Insurance Basics and Key Concepts Overview

Purpose of insurance

To provide financial protection against unforeseen losses.

Risk in insurance

The uncertainty of financial loss.

Principle of indemnity

The insured should be restored to their original financial position before the loss, no more, no less.

Insurable interest

A financial stake in the subject of the insurance policy that would cause financial loss if damaged or lost.

Premium

The amount paid by the policyholder to keep the policy active.

Underwriting

The process of assessing risk and determining policy terms and pricing.

Deductible

The amount the policyholder must pay before insurance coverage begins.

Reinsurance

Insurance purchased by insurers to reduce risk exposure.

Purpose of property insurance

To protect physical assets from damage, theft, or destruction.

Named-peril policy

A policy that only covers the specific risks listed.

Open-peril policy

A policy that covers all risks except those specifically excluded.

Replacement cost coverage

Pays for the cost of replacing damaged property without deducting depreciation.

Actual cash value (ACV)

The replacement cost of an item minus depreciation.

Coinsurance in property insurance

A requirement that the policyholder must insure a certain percentage of their property's value to receive full coverage.

General liability insurance

Legal liability for bodily injury or property damage caused to others.

Professional liability insurance

Protects professionals from claims of negligence or failure to perform services properly.

Product liability insurance

Covers businesses against claims for damages caused by their products.

Bodily injury liability coverage in auto insurance

Covers medical expenses and legal costs for injuries caused to others.

Uninsured motorist coverage

Pays for damages when the at-fault driver has no insurance.

Collision coverage

Covers damages to the insured vehicle from a collision.

Comprehensive coverage

Covers non-collision-related damages such as theft, fire, or natural disasters.

Role of an insurance adjuster

To investigate, evaluate, and settle insurance claims.

Proof of loss

A formal statement submitted by the insured outlining the details of a loss.

Back

A formal statement submitted by the insured outlining the details of a loss.

Reservation of rights letter

A notice that the insurer is reviewing the claim and coverage is not guaranteed.

Salvage in insurance

The insurer's right to take ownership of damaged property after paying a claim.

Constructive total loss

A situation where repair costs exceed the insured value of the property.

Public adjuster

An adjuster hired by the insured to negotiate with the insurance company.

Independent adjuster

A third-party claims adjuster hired by insurance companies to handle claims.

Catastrophe adjuster

An adjuster who handles claims after large-scale disasters.

Who regulates insurance in Texas?

The Texas Department of Insurance (TDI).

Continuing education requirements for adjusters

Adjusters must complete state-mandated continuing education courses.

Unfair claims practice

A practice that misleads, delays, or unfairly denies insurance claims.

Misrepresentation in insurance

Providing false or misleading information about policy coverage.

Defamation in the insurance industry

Making false statements to harm another insurer's reputation.

Workers' compensation insurance coverage

Medical expenses and lost wages for work-related injuries.

Maximum medical improvement (MMI)

The point at which a worker is not expected to recover further.

Average weekly wage (AWW)

The amount used to calculate workers' compensation benefits.

Temporary income benefits (TIBs)

Payments made when an injured worker cannot work temporarily.

Permanent income benefits (PIBs)

Payments for workers who suffer permanent disabilities.

STOLI (Stranger-Originated Life Insurance)

A life insurance policy taken out by someone with no insurable interest in the insured, often with the intent to sell it.

Viatical settlement

The sale of a life insurance policy by a terminally ill policyholder for a lump sum.

Cash surrender value

The amount available to a policyholder who cancels their life insurance before death.

Appraisal clause

A clause in an insurance policy that outlines the process for resolving disputes over the value of a claim.

Supplemental cost in liability insurance

Costs that are covered by liability insurance, aside from injury or property damage, such as legal fees.

Binder in insurance

A temporary contract that provides coverage until a formal policy is issued.