A.D. Banker & Company Property & Casualty Insurance Exam Review

Comprehensive vocabulary flashcards covering general insurance concepts, property and casualty basics, policy structures, commercial lines, and Alabama state legislative requirements.

Insurance

A contract that provides protection in case an unforeseen event causes a covered loss by transferring the risk of loss to an insurance company.

Risk

A condition where there is a chance, likelihood, probability, or potential for a loss; specifically, the uncertainty concerning a loss.

Pure Risk

A risk that will result in either a loss or no change in status, with no possibility for gain; the only type of risk that is insurable.

Speculative Risk

A risk that may result in a loss, a gain, or no change in status, such as gambling or investing in the stock market.

Loss

A reduction, decrease, or disappearance of value, which serves as the basis of a claim under an insurance contract.

Exposure

The condition of being at risk for a loss, whether or not an actual loss occurs.

Peril

The cause of a loss, such as fire, lightning, wind, or death.

Hazard

A specific condition that increases the probability, likelihood, or severity of a loss from a peril; may be physical, moral, or morale.

Physical Hazard

A physical condition that increases the probability of loss, such as flammable material stored near a furnace or an icy sidewalk.

Moral Hazard

Dishonest tendencies that increase the probability of a loss, such as an insured intentionally burning down their own house.

Morale Hazard

An attitude of indifference toward the risk of loss that increases the probability of a loss occurring, such as leaving a car unlocked with the key in the ignition.

Law of Large Numbers

A probability theory stating that the larger the number or sample size of units with the same or similar exposures, the greater the accuracy in predicting losses.

Adverse Selection

The principle that people will seek and maintain insurance more frequently for high-risk exposures that are more difficult to insure.

Reinsurance

A device used by insurers to spread their risk and limit the loss they will face by shifting risk to another insurance company, known as the reinsurer.

Stock Insurance Company

A company owned by stockholders who share in profits through taxable corporate dividends and traditionally issue nonparticipating policies.

Mutual Insurance Company

A company owned by policyholders who may receive non-taxable dividends as a return of divisible surplus and typically receive participating policies.

Domestic Insurer

An insurer organized under the laws of the state where it obtained its original charter.

Foreign Insurer

An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States.

Alien Insurer

An insurer organized under the laws of any jurisdiction outside of the United States.

Admitted (Authorized) Insurer

An insurer authorized to transact insurance in a given state, having been granted a certificate of authority from that state’s department of insurance.

Surplus Lines Insurance

Insurance available through a specialty market for high-risk exposures that cannot be obtained from admitted insurers.

Law of Agency

Defines the relationship between an insurance company, known as the principal, and a producer operating as its agent.

Express Authority

Authority specifically detailed in the producer’s written agency contract, such as the power to solicit and sell insurance.

Implied Authority

Authority not specifically stated in the contract but necessary, reasonable, and usual for the producer to perform stated duties.

Apparent Authority

Authority created when a producer exceeds the authority in the contract and the principal does nothing to counter the public's impression that such authority exists.

Fiduciary

An agent who handles insurer funds in a trust capacity, such as keeping premium payments separate from personal operating funds.

Principle of Indemnity

Compensation for a loss designed to restore the insured to their pre-loss financial condition without allowing the insured to profit.

Insurable Interest

The potential for an insured to suffer financial or economic hardship in the event of a loss; must exist at the time of loss for property and casualty policies.

Contract of Adhesion

A contract written by one party (the insurer) without input from the applicant, presented on a take-it-or-leave-it basis.

Aleatory Contract

A contract resulting in an unequal exchange of consideration due to the uncertainty of an event or loss.

Waiver

The voluntary surrender of a known or legal right or advantage.

Estoppel

The judicial consequence that follows a waiver, denying a contractual right based on prior actions contrary to what the contract states.

Declarations Page

The policy's cover page describing who is insured, what is insured, where it is located, when coverage applies, and the limits/premiums involved.

Subrogation

The legal process allowing an insurer to seek recovery for a paid claim from a third party responsible for the loss.

Direct Loss

An immediate physical loss to property, such as fire damage to a home.

Indirect Loss (Consequential Loss)

A financial loss that is the consequence of a direct loss, such as additional hotel expenses after a fire-damaged home becomes unusable.

Replacement Cost

The full cost to repair or replace damaged property with property of like kind and quality at current pricing, without a deduction for depreciation.

Actual Cash Value (ACV)

A loss valuation method calculated as replacement cost minus depreciation at the time of loss.

Coinsurance

A provision requiring the insured to carry a certain percentage (usually $80\%$) of the property's value to receive full payment for partial losses.

Negligence

An unintentional tort consisting of a failure to exercise the degree of care required by law to protect others from an unreasonable risk of harm.

Tort

A wrongful civil act—not a criminal act or breach of contract—that violates a duty and for which a harmed party seeks damages.

Aggregate Limit

The maximum amount an insurer will pay for all losses submitted during the entire policy period, regardless of the number of occurrences.

Combined Single Limit

The maximum an insurer will pay per accident for any combination of bodily injury and/or property damage claims ($75,000$ is a common example).

Retroactive Date

The earliest date an occurrence can take place and be covered under a Claims-Made Form.

Mini tail

A standard $60$-day basic extended reporting period provided by the Claims-Made Form to allow for reporting of claims after the policy term.

Bailee

A person or organization that has taken the property of another into their care, custody, or control for servicing, repair, or storage.

Barratry

An act of gross misconduct committed by a captain or crew member that damages an ocean vessel or its cargo, such as illegal scuttling.

Principal (Obligor)

The party in a bond who has agreed to fulfill a specific obligation to the obligee.

Obligee

The party in a bond for whose benefit the bond is written and to whom the principal owes an obligation.

Surety (Guarantor)

The party that issues the bond and guarantees fulfillment of the principal's obligation by paying damages if the principal defaults.

Alabama Minimum Liability Limits

The minimum liability limits required to prove financial responsibility: $25/50/25$ ($25,000$ per person/$50,000$ per accident for bodily injury, and $25,000$ for property damage).

Alabama Prelicensing Education

Requirement of $20$ hours of prelicensing education per line of authority ($40$ total for Property and Casualty).

Alabama Continuing Education (CE)

Resident producers must complete $24$ classroom hours every $2$ years, including $3$ hours of ethics or business practices.