Risk Ch. 10 - Analysis of Insurance Contracts

insuring agreement

summarizes the major promises of the insurer

named-perils policy

only perils specific named in policy are covered

open-perils policy

all losses covered except losses specifically excluded

special coverage policy

if loss is not excluded, then it is covered

excluded perils

when contract excludes certain perils or causes of loss

excluded losses

when contract excludes certain types of losses

excluded property

when contract excludes or places limitations on coverage of certain property

reasons for exclusions

uninsurable perils

presence of extraordinary hazards

coverage provided by other contracts

moral hazard

attitudinal hazard

coverage not needed

conditions

provisions in policy that qualify or place limitations on insurer’s promise to perform

name insured

person or party named on declarations page of policy

first named insured

first name that appears on the declarations page of the policy as an insured

other insured

persons or parties who are insured under the named insured’s policy even though they are not specifically named in the policy

additional insured

person or party who is added to the named insured’s policy by an endorsement

endorsements and riders

written provision that adds to, deletes from, or modifies the provisions in the original contract (p&c)

provision that amends or changes the original policy (life)

deductible

provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable

purpose of deductible

eliminate small claims

reduce premiums

reduce moral and attitudinal hazard

large-loss principle

concept of using insurance premiums to pay for large losses instead of small losses

straight deductible

insured must pay certain number of dollars of loss before insured required to make a payment

aggregate deductible

all losses occur during specific time period, usually policy year, are accumulated to satisfy deductible amount

coinsurance clause

encourages the insured to insure the property to a stated percentage of its insurable value. If the coinsurance requirement is not met at the time of loss, the insured must share in the loss as a coinsurer

coinsurance formula

Amount of insurance carried

———————————————— x Loss = Amount of recovery

Amount of insurance required Loss

purpose of coinsurance

achieve equity in rating

other-insurance provisions

prevent profiting from insurance and violating the principle of indemnity

pro rata liability

Each insurer’s share of the loss is based on the proportion that its insurance bears to the total amount of insurance on the property

contribution by equal shares

Each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid

primary and excess insurance

primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted

coordination-of-benefits provision

designed to prevent overinsurance and the duplication of benefits if one person is covered under more than one group health insurance plan