General Insurance Concepts Vocabulary Flashcards

A complete deck of vocabulary flashcards covering key insurance concepts, risk categories, contract characteristics, and industry terms directly from the lecture transcript.

Pure Risk

A type of risk that involves only the possibility of loss or no loss, with no potential for gain, and is the only type of risk that is insurable.

Speculative Risk

A risk situation that creates the possibility of either loss or gain, such as stock market investing or gambling, making it uninsurable.

Contract of Adhesion

An insurance contract drawn up unilaterally by the insurer where the applicant must accept or reject the document as written, without negotiating terms.

Adverse Selection

The tendency of individuals who face higher exposure to risk or loss to seek insurance coverage more frequently than lower-risk individuals.

Aleatory Contract

A contract characteristic in which performance and the exchange of values depend upon the occurrence of an uncertain future event.

Principle of Indemnity

An insurance principle establishing that a policy should restore the insured to their financial position prior to the loss without allowing enrichment or gain.

Moral Hazard

The increased probability of loss caused by dishonest, fraudulent, or intentional conduct by the insured.

Morale Hazard

An increased chance of loss resulting from careless, negligent, or irresponsible behavior by the insured because they know they carry insurance.

Physical Hazard

A material or tangible condition inherent to physical surroundings, such as faulty electrical wiring or slippery floors, that increases the probability of a loss.

Peril

The specific immediate event or cause that directly produces a loss, such as a fire, collision, or illness.

Hazard

Any condition, factor, or situation that increases the probability or severity of a loss.

Unilateral Contract

A contract in which only one party (the insurer) makes a legally enforceable promise to pay covered claims.

Conditional Contract

A contract whose performance depends on specific duties being fulfilled by the insured, such as paying premiums and providing prompt claim notification.

Consideration

The essential exchange of value required for a valid contract, comprising premium payments and application statements from the insured, and the promise to pay benefits from the insurer.

Law of Large Numbers

A mathematical rule stating that as the sample size of similar risks increases, actual loss outcomes become more predictable and close to actuarial projections.

Reinsurance

A process where a primary insurer transfers a portion of its risk to another insurance company to protect solvency against catastrophic losses.

Ceding Insurer

The primary insurance company that initiates reinsurance by transferring or ceding a portion of its risk to a reinsurer.

Utmost Good Faith

A foundational principle requiring both the insurer and the insured to act with complete honesty and fully disclose all material facts.

Mortality Tables

Statistical reference tables that use probability theory on historical population data to predict death rates at specific ages for calculating life insurance premiums.

Medical Information Bureau (MIB)

An association of life and health insurance companies that shares underwriting data to evaluate risk and prevent fraud.

Direct Response

A marketing method of selling insurance directly to consumers using general media advertising or direct mail rather than face-to-face agents.

Stock-Based Insurer

An insurance company owned by external shareholders seeking investment returns, which typically issues non-participating policies.

Mutual Insurer

An insurance company owned by its policyholders, structured as a cooperative that can return surplus earnings back to policyholders.

Captive Insurer

An insurance company created by a parent business specifically to insure the risks of that parent company and its subsidiaries.

Insurable Interest

A financial or emotional relationship requiring that an applicant would suffer an economic loss upon the occurrence of the insured event, backing the principle of indemnity.

Net Premium

The portion of an insurance premium based purely on mortality or morbidity rates, calculated to cover risk without accounting for administrative costs or profits.

Cost Load (Loading)

The fee added to the net premium to cover an insurer's administrative expenses, operating costs, commissions, and profit margins.

Representations

Statements made by an insurance applicant on an application that are believed to be true to the best of their knowledge, but are not guaranteed as strict warranties.

Deductible

The initial out-of-pocket sum that an insured must pay toward a loss before the insurance company begins paying benefits.

Co-insurance

A cost-sharing provision in health insurance policies requiring the insured to pay a set percentage of covered expenses after meeting the deductible.

Specific Illness Insurance

A supplemental policy that pays benefits for direct and incidental costs of a designated disease without duplicating primary medical expense coverage.

Exposure to Losses

Any situation or condition that creates a possibility of financial loss.

Human Life Value Concept

A financial assessment method that measures an individual's economic worth based on the future income they would have earned for their dependents.

Insurance Policy

The official written contract supplied by an insurer that documents the coverage terms, conditions, benefits, and exclusions.

Endorsement

A written agreement attached to an insurance policy that modifies, adds to, or deletes terms of the original contract.

Legal Competence

A valid contract requirement stating that all parties must possess legal capacity, being of legal age, mentally sound, and free from coercion.

Immediate Wealth Creation

A characteristic of life insurance where the entire death benefit becomes available to beneficiaries immediately upon the death of the insured.

Risk Prevention

A risk handling strategy focused on completely eliminating exposure to a loss by avoiding high-risk activities entirely.

Loss Retention

A risk handling technique in which an individual or business chooses to self-absorb predictable and manageable losses.