Insurance CRAM

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in order to be insured an induvidual has to have a resource that he may lose if an even occurs. What term describes this concept? insurable interest What is the legal concept in which an individual is responsible for the harm that occurred because the individual failed to perform the actions that a reasonable person in a similar situation would take to ensure the safety of other individuals negligence A legal concept in which an indivudal must COMPENSATE an individual for the harm that he or she caused liability a legal concept in which an individual is responsible for the harm that occurred because the individual was performing an extremely hazardous activity, which caused harm even though the individual took all of the necessary precautions absolute liability a legal concept in which an individual is responsible for the harm that occurred due to the actions of another individual because the individual is responsible for the SUPERVISION OR CARE of the individual who caused the harm vicarious liability The declarations section of an insurance policy that identifies the specific resources and/or perils that the policy covers insuring agreement the declarations section of an insurance policy that identifies the specific resources/perils that the policy does not cover exclusions The declarations section of an insurance policy that identifies what key items –who is covered\n–name of insurer\n–amount of coverage\n– phone # & address\n–cost of premium\n–specific property covered an individual who is covered by an insurance policy that he or she does now own but is listed on the policy additional insured an individual or organization that is covered by the policy because the individual or organization owns the policy named insured

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Transcript of Insurance CRAM

in order to be insured an induvidual has to have a resource that he may lose if an even occurs. What term describes this concept?insurable interestWhat is the legal concept in which an individual is responsible for the harm that occurred because the individual failed to perform the actions that a reasonable person in a similar situation would take to ensure the safety of other individualsnegligence

A legal concept in which an indivudal must COMPENSATE an individual for the harm that he or she causedliabilitya legal concept in which an individual is responsible for the harm that occurred because the individual was performing an extremely hazardous activity, which caused harm even though the individual took all of the necessary precautionsabsolute liabilitya legal concept in which an individual is responsible for the harm that occurred due to the actions of another individual because the individual is responsible for the SUPERVISION OR CARE of the individual who caused the harmvicarious liabilityThe declarations section of an insurance policy that identifies the specific resources and/or perils that the policy coversinsuring agreementthe declarations section of an insurance policy that identifies the specific resources/perils that the policy does not coverexclusionsThe declarations section of an insurance policy that identifies what key itemswho is covered\nname of insurer\namount of coverage\nphone # & address\ncost of premium\nspecific property coveredan individual who is covered by an insurance policy that he or she does now own but is listed on the policyadditional insuredan individual or organization that is covered by the policy because the individual or organization owns the policynamed insuredindividual or organization that is covered by the policy because the individual or organization is considered to be the PRIMARY ownerfirst named insuredcovered by the policy because the individual or organization owns the policy but the individual or organization is not considered to be the primary owneran additional named insureda provision that allows an insurer to acquire the rights to a piece of damaged property in exchange for a payment equal to the amount necessary to replace the propertysalvage provisiona provision that prohibits the policyholder from transferring the policy to another individual or organization during his lifetime unless the insurer has agreed to the transfer in writingassignment provisionprovision that allows an insured individual or organization to collect the benefits of the policy even if the individual or or organization decides to abandon the propertyabandonment provisiona provision allows an insurer to seek the amount that it paid for a claim from the individual who caused the harm if the insurer is required to pay a claim related to an incident for which the insured individual(s) are not responsiblesubrogation provisionThe Dwelling policy Broad form (DP1) will only cover damage to a dwelling that occurs as a result ofa fire, internal explosion, and/or lightningThe Dwelling policy Broad form (DP2) will only cover damage to a dwelling that occurs as a result of (COVERS THE MOST!!)accidental dischararge or overflow of liquids\nan aircraft; burglary; civil commotion; an explision; falling objects; a fire; freezing pipes; hail; lightning; smoke; sudden and accidental damage from electrical current; cracking; a sprinkler system; vandalismDwelling policy Broad form with extended coverage will coveran aircraft, civil commotion, an explosion, hail, smoke, vehicles, and/or windThe Dwelling policy Broad form (DP3) will only cover damage to a dwelling that occurs as a result ofany even that is not specifically excluded in the policyA type of dwelling coverage in which an insurer agrees to pay an amount equal to the income that a landlord would lose if the landlord's rental property is damaged and a tenant is no longer able to occupy the propertyFair Rental ValueA type of dwelling coverage in which an insurer agrees to pay an amount equal to the value of an individual's personal property if the individual's property is stolenBroad Theft CoverageA type of dwelling coverage in which an insurer agrees to pay an amount equal to the amount that an individual would need to pay to LIVE in another location if the individual's property is damagedCoverage E Additional Living ExpenseA type of dwelling coverage in which an insurer agrees to pay some of the MEDICAL expenses for an individual other than the insured if an individual is injured on the insured individual's propertyCoverage M Medical Payments to othersan exclusion that states that an insurer will not pay any claim in which an individual's property is damaged as a result of A LAW OR ORDINANCE THAT COMPELS AN INDIVIDUAL TO MODIFY OR REMOVE THE STRUCTURESBuilding Law exclusionan exclusion that states that an insurer will not pay any claim in which an individual's property is damaged or seized by the governmentGovernmental Action exclusionan exclusion that states that an insurer will not pay any claim in which an individual's property is damaged as a result of an earthquake, mudslide. landslide, sinkholeAn Earth Movement exclusionan exclusion that states that an insurer will not pay any claim in which an individual's property is damaged as a result of the fact that the individual did not maintain the propertyA Neglect exclusionWhich Home Owners form covers damage to a condo owner's PROPERTY that occurs as the result of any event that is not specifically excluded in the policyHO6 Unit Owner's formWhich Home Owner's form covers damage to a tenant's PROPERTY that occurs as the result of an aircraft, civil commotion, an explosion, fire, hail, lightning, smoke, theft, vandalism, vehicles, and/or windHO4 Contents Broad formWhich Home Owner's form covers damage to the DWELLING that occurs as the result of any event that is not specifically excluded in the policy and