Insurance Terms and Concepts

A comprehensive set of 200 flashcards designed for reviewing key insurance terms and concepts to aid in exam preparation.

Insurance

An arrangement where the insured transfers risk to the insurer.

Pure Risk

Involves only the chance of loss or no loss.

Speculative Risk

Involves the chance of loss or gain; not insurable.

Indemnify

To make a claimant financially whole for a loss.

Insurer

The insurance company that agrees to indemnify the insured.

Insured

The first party in the insurance contract who transfers risk.

Insurable Interest

The economic interest a party has in property, necessary for insurance coverage.

Actual Cash Value (ACV)

Replacement cost minus depreciation.

Consideration

Something of legal value exchanged by contracting parties.

Legal Purpose

The actions agreed to in a contract must be legal.

Agreement Between Parties

One party makes an offer accepted by the other.

Competent Parties

Parties must be mentally competent and of legal age to contract.

Contract of Indemnity

A contract designed to make claimants financially whole.

Conditioned Contract

One party's obligations depend on the performance of the other's duties.

Contract of Adhesion

A contract written by one party, typically containing ambiguous terms.

Representations

Statements made that one reasonably believes to be true.

Misrepresentation

False statements made by the insured during the application process.

Material Misrepresentation

Misrepresentation that affects the insurer's risk or pricing.

Concealment

Failure to disclose facts during the application process.

Material Concealment

Concealing known hazards that affect insurability.

Insurance Fraud

Committing material misrepresentation or concealment.

Hazard

A feature increasing the chance of loss.

Physical Hazard

Characteristics of property that make a loss more likely.

Moral Hazard

Behavior that increases the chance of loss due to dishonesty.

Morale Hazard

Carelessness about risk due to existing insurance.

Uninsurability

Losses that are intentional and not accidental.

Obsolescence

Decrease in value due to technological advancement or societal change.

Adverse Selection

Seeking coverage only when having the most risk.

Direct Loss

Damage caused by a peril insured against.

Indirect Loss

Loss of use or time element loss following a direct loss.

Peril

A cause of loss covered by an insurance policy.

Named Peril Approach

Lists specific perils covered in a policy.

Open Peril Approach

Covers all perils except those specifically excluded.

Hostile Fire

A fire that escapes its intended receptacle.

Friendly Fire

A fire contained in its intended receptacle.

Excluded Perils

Specific events that are not covered by a policy.

General Exclusions

Exclusions that apply to any claim.

Special Form Exclusions

Exclusions that apply to open peril policies.

Concurrent Causation

When more than one peril causes a direct loss.

Deductible

Amount subtracted from a loss before recovery payment.

Loss – Deductible = Expected Payout

Formula for determining recovery.

Claims Process

The procedure through which an insured claims benefits.

Valuation Clause

Condition determining how losses are assessed and settled.

Coinsurance Clause

Clause requiring insurance to be at least a percentage of property value.

Pro-Rata Liability

Sharing of loss between multiple insurance policies.

Mortgagee Rights

Rights of lenders to receive claim payments in certain situations.

Assignment Clause

Restrictions on transferring a policy without insurer consent.

Abandonment Clause

Prohibits abandonment of property to the insurer.

Appraisal Clause

Method to resolve disputes on loss amounts without litigation.

Subrogation

Transfer of right to recovery from responsible parties after a loss.

Fraud Clause

Policy voidance due to material misrepresentation.

Limit of Liability

Maximum coverage the insured will receive for a claim.

Cancellation

Termination of a policy by either party.

Waiver

Voluntary relinquishment of a known right.

Declarations Page

Contains key details of an insurance policy.

Insuring Agreements

Clauses that state what is covered by the policy.

Exclusions

Clauses that outline what is not covered by the policy.

Conditions

Clauses that express rules regarding settlement of losses.

Definitions

Clarifications of terms used in the policy.

Endorsements

Changes or additions made to an insurance policy.

Standard Fire Policy

First standardized property insurance form in the U.S.

Fidelity Bond

Ensures against employee dishonesty.

Surety Bond

Guarantees contract performance.

Mine Subsidence Insurance

Coverage for damage due to mine subsidence.

Inland Marine Insurance

Coverage for movable property.

Businessowners Policy (BOP)

Package policy for small and medium businesses.

National Flood Insurance Program (NFIP)

Governs flood insurance in the U.S.

Flood Policy Coverage

Coverage for losses due to flooding.

Earthquake Coverage

Additional coverage for damages from earthquakes.

Sewer Backup Coverage

Coverage for losses due to sewer backups.

Binder

Temporary evidence of insurance until the actual policy is issued.

Blanket Limits

Sum of the individual values of insured items.

Scheduled Personal Property Endorsement

Coverage for specific categories of property.

Replacement Cost

Amount necessary to replace damaged property without depreciation.

Agreed Value

Negates the coinsurance clause with agreed limits.

Business Income Coverage

Covers loss of income following a covered loss.

Pollution Coverage

Covers the cost of cleaning up pollutants.

Debris Removal Coverage

Costs for removing damaged property after a loss.

Valuable Papers Coverage

Covers costs to restore lost or damaged documents.

Tenant's Improvements Coverage

Covers improvements made by tenants.

Burglary

Theft involving illegal entry without confrontation.

Robbery

Theft involving confrontation and threat of harm.

Theft

Unlawful taking of property.

Larceny

Theft that is neither burglary nor robbery.

Crime Insurance

Coverage for theft and related losses.

Waiver of Subrogation

Voluntary relinquishment of the right to seek recovery.

Elasticity of Coverage

Flexibility in specifying policy terms.

Insurance Producer

Agent or broker who sells insurance.

Underwriting

The process of evaluating risks for insurance.

Legal Liability

Responsibility under the law for damages.

Market Value

Estimated value of a property in the market.

Event of Loss

Occurrence that triggers a claim.

Accidental Loss

Loss due to unforeseen circumstances.

Negligence

Failure to act with reasonable care.

Subrogation Rights

Insurer's right to recover costs after paying a claim.

Excess Insurance

Coverage that kicks in after primary insurance limits are exceeded.

Temporary Coverage

Short-term insurance for specific risks.

Coverage Limit

The maximum amount an insurer will pay for a loss.

Deductible

Amount the insured must pay before insurance pays.

Exclusion,

Specific situations not covered by an insurance policy.