.
Release
final step in the claims settlement process is to sign an insurance document affirming that the dollar amount of the loss settlement is accepted as full and complete reimbursement and that the insured will make no additional claims for the loss against th