damage to the PROPERTY inside the dwelling that occurs as the result of an aircraft, civil commotion, an explosion, fire, hail, lightning, smoke, theft, vandalism, vehicles, and/or windHO3 Special formWhich Home Owners form covers damage to the DWELLING and PROPERTY inside the dwelling that occurs as the result of any event that is not specifically excluded in the policyHO5 Comprehensive formWhat means conducting business in accordance with current rules and laws set by government regulatory agencies and the courtscompliancestandards of conduct and moral judgementethicslegal term that describes the relationship between two partiesagencywhat is the term to describe how an insurer appoints an individual to act on its behalfagency contractan individdual whose position and responsibilities involve a high degree of trust and confidence (trustees, guardians & executors)fiduciarythe name for the fact that a producer must sell the kind of policies that best fit the prospect's needs and in amounts that the prospect can affordneeds sellingwhat is given when the applicant pays the initial premium at the time the application for a policy is signedconditional receiptwhat is the term for informing the prospect or client of all facts involving a specific policy or plan so that an informed decision can be madefull disclosurewhat is the name for the watchdog group whose member companies agree to adhere to and enforce ethical principlesInsurance marketplace Standards Association (IMSA)what act deals with the inappropriate use of advertisingUnfair Trade Practices Actany written or oral statement that does not accurately describe a policy's features, benefits, or coveragemisrepresentationany false, maliciously critical, or derogatory communication that injures another's reputation, fame or characterdefamationwhat is the term if the buyer of an insurance policy receives any part of the producer's commission or anything else of significant value as an inducement to purchase a policyrebatingthe unethical act of persuading a policyowner to drop a policy solely for the purpose of selling another policy without regard to possible disadvantages to the policy ownertwistinga resident producer license must meet what two requirementsmay either reside in PA or have their principal place of business in this statein what two situations is it not required to be licensed as a manager or exclusive general agenta licensee who has limited underwriting authority\na manager or agent who started before Dec 22, 1965Which of the following can not be issued a temporary license:\nsurviving spouse of a decesed producer in order to sell the business\na deceased producer's personal representative until new personnel is trained to run the business\na person holding a power of attorney for a producer in the armed forces\na person selling insurance for the estate of a deceased producera person selling insurance for the estate of a deceased producerwhich of the following is not a reason for a license to be suspended or revoked\nmaking a factual but subjective comparison of two policies\nintentionally violating a cease and desist order\nmaking false statement in a license application\nviolating an insurance regulationmaking a factual but subjective comparison of two policiesincreases the chance of losshazard (leaving the door unlocked)the chance of lossriska means of transferring the risk of lossinsurancethe cause of lossperil (types of peril fire; flood; collision; theft)states that there must be an adequate spread of risk for insurance to be effectivelaw of large numbers more examples used, more reliable the statistic (predict the number of losses; predict the charge for premium)installing an automatic sprinkler system is an example of whatreduction (can not avoid risk but can reduce risk)deciding not to produce a product due to serious potential side effectsavoidance (avoid the risk of being sued)person in good health cancels health insurance policy what risk management methodretention (retaining risk)under what regulation in PA does it state that insurers must maintain specified minimum levels of capital stock and surplusRegulation of insurer solvencyWho regulates insurance rates to avoid excessive, inadequate, or unfairly discriminatory ratesCasualty and Surety Rate Regulatory Actwho must an insurer notify when they terminate a producer's appointmentthe Commissioner and the producerwhich of the following is not a power and duty of the Insurance Commissionerissuing cease and desist orders\nprosecuting producers who violate state insurance laws\nconducting complaint hearings\nappointing examinerswhat unfiar practices is when a producer offers, promises, allows, gives, sets off or pays a rebate on the contract of insurancerebatingwhat unfair insurance practice is the purchase of insurance from a financial institution or from a designated insurer or producer as a condition of any loan or deposit transactionTiein saleswhat unfair insurance practive occurs when a producer makes, issues, circulates, or uses any written or oral statement misrepresenting the terms of a policy or contract of insurancemisrepresentationwhat unair insurance policy occurs when a producer misrepresents or provides an icomplete comparison of policies to induce the policyholder to lapse, forfeit or surrender his insurance to take out a similar policy in another companytwistingnonpublic personal financial information about individualsPrivacy of Consumer Financial Informationwhat is the term for an instruction by the consumer to the licensee not to disclose nonpublic personal financial informationabout that consumer to a nonaffiliated third partyOpt outWhen can a producer share a commission with an unlicensed personif licensee was held at time of sale\nreferring person can receive a one time nominal set feewhen a personal fire insurance policy is cancelled because the insured's acts increase the hazard insured against, how many days' notice must be provided to the insured30 daysWhen an automobile policy is cancelled for a reason other than non payment of premium, how many days' notice must be provided to the insured60If an insured's driver's license has been suspended, the insurer may cancel the automobile insurance policy by giving how many days' notice?15what are the minimum limits of liability any individual must provide for bodily injury and property damage?15/30/5\n$15000 per person bodily injury\n$30000 per accident for body injury\n$5000 per accident property damagepurchased in the normal or standard marketPennsylvania Fair Plan ActAfter an accident, what is the waiting period before the insured can apply for income loss benefits5 work dayswhat must occur in order for funeral expenses to be paiddeath within 24 hours of accidentWhen an automobile policy is cancelled for a reason other than non payment of premium, how many days' notice must be provided to the insured60If an insured's driver's license has been suspended, the insurer may cancel the automobile insurance policy by giving how many days' notice?15what are the minimum limits of liability any individual must provide for bodily injury and property damage?15/30/5\n$15000 per person bodily injury\n$30000 per accident for body injury\n$500 per accident property damageWhat act is intended to provide property owners with fire, extended coverages, vandalism and malicious mischief coverage when insurance is unable to be purchased in the normal or standard marketPennsylvania Fair Trade AceAfter an accident, what is the waiting period before the insured can apply for income loss benefits5 work daysan insurer must notify an insured at least how many days before increasing the premium on a commercial casualty insurance policy?30Which agency provides motor vehicle insurance to those applicants who would otherwise by uninsurable?Pennsylvania Auto Assigned Risk PlanWhen an employer must provide workers' compensation insurance but is unable to do so through normal channels, which organization can provide the required coverage?State Workers Insurance fundWhat term describes a producer who converts premiums for his own useBreach of fiduciary dutyWhat insurance option lets the insured seek recovery for all medical and other outofpocket damages, pain and suffering, and other nonmonetary damages as a result of injuries caused by other driversFull Tort optionWith Crop insurance, at what percent can crops be insured of their expected value?75%

