Topic 6 – Analysis of Insurance Contracts

These flashcards cover the essential terms, clauses, and provisions related to insurance contracts, including policy structure, exclusions, deductibles, coinsurance, other-insurance clauses, and legal doctrines such as waiver and estoppel.

What information is typically found in the Declarations section of a property insurance policy?

Name of the insured, location of the property, period of protection, amount of insurance, premium, and deductible details.

In policy language, how is the insured usually referenced within the Definitions section?

As “you.”

What does the Insuring Agreement of an insurance contract do?

Summarizes the major promises of the insurer to the insured.

How does Named-Perils coverage differ from Open-Perils (special) coverage?

Named-Perils covers only the perils specifically listed, whereas Open-Perils covers all causes of loss except those specifically excluded.

List the three major categories of exclusions in insurance contracts.

Excluded perils, excluded losses, and excluded property.

Give one example each of an excluded peril, an excluded loss, and excluded property in a homeowners policy.

Peril – flood; Loss – professional liability; Property – pets.

Why might catastrophic war losses be excluded from insurance policies?

Because some perils are not commercially insurable.

What is an example of an extraordinary hazard that leads to an exclusion?

Using an automobile as a taxi.

How do exclusions help control moral hazard and attitudinal hazard?

By limiting or excluding coverage (e.g., money coverage limited to $200) so insureds are less tempted to be careless or dishonest.

What are Conditions within an insurance policy?

Provisions that qualify or place limitations on the insurer’s promise; failure to meet them may allow the insurer to deny a claim.

Give two examples of miscellaneous provisions found in insurance policies.

Cancellation clause and subrogation clause (others include grace period, misstatement of age).

Who is the Named Insured?

The person(s) specifically named in the Declarations section of the policy.

What additional rights belong to the First Named Insured?

Special rights and responsibilities, such as receiving premium refunds or giving notice of cancellation, that do not apply to other named insureds.

How can additional insureds be added to a policy?

Through an endorsement.

Define an Endorsement in property and liability insurance.

A written provision that adds to, deletes, or modifies the original contract (e.g., earthquake endorsement).

What is a Rider in life or health insurance?

A policy amendment that changes the original contract (e.g., waiver-of-premium rider).

State three purposes of a deductible.

Eliminate small claims, reduce premiums, and reduce moral/attitudinal hazard.

Describe a Straight Deductible.

The insured pays a specified dollar amount of each loss before the insurer pays anything.

What is an Aggregate Deductible?

All losses during a defined period (usually a year) accumulate to satisfy one deductible amount.

Where is a Calendar-Year Deductible commonly used?

In basic medical expense and major medical insurance contracts.

What is an Elimination (Waiting) Period?

A set time at the start of a loss during which no benefits are paid (common in disability income insurance).

What does a Coinsurance Clause in property insurance encourage?

Insuring property to a stated percentage of its insurable value.

What is the basic coinsurance recovery formula?

Amount of Recovery = (Insurance Carried ÷ Insurance Required) × Loss.

Why is coinsurance important for equity in rating?

It prevents owners who insure to full value from subsidizing those who underinsure.

How does coinsurance in health insurance operate?

The insured pays a specified percentage of covered expenses above the deductible, reducing premiums and discouraging overuse of benefits.

What is the purpose of Other-Insurance Provisions?

To prevent profiting from insurance and uphold the principle of indemnity.

Explain the Pro Rata Liability provision.

Each insurer pays a share of the loss proportional to its share of total coverage.

How does Contribution by Equal Shares work?

Insurers share the loss equally until each has paid its policy’s lowest limit or the loss is fully paid.

Differentiate between Primary and Excess insurance.

Primary insurer pays first up to its limit; excess insurer pays only after primary limits are exhausted.

What is the Coordination of Benefits (COB) provision in group health plans?

Rules that avoid duplicate payments when a person is covered by more than one group plan (e.g., employee coverage is primary over dependent coverage).

Under COB, whose plan is primary for a dependent child when parents are married?

The plan of the parent whose birthday occurs first in the calendar year.

Define Waiver in insurance law.

Voluntary relinquishment of a known legal right by the insurer.

Define Estoppel in insurance law.

Loss of a legal defense because the insurer’s previous actions are inconsistent with asserting that defense.