Property & Casualty Insurance Vocabulary Flashcards

Essential vocabulary terms and definitions for Property and Casualty insurance based on the introductory curriculum.

Risk

A condition where there is a chance, likelihood, or probability of a potential 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 financial gain.

Speculative Risk

A risk that may result in a loss, a gain, or no change in status, and is uninsurable.

Peril

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

Hazard

A specific condition that increases the probability or likelihood that a loss will occur from a peril.

Physical Hazard

A physical condition that increases the probability of loss, including the use, condition, or occupancy of property.

Moral Hazard

Dishonest tendencies that increase the probability of a loss, including intentional behaviors like lying, cheating, or stealing.

Morale Hazard

An attitude of indifference toward the risk of loss that increases the probability of a loss occurring.

Law of Large Numbers

A probability theory stating that the larger the number of homogeneous units with similar exposures, the greater the accuracy in predicting future losses.

Adverse Selection

The principle that individuals with a higher probability of loss will seek insurance more frequently than average risks.

Reinsurance

A device used by primary insurance companies to transfer risk to another insurer (reinsurer) to limit catastrophic losses.

Stock Insurance Company

An insurance carrier owned by stockholders (shareholders) that traditionally issues nonparticipating policies.

Mutual Insurance Company

An insurance carrier owned by policyholders (members) that typically issues participating policies eligible for non-taxable dividends.

Reciprocal Insurance Company

An unincorporated, group-owned insurer where subscribers exchange insurance risks among each other through an attorney-in-fact.

Domestic Insurer

An insurer organized under the laws of the state in which it is doing business.

Foreign Insurer

An insurer organized under the laws of another state or jurisdiction within the United States.

Alien Insurer

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

Express Authority

Explicit authority specifically written into the producer's agency contract with the insurer.

Implied Authority

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

Apparent Authority

Authority created when a producer exceeds contractual powers and the public is falsely led to believe that authority exists without counter-action from the principal.

Fiduciary

An individual who holds a position of trust, specifically an agent handling insurer funds such as premiums in a trust capacity.

Contract of Adhesion

A contract written by one party (the insurer) on a take-it-or-leave-it basis, where any ambiguous language is interpreted in favor of the insured.

Unilateral Contract

A contract in which only one party (the insurer) makes legally enforceable promises of future performance.

Aleatory Contract

A contract involving an unequal exchange of monetary value between the parties, dependent upon an uncertain event.

Principle of Indemnity

The basic foundation of insurance stating that a policy should restore an insured to the same financial position held prior to a loss, without profit.

Insurable Interest

A financial or economic hardship that an insured would suffer upon the loss or damage of property or person; required at the time of loss for property/casualty insurance.

Representation

Statements made by an applicant on an insurance application that are believed to be true to the best of their knowledge and belief.

Warranty

A statement guaranteed to be true in all respects, the breach of which can void the insurance contract.

Concealment

The willful withholding or failure to disclose material facts pertinent to an insurance contract or claim.

Subrogation

The legal process transferring the insured's right of recovery against a liable third party to the insurance company after paying a claim.

Hostile Fire

A fire that burns outside of its intended boundaries or becomes uncontrollable.

Direct Loss

A physical loss that is the immediate and direct consequence of a covered peril affecting property.

Indirect Loss

A consequential financial loss resulting from a direct physical loss, such as loss of rental income or extra living expenses.

Proximate Cause

The primary, effective cause in an unbroken chain of events that directly produces a loss.

Actual Cash Value (ACV)

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

Replacement Cost

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

Coinsurance

A property insurance provision requiring an insured to maintain a minimum percentage of insurance to value (typically 80%) to avoid partial loss penalties.

Tort

A wrongful civil act (other than a breach of contract) violating a legal duty that harms another party, for which civil legal action may be taken.

Negligence

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

Contributory Negligence

A common law defense that completely prevents an injured claimant from recovering damages if they were negligent to any degree.

Comparative Negligence

A statutory defense where damages awarded to a claimant are reduced in proportion to the claimant's percentage of fault.

Strict Liability

Liability imposed automatically by law for inherent hazards or defective products, without requiring proof of fault or negligence.

Vicarious Liability

Liability transferred to one party for the negligent acts committed by another, such as an employer held liable for an employee's acts.

Occurrence Form

A liability policy form triggering coverage for bodily injury or property damage occurring during the policy period, regardless of when the claim is filed.

Claims-Made Form

A liability policy form triggering coverage for claims first made against the insured during the policy period or extended reporting period, for occurrences on or after the retroactive date.

Retroactive Date

A specified date on a claims-made policy on or after which an occurrence must take place in order for resulting claims to be covered.

Business Auto Coverage Form

A commercial auto form providing liability and physical damage coverages for autos owned, hired, leased, or borrowed by a business.

Garagekeepers Coverage

Bailee coverage protecting an auto service or repair business against physical damage to customers' vehicles in its care, custody, or control.

Bill of Lading

A document issued by a common carrier that serves as a receipt for goods accepted, a contract of carriage, and evidence of liability terms.

Protection and Indemnity (P&I) Insurance

Ocean marine liability insurance covering shipowners for bodily injury to passengers/crew, cargo damage due to negligence, and collision damage to docks or other vessels.

Businessowners Policy (BOP)

A packaged commercial policy offering pre-bundled property and liability coverages designed for small- to medium-sized low-risk businesses.

Workers' Compensation Insurance

Statutory no-fault coverage providing mandated medical, disability income, rehabilitation, and death benefits to employees for job-related injuries or illnesses.