Peril:Peril: A cause of loss [md] for example, fire, collision, or flood.Hazard:Hazard: Something that increases the chance of loss [md] for example, overloaded electrical outlets, worn brakes on a car, or building on a flood plain.Law of large numbers:Law of large numbers: Principle that helps insurers predict the number of losses that will occur and allows them to provide large amounts of insurance for relatively little money. It states that the more examples used to develop any statistic, the more reliable the statistic will be.Insurable risk:Insurable risk: A risk must meet certain criteria to be a suitable subject for insurance. These criteria are: pure risk, definite as to time and place, not expected, large enough to create financial hardship for insured, affordable to insured, can be assigned a financial value, will not occur to large number of insureds at the same time, and large number of persons with similar potential loss.Indemnity:Indemnity: Insurance policies are contracts of indemnity because they restore the insured to approximately the same financial condition he or she was in before a loss. A person whose twoyearold car is totaled in an accident will be paid the value of that car, not the amount required to purchase a new car.Aleatory contract:Aleatory contract: Contract that is contingent on an uncertain event. An insurance policy is an aleatory contract because an insured does not receive claim payments unless a covered loss occurs.Contract of adhesion:Contract of adhesion: A contract in which only one party draws up the terms and the other party simply consents to them; ambiguities in the terms are interpreted by courts in favor of the party who did not write the terms. Insurance is a contract of adhesion.Unilateral contract:Unilateral contract: A contract in which only one party is legally bound to perform its part of the agreement. An insurance policy is a unilateral contract because the insurer is legally required to pay for covered losses under the policy. An insured is not legally required to pay premiums or comply with the policy terms.First named insured:First named insured: Person whose name appears first in the declarations as an insured. Might be responsible for paying premiums, receiving cancellation notices, and agreeing to changes in the policy.Offer and acceptance:Offer and acceptance: One party to a contract must make an offer, and the other party must accept it. With an insurance contract, the insured makes the offer by completing an application and the insurance company accepts the offer by issuing a policy.Consideration:Consideration: Both parties to a contract must provide consideration, which is a thing of value exchanged for the performance promised in the contract. The consideration the insured provides is the premium; the consideration the insurance company provides is the promise to pay if certain losses occur.Binder:Binder: Oral or written statement used to provide immediate insurance protection for a specified time period. Can be issued by the agent or the insurance company. Guarantees temporary coverage, but is not a guarantee that a policy will be issued.Material fact:Material fact: A fact that would cause an insurer to decline a risk, charge a different premium, or change the provisions of a policy that was issued. The fact that an individual has caused three auto accidents in the past five years would be a material fact for a company issuing auto liability insuranceMisrepresentation:Misrepresentation: Written or verbal misstatement of a material fact involved in the contract on which the insurer relies. Can be grounds for the insurer to void the policy. Might be intentional or unintentional.Fraud:Fraud: A deliberate misrepresentation that causes harm. Unlike misrepresentation, which might be either intentional or unintentional, fraud is always intentional and involves an allout effort by one party to deceive and cheat the other.Representations versus warranties:Representations versus warranties: A representation is a statement in an application that the insured believes is true. A warranty is a specific agreement between the insured and insurer that certain conditions will be met. The key difference between the two is that a representation is not a part of the contract, but a warranty is. A policy cannot be voided on the basis of a representation, but it can be voided for breach of warranty.Waiver:Waiver: Intentional relinquishment of a known right, such as not applying a policy condition that could be grounds to deny payment of a claim.Estoppel:Estoppel: Legal principle that prevents someone from asserting that something is not true after creating the impression that it is true. Under this principle, if a producer misinterprets a policy and tells an insured that a loss will be covered, the insurer cannot deny payment of the claim.Short rate versus pro rata cancellation:Short rate versus pro rata cancellation: When an insurance policy is cancelled before its expiration date, any premium paid for insurance that will not be provided (unearned premium) must be returned to the insured. If the insured cancels the policy, the insurer is also allowed to keep a certain amount for expenses involved in issuing the policy (short rate cancellation). This is not permitted when the insurer cancels the policy (pro rata cancellation).Direct loss versus indirect loss:Direct loss versus indirect loss: A direct loss is a financial loss resulting directly from a loss to property, such as tornado damage to a home. An indirect loss is a consequence of a direct loss, such as the expenses required to stay at a motel while tornado damage to a home is repaired.Actual cash value:Actual cash value: Method of determining reimbursement for an insured loss; usually calculated by determining the property's replacement cost and subtracting an amount for depreciation. Depreciation is deducted because the insured has already had use of the property. Paying the full replacement cost would violate the principle of indemnity.Replacement cost:Replacement cost: Losses may be reimbursed on a replacement cost basis, without deduction for depreciation, if the insured agrees to maintain insurance equal to a specified percentage of the property's value.Blanket insurance:Blanket insurance: Insurance that is written to cover more than one item of property at a single location or one or more items of property at multiple locations. Personal property coverage in Dwelling and homeowners policies is an example of blanket insurance.Valued policy:Valued policy: Certain hardtovalue items, such as art work, may be insured under a valued policy to avoid the difficulty involved in determining the property's value after it is damaged. The property is written for a specified amount that is used to value losses. Also called an agreed amount policy.Coinsurance:Coinsurance: Policy condition that benefits insureds who insure property for its full value. If the insured maintains insurance equal to a specified percentage of the property's value, the insurer will fully reimburse losses (up to the policy limits). If the coinsurance requirement is not met, the amount paid for the loss will be