Module 4: Insurance Basics and Property Insurance

Vocabulary-style flashcards covering the principles of risk management, insurance contract components, homeowners and automobile policy structures, and settlement calculations based on the Session 5 - Module 4 lecture.

Risk management

A two-part process involving forecasting and evaluating financial risks, and identifying ways, or techniques, to avoid or minimize their impact.

Risk retention

A risk management technique often referred to as self-insuring.

Risk reduction

A risk management technique focused on reducing the potential loss.

Risk avoidance

A risk management technique where an individual chooses not to perform an action or own an object to eliminate the associated risk.

Risk transfer

A risk management technique that involves buying insurance to move the financial risk to another party.

Rules of Risk Management

The three guidelines: Don't risk more than you can afford to lose; Consider the odds; Don't risk a lot for a little.

Criteria for an Insurable Risk

Requirements including the Law of large numbers, Accidental loss, Definite and measurable loss, and that the loss must not be catastrophic.

Peril

The specific cause of a loss, such as fire, theft, or drowning.

Hazard

Something that can contribute to a loss or increase the likelihood of a peril occurring, such as a swimming pool or running a red light.

Mutual Company

An insurance company owned by policyholders who receive profits or dividends through participating policies.

Stock Company

An insurance company owned by stockholders who receive dividends, usually offering nonparticipating policies.

Agent

A legal representative of the insurance company who has the power to bind coverage and whose primary allegiance is to the company.

Broker

A representative of the buyer whose allegiance is to the client and who cannot bind an insurance company.

Homeowners Coverage A

Section I coverage pertaining to the dwelling.

Homeowners Coverage B

Section I coverage pertaining to other structures.

Homeowners Coverage C

Section I coverage pertaining to personal property.

Homeowners Coverage D

Section I coverage pertaining to loss-of-use.

Homeowners Coverage E

Section II coverage pertaining to personal liability (excluding business use).

Homeowners Coverage F

Section II coverage pertaining to medical payments to others.

Homeowners Coinsurance Settlement Formula

$$(\frac{\text{Amount of insurance carried}}{\text{Amount of insurance required}} \times \text{Loss}) - \text{Deductible} = \text{Settlement}$$

Personal Auto Policy Part A

Liability coverage for bodily injury and property damage when the policyholder is at fault.

Personal Auto Policy Part B

Coverage for medical payments.

Personal Auto Policy Part C

Uninsured/underinsured motorist coverage.

Personal Auto Policy Part D

Coverage for damage to the policyholder's automobile (collision and other than collision).

Personal Auto Policy Part E

The section defining duties of the insured after an accident or loss occurs.

Personal Auto Policy Part F

The general provisions section of a personal auto policy.

Umbrella liability policies

Insurance designed to provide higher limits of liability coverage when standard homeowners and automobile policies are inadequate.

Insurable interest

A fundamental component of an insurance contract requiring the insured to have a financial stake in the preserved value of the item or person being insured.

Indemnity

The principle that an insurance policy should provide compensation that makes the insured whole again without allowing them to profit from a loss.

Pure Risks

Categories of risk including personal risk, property risk, liability risk, and failure of others.