reduced.Subrogation:Subrogation: The transfer of an insured's right to collect from a negligent third party to the insurance company. Under the subrogation condition, the insurance company will initially pay an insured's loss, and then attempt to recover that amount from the party who was responsible for the loss.Other insurance:Other insurance: Policy condition that stipulates how losses will be paid when more than one policy applies to a loss. If losses are paid on a primary/excess basis, the primary policy pays the entire loss (up to the policy limit) first, and the excess policy pays any amount not covered under the primary policy. When losses are paid on a pro rata basis, each policy pays a proportion of the loss based on the amount of coverage under its policy.Nonconcurrency:Nonconcurrency: Occurs when property is insured by two or more policies that do not provide identical coverage. Nonconcurrency can result in coverage gaps or disputed claim payments.Negligence:Negligence: Liability insurance policies cover certain losses arising out of an insured's negligence. Negligence is the lack of reasonable care that is required to protect others from the unreasonable chance of harm.Proximate cause:Proximate cause: Action that establishes a link between a person's negligent actions and resulting damage to a third party.Intervening cause:Intervening cause: A separate action that breaks the chain of causation between a person's negligent actions and resulting damage to a third party. The intervening cause then becomes the proximate cause of loss.Personal injury:Personal injury: In the insurance industry, this term does not have the same meaning as bodily injury. It refers to losses arising out of such things as slander, libel, and invasion of privacy.Absolute liability:Absolute liability: Type of law imposed on those involved in activities considered especially hazardous, such as activities involving dangerous materials, hazardous operations, and dangerous animals. A person involved in these activities can be held liable for damages arising out of them, even though the individual was not negligent.Supplementary payments:Supplementary payments: Expenses included in a liability insurance policy that are paid in addition to the policy's regular limit of liability. Typically includes defense costs, claim investigation expenses, bond premiums, first aid expenses, expenses incurred by the insured at the insurer's request, loss of earnings, prejudgment interest, and postjudgment interest.Covered perils: (Dwelling and Homeowner Coverages)Covered perils: Dwelling forms can provide basic, broad, or special coverage. Homeowner forms can provide broad or special coverage for owneroccupied dwellings and broad form coverage for tenants or condominium unit owners.Removal coverage: (Dwelling and Homeowner Coverages)both cover property against loss from any peril while being removed from a premises endangered by a covered peril, and for a specified number of days while it is away from the premises.Debris removal: (Dwelling and Homeowner Coverages)both contain debris removal coverage, which pays for the expense of removing debris resulting from a covered loss.Temporary substitute auto:Temporary substitute auto: An auto the insured rents or borrows while the insured's damaged auto is out of service because of its breakdown, repair, servicing, loss, or destruction. In both personal and commercial auto policies, temporary substitute autos are considered covered autos for liability coverage.Collision:Collision: One of two physical damage coverage options in personal and commercial auto policies. Covers damage caused by the impact of the auto with another object or vehicle or by the upset of the vehicle.Nonowned auto:Nonowned auto: In the personal auto policy, it is any private passenger auto, pickup truck, trailer, or van not owned by or available for the regular use of the named insured or a family member. Under the policy's physical damage coverage (but not liability coverage), a temporary substitute auto is considered a nonowned auto instead of a covered auto.Transportation expenses:Transportation expenses: Physical damage coverage in personal and commercial auto policies that covers transportation expenses incurred because of physical damage losses to the covered auto and loss of use expenses for which the insured is legally responsible because of loss to a nonowned auto.Extended nonowned coverage:Extended nonowned coverage: Personal auto policy endorsement that eliminates most policy exclusions applicable to autos that are furnished or available for the regular use of the named insured or family membersNamed nonowner coverage:Named nonowner coverage: Personal auto policy endorsement that provides extended coverage for the use of nonowned autos to individuals who do not own a car.Interline endorsements: \n\n(Commercial Package policy)Interline endorsements: They may be used with more than one line of insurance. A single interline endorsement can be included in a package policy to modify several lines of insurance.Eligible occupancies:(Businessowners Policy)Generally, the business may not exceed 25,000 square feet of floor area or have more than $3 million in annual gross sales. For some types of risks, the building may not exceed a specified number of stories. Only certain wholesale, processing and service, restaurant, convenience store, and contract risks are eligible.Ineligible risks: (Businessowners Policy)The following risks cannot be covered under a Businessowners policy: auto repair or service stations; auto, motor home, mobile home, and motorcycle dealers; banks, credit unions, stockbrokers, and similar financial institutions; bars and pubs; buildings with a manufacturing occupancy; condominium associations other than office or residential condominiums; household personal property; business operations that involve manufacturing; one or twofamily dwellings; parking lots or garages; and places of amusement.Covered causes of loss: (Businessowners Policy)Covered causes of loss: Businessowners property coverage is written on an open peril basis.Coverage extensions: Businessowners Policy)Coverage extensions: In the Businessowners policy, they include newly acquired or constructed property, property off premises, outdoor property, personal effects, valuable papers and records, and accounts receivable.Optional coverages:(Businessowners Policy)Optional coverages: In the Businessowners policy, they apply only if designated in the declarations and usually require an additional premium. Optional coverages are available for employee dishonesty, mechanical breakdown, outdoor signs, and money and securities.Business personal property: (Commercial Property Insurance)Business personal property: Commercial property insurance can be written to cover business personal property, such as furniture, fixtures, machinery, and inventory.Personal property of others:\n (Commercial Property Insurance)Personal property of others: Commercial property insurance can be written to cover damage to personal property of others in the insured's care, custody, or control, regardless of whether the insured is legally liable for that loss.Agreed value: \n(Commercial Property Insurance)Agreed value: Optional commercial property coverage that suspends the coinsurance requirement and stipulates a certain value for designated property. If the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty.Business Income From Dependent Properties Form:\n (Commercial Property Insurance)Business Income From Dependent Properties Form: Commercial Property form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own. This includes businesses that: deliver materials or services to the insured (contributing locations), are the primary purchasers of the insured's products or services (recipient locations), manufacture products for delivery to the insured's customers (manufacturing locations), or attract customers to the insured's business (leader locations).Additional coverages: \n(Commercial Property Insurance)Additional coverages: The Commercial Property Building and Personal Property coverage form includes the following additional coverages: debris removal, preservation of property, fire department service charge, pollutant cleanup and removal, increased cost of construction, and electronic data.Coverage extensions:\n (Commercial Property Insurance)Coverage extensions: The commercial property building and personal property coverage form includes the following coverage extensions, which apply only if the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form: newly acquired or constructed property, personal effects and property of others, valuable papers and records [md] other than electronic data, property off premises, outdoor property, and nonowned detached trailers.Optional coverages: \n(Commercial Property Insurance)Optional coverages: The commercial property building and personal property coverage form includes the following optional coverages, which apply only if designated in the declarations and require an additional premium: agreed value coverage, inflation guard coverage, and replacement cost coverage.Business personal property:Business personal property: Commercial property insurance can be written to cover business personal property, such as furniture, fixtures, machinery, and inventory.Personal property of others:Personal property of others: Commercial property insurance can be written to cover damage to personal property of others in the insured's care, custody, or control, regardless of whether the insured is legally liable for that loss.Agreed value:Agreed value: Optional commercial property coverage that suspends the coinsurance requirement and stipulates a certain value for designated property. If the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty.Business Income From Dependent Properties Form:Commercial Property form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own. This includes businesses that: deliver materials or services to the insured (contributing locations), are the primary purchasers of the insured's products or services (recipient locations), manufacture products for delivery to the insured's customers (manufacturing locations), or attract customers to the insured's business (leader locations).Additional coverages: \n(Commercial Property Insurance)Additional coverages: The Commercial Property Building and Personal Property coverage form includes the following additional coverages: debris removal, preservation of property, fire department service charge, pollutant cleanup and removal, increased cost of construction, and electronic data.Coverage extensions: \n(Commercial Property Insurance)Coverage extensions: The commercial property building and personal property coverage form includes the following coverage extensions, which apply only if the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form: newly acquired or constructed property, personal effects and property of others, valuable papers and records [md] other than electronic data, property off premises, outdoor property, and nonowned detached trailers.Optional coverages: \n(Commercial Property Insurance)Optional coverages: The commercial property building and personal property coverage form includes the following optional coverages, which apply only if designated in the declarations and require an additional premium: agreed value coverage, inflation guard coverage, and replacement cost coverage.Personal and advertising injury: \n(Commercial General Liability Insurance)Personal and advertising injury: In the Commercial General Liability (CGL) forms, this is injury that results from false arrest or imprisonment, malicious prosecution, wrongful eviction or entry, slander, libel, violation of personal privacy, use of another's advertising idea, or copyright infringement.Occurrence versus claims made forms: \n(Commercial General Liability Insurance)CGL coverage can be written on an occurrence or claimsmade basis. The major difference between occurrence and claimsmade forms is how coverage under the form is activated, or triggered. An occurrence form covers bodily injury (BI) or property damage (PD) that occurs during the policy period, regardless of when the claim is made. A claimsmade form pays for BI or PD losses for which a claim was first made against the insured during the policy period.Supplementary payments:\n(Commercial General Liability Insurance)The following supplementary payments are available under Coverage A and Coverage B of the CGL: expenses incurred by the insurance company; up to $250 for the cost of bail bonds; cost of bonds to release attachments; reasonable expenses incurred by insured to assist in investigation and defense of a claim, including up to $250 per day for loss of earnings; all costs taxed against the insured in a suit; prejudgment and postjudgment interest; and defense costs for an indemnitee.General aggregate limit: \n(Commercial General Liability Insurance)General aggregate limit: Total limit of insurance coverage that will be paid in one policy for all coverages except the productscompleted operations hazard.Medical expense limit: \n(Commercial General Liability Insurance)Medical expense limit: Separate sublimit in the CGL for Coverage C [md] Medical Payments coverage. It is subject to both the per occurrence and the general aggregate limit.Loss sustained versus discovery forms:\n(Commercial Crime Insurance)Commercial Crime coverage is written on a loss sustained or discovery basis. The major difference between the forms is how coverage under the form is activated. Coverage under a loss sustained form is triggered by a loss sustained during the policy period, but not necessarily discovered during the policy period. Coverage under the discovery form is triggered by a loss discovered during the policy period, but not necessarily sustained during the policy period.Common law defenses:\n(Workers Compensation)Common law defenses: Assumption of risk, contributory negligence, and the fellow servant rule.Compulsory compensation laws: \n(Workers Compensation)Compulsory compensation laws: A type of state workers compensation law requiring each employer to accept and comply with all the law's provisions. Most state workers compensation laws are compulsory.Elective compensation laws: \n(Workers Compensation)Elective compensation laws: A type of state workers compensation law under which employers have the option to accept or reject the law's provisions. If rejected, the employer cannot use the three common law defenses.Exclusive remedy: \n(Workers Compensation)Exclusive remedy: The benefits stipulated in workers compensation laws are the only means available to employees against employers for injuries covered by those laws. Employees cannot sue their employers in court to obtain additional compensation.Expediting expenses:Expediting expenses: Coverage under the Equipment Breakdown Protection coverage form that pays extra costs necessarily incurred by the insured to make temporary repairs and expedite permanent repairs or replacement of the damaged property.Errors and omissions insurance:Errors and omissions insurance: Type of professional liability insurance written for nonmedical professionals, such as insurance agents, accountants, architects, stockbrokers, and attorneys.Difference in conditions insurance:Difference in conditions insurance: Type of Commercial Property policy that covers most insurable perils but excludes basic fire and extended coverage perils. It is usually written on large risks with a high deductible.

Surplus lines:Surplus lines: Term used to describe highly specialized insurance coverages that are not available or cannot be procured from authorized insurers within a state.

Assumption of the risk,means that you agree\nto take the risk of engaging in certain activities and if you are injured during the course of that\nactivity, you may not sue.tort threshold.assumed the risk up to a certain level,Doctrine of Contributory Negligenceontributory negligence, if proven, would bar recovery even if your degree of\nfault was minor. This doctrine has been abandoned in most states, since it was not fair to injured\nparties. For example, if you were 10% at fault and the other party was 90% at fault, you could not\nrecover at all, since you contributed to your own injury.Comparative Negligence:This has replaced contributory negligence in most jurisdictions because it\nis much more fair to a party who is partly at fault. In comparative negligence, a degree of fault is\nassigned to both parties. If you suffered injuries in an auto accident in the amount of $10,000 and you\nwere 10% at fault, then you could still recover the 90% from the other party. This way, the degree of\nfault is allocated on a proportionate basis to each party.Statutes of LimitationsThese limit the time\nduring which a lawsuit may be filed after the occurrence of claim. They vary by state, but are usually\nbetween two and seven years.Damages:special, punitive, or generalGeneral damage:Unlike special damages, which are determined by incurred expenditures,\ngeneral damages do not directly relate to an expense or an amount of lost income. By paying for\ngeneral damages, the insurer is attempting to compensate the injured party for his or her mental\nand physical distress, including pain and suffering, disfigurement and loss of consortium.Special Damage:Consist of medical expenses and lost wages. These are the costs a claimant\nincurs, sometimes called outofpocket expenses. They are an exact and verifiable figure.Punitive Damages:These are awarded when the injury was caused by the gross negligence of the\ndefendant. Often, these awards are triple the amount of the general damages awarded and are\nsometimes not covered by insurance. Gross negligence is defined as willful and wanton\nnegligence. For example, a defendant knew their product was faulty, but continued to sell it\nanyway.Absolute or Strict Liability:Although generally the burden of proof is on the injured party to show\nthat the defendant was negligent, some things are inherently so dangerous that liability is absolute or\nstatutory. For example, keeping a wild tiger as a pet makes you absolutely responsible for any injury\nor damage the tiger may cause. Another area of strict liability is the responsibility for handling\nexplosives.Vicarious LiabilitySome state statutes spell out situations where one party may be responsible for\nthe negligent activities of another party. For example, if you ask your secretary to drive her own car\non your companys business, you can be sued if they negligently injure someone.Blanket PropertyBlanket property insurance provides a single amount of\ninsurance that may apply to different types of property or to different locations.Specific Property Coveragea single limit\nto apply to just one type of property at more than one location or a single limit to apply to all types of\nproperty at various locations.fire resistive propertysteel and concrete

Assumption of the risk,means that you agree\nto take the risk of engaging in certain activities and if you are injured during the course of that\nactivity, you may not sue.tort threshold.assumed the risk up to a certain level,Doctrine of Contributory Negligenceontributory negligence, if proven, would bar recovery even if your degree of\nfault was minor. This doctrine has been abandoned in most states, since it was not fair to injured\nparties. For example, if you were 10% at fault and the other party was 90% at fault, you could not\nrecover at all, since you contributed to your own injury.Comparative Negligence:This has replaced contributory negligence in most jurisdictions because it\nis much more fair to a party who is partly at fault. In comparative negligence, a degree of fault is\nassigned to both parties. If you suffered injuries in an auto accident in the amount of $10,000 and you\nwere 10% at fault, then you could still recover the 90% from the other party. This way, the degree of\nfault is allocated on a proportionate basis to each party.Statutes of LimitationsThese limit the time\nduring which a lawsuit may be filed after the occurrence of claim. They vary by state, but are usually\nbetween two and seven years.Damages:special, punitive, or generalGeneral damage:Unlike special damages, which are determined by incurred expenditures,\ngeneral damages do not directly relate to an expense or an amount of lost income. By paying for\ngeneral damages, the insurer is attempting to compensate the injured party for his or her mental\nand physical distress, including pain and suffering, disfigurement and loss of consortium.Special Damage:Consist of medical expenses and lost wages. These are the costs a claimant\nincurs, sometimes called outofpocket expenses. They are an exact and verifiable figure.Punitive Damages:These are awarded when the injury was caused by the gross negligence of the\ndefendant. Often, these awards are triple the amount of the general damages awarded and are\nsometimes not covered by insurance. Gross negligence is defined as willful and wanton\nnegligence. For example, a defendant knew their product was faulty, but continued to sell it\nanyway.Absolute or Strict Liability:Although generally the burden of proof is on the injured party to show\nthat the defendant was negligent, some things are inherently so dangerous that liability is absolute or\nstatutory. For example, keeping a wild tiger as a pet makes you absolutely responsible for any injury\nor damage the tiger may cause. Another area of strict liability is the responsibility for handling\nexplosives.Vicarious LiabilitySome state statutes spell out situations where one party may be responsible for\nthe negligent activities of another party. For example, if you ask your secretary to drive her own car\non your companys business, you can be sued if they negligently injure someone.Blanket PropertyBlanket property insurance provides a single amount of\ninsurance that may apply to different types of property or to different locations.Specific Property Coveragea single limit\nto apply to just one type of property at more than one location or a single limit to apply to all types of\nproperty at various locations.fire resistive propertysteel and concrete

insurance binderoral or written statement made by the agent that the insured has immediate protection that is valid for a specified time lets you know you have coerage before the actual policy has been issued. Does not guarantee that a policy will be issued only guarantees temporary coverage. If a policy is issued then the binder ceases as of the effective date of the policyfederal Fair Credit Reporting Actprotects comsumers by requiring that the consumer e notified in certain situations and establishing provisions for the removal of outdated and incorrect information from their consumer credit reportsinvestigative consumer reportgathers data through personal interviews with friends, neighbors, and associates of the consumerwho can get a copy of your consumer credit reportsomeone who intends to use the information for insurance underwriting purposes or in conncection with employment, credit transactions, or other types of personal business transactionswhat is prevent from being in a consumer credit report1. bankruptcies over 10 years old\n2. suits and judgements over seven years old or in which the statute of limitations has expired whichever period is longer\n3. paid tax liens or accounts placed for collection or charged to profit that are over seven years old\n4. arrests, indictments, or conviction of crime reports\n5. any other adverse information that took place seven years before the report\n*these restrictions are not applicable when the credit report is used in connection with a credit transaction of $150,000 or more, or when concerns or employment of an individual earning $75,000 or moreWhen must a consumer be notified about the release of their credit report?If an investigative report is ordered or if an insurance is rejected ,reduced, or written at a higher premium. The consumer myst be notified an provided with the name and address of the reporting agency\n the comusmer then has the right to obtain the substance of the information in the report and be informed of who received the report in the last 6 monthsadverse selectionthe tendency for people with greater than average exposure to loss to purchase insurance. The underwriter should protect the insurer from thisConstruction classification for property insurance underwriting Class 1 frameClass 1: Frame outside support walls, roof and floors constructed of wood or other combustible materialsConstruction classification for property insurance underwriting Class 2 joisted masonryClass 2: Joisted Masonryoutside support walls made of non combustible masonry materials (such as concrete, brick, stone or tile) and a roof and floor made of combustible materials like woodConstruction classification for property insurance underwriting Class 3 noncombustibleclass 3 exterior walls, floors, and roof are constructed of and supported by non combustible material such as metal, asbestos, or gypsumConstruction classification for property insurance underwriting Class 4 Masonry non combustibleclass 4 exterior walls constructed of masonry material and a roof and floor made of metal or other noncombustible materialsConstruction classification for property insurance underwriting Class 5 modified fire resistiveclass 5 exterior walls, floors and roof constructed of masonry or fire resistive material with a fire resistance rating of 2 hours or lessConstruction classification for property insurance underwriting Class 6 fire resistiveclass 6 constructed of masonry or fire resistive material with fire resistance rating of 2 hours or more3 ways of computing a premium1. Judgment rating\n2. Manual Rating\n3. Merit RatingJudgement Rating for computing a premiumpremium is determined by considering the individual risk. No books or tables are used, just thorough judgementManual or Class Rating for computing a premiumthe most common method of determining an insurance premium rates for a particular state are obtained by consulting a manual. Rates are arranged by various categories or classes. (underwriter classifies the risk using defined criteria and then looks up the rate) Rate is then multiplied by the number of units of insurance purchased ( Rate per unit x number of units = premium) Ex: insured purchases $60,000 of insurance at a rate of $2 per $1000 of coverage 2 x 60= $120 premiumMerit Rating for computing a premiumstarts with manual/class rating and then is modified to relfect unique characteristics of the risk that are not reflected by the manual rate... experience rating is form of this which takes into account the insured's loss experience (dollar paid out for claims vs premium paid over a period of usually 3 years)retrospective ratingform of merit rating which bases the insured's premoum on losses that occurred during the policy periodschedule ratingform of merit rating which applies a system of debits and credits to reflect the characteristics of the particular insuredcertificate of insurance (COI)proof that a policy has been written contains general summary of the policy's coverage and is frequently required in loan transactions and other legal mattersUnder what conditions may an insurance company cancel insurance during a policy period?1. Misrepresentation\n2. Concealment\n3. FraudMisrepresentationwritten or verbal misstatement of a material fact (fact that would cause an insurer to deline a risk, charge a differnt premium or change the provisions of the policy that was issued) involved in the contract on which the insurer relies.\n may be intentional or unintentionalconcealmentwithholding material factsfrauddeliberate misrepresentation that CAUSES HARM always intentionalWhat 4 elements are needed in an act of fraud1. someone deliberately lies\n2. the intent of the lie is for someone else to rely on that lie\n3. another person relies on that lie\n4. another person suffers harm as a result of relying on that lieRepresentations in an insurance applicationstatements that the applicant believes to be true. A policy may not be voided on the basis or representation.Warrantiesspecific agreements made between the insured and the insurer that certain conditions will be met (ex: while a business is closed, a security guard will be on duty). \n\nIf these agreements are breached the policy can be voided whether or not the breach was intentionalWaiverintentional relinquishment of a known right knowingly overlooking a condition or exclusion that would normally have been grounds for denying coverage, increasing the premium, or reducing the benefits provided. The requirement of an insurable interest and facts cannot be waivedEstoppelIf an insurance company representative intentionally or unintentionally creates the impression that certain facts exist when they do no and an innocent party relies on that impression and is damaged as a result, the insurance company will be estopped (prevented) from denying this fact (ex: if an agent states or indicates by his actions that a particular loss is covered, the insurance company will be estopped/prevented from denying that coverage)What happens when an insured wants to cancel insurance during a policy period?the insured needs to write a letter to the insurance company or surrender the policy itself to them then the insurance company must give back any unearned premium (premium not yet used up at that point in the policy period)short rate basisif an insured cancels before the expiration date the insurance company no only keep the premium for the insurance already provided but also keeps an allowance for expenses, such as issuing the policyWhat happens when an insurance company wants to cancel insurance before the expiration date of the policy?this is governed by state regulations usually can only be cancelled for nonpayment. Usually the insurer is required to notify the insured in writing a certain number of days before the impending cancellation.pro rata basiswhen the insurance company cancels a policy, unearned premium is returned to the insured on a pro rata basis company retains only the earned premium and is not allowed to keep an extra amount for expenses (as in the short rate basis)flat cancellationcancellation of insurance by either insured or insurer on the effective date of the policynonrenewalnot providing coverage for the next term once a policy expires. Insureds can nonrenew for any reason, but insurers are limited in the reasons for nonrenewal and have to notify the insured of the decision to nonrenew

What are the three (3) components of Insurance?Risk: the uncertainty of an outcome; positive or negative\nTransfer: shifting financial responsibility\n\nPooling: sharing losses as a wholeWhat are the two (2) major sectors of Insurance?Property & Casualty \nLife & HealthName four (4) types of Personal Insurance.1) Homeowners\n2) Personal Auto Policy (PAP)\n3) Personal Watercraft\n4) Personal UmbrellaDefine the Property & Liability Coverage of Homeowner's Insurance.1) The property coverage protects the insured from damages against the home or its contents\n\n\n2) The liability coverage protects the insured from claims or suitWhat is Personal Umbrella Liability Coverage?A Liability Insurance Policy that provides excess coverage above underlying policies. \n\n\nAdditional coverage comes with higher premuimsName six (6) types of Commercial Insurance.1) Commercial Property\n2) Commercial Crime\n3) Commercial General Liability\n4) Commercial Package (CPP)\n5) Worker's Compensation\n6) Business Owner's (BOP)Commercial Crime \n\n\nvs. \n\n\nCommercial Auto Insurance1) Crime: protects against theft of contents and other property; also protects from crime by employee\n\n\n2) Auto: protects insured from exposures that come from owning, operating, maintaining an autoCommercial Package (CPP)\n\n\nvs.\n\n\nBusiness Owner's (BOP)1) CPP: a policy that combines multiple lines of business \n\n\n2) BOP: packaged policies that combine property & liability; small business orientedHow Does Insurance Benefit Society?1) Paying for Losses\n2) Reduces Uncertainty\n3) Uses Resources Efficiently\n4) Promotes Risk Control\n5) Legal Compliance\n6) Establishes CreditWhat are Premiums used for?1) Paying off claims\n2) Paying for Insurance Operation Expenses\n3) Future InvestmentsWhat is Underwriting?Underwriting: the process of selecting, pricing and determining insurance policy conditionsDefine the Claims Process.1) Acknowledge the Claim\n2) Identify the Policy\n3) Contact the Insured\n4) Investigate the Claim\n5) Determine the Cause & Loss Amount\n6) Close the ClaimWhat is Risk Control?Risk Control: the conscious decision to act, or not act, in order to reduce frequency/severity of a loss.\n\n\nEfforts to make the loss more predictableWhat is a Premium Audit?Premium Audit: an annual review or the insured's premium for coverage\n\n\nPartial refund are possible if the premiums charged are too highWho is involved with an Insurance Transaction?1) Insured (Policyholder)\n2) Producer (Agent, Broker)\n3) Insurer (Insurance Company)Brokerage\n\n\nvs.\n\n\nAgency1) Brokerage: an independent organization that represents the insured\n\n\n2) Agency: an entity that represents the insurerCharacteristics of an Exclusive Agency1) Agents can only sell insurance for one Insurer\n2) Typically consists of IC's\n3) No Ownership over Expiration ListsWhat is an Expiration List?Expiration List: a record of policyholders with expiration dates\n\n\nThis document grants the right to solicit policies; can be sold between brokers/agentsCharacteristics of a Direct Writer1) Agents are employees/representatives of one insurer\n2) No ownership of Expiration List\n3) Paid via salariesWhat are the seven (7) functions of a Producer?1) Prospecting\n2) Risk Management Review\n3) Sales\n4) Policy Issuance\n5) Premium Collection\n6) Customer Service\n7) Claims HandlingWhat is Prospecting?Prospecting: finding entities that may be interested in insurance\n\n\nEx: referrals, ads, mailing, partners, etcAgency Bill\n\n\nvs.\n\n\nDirect Bill1) Agency Bill: a producer send a bill to the insured and collects the premium is sent to the insurer\n\n\n2) Direct Bill: the insurer assumes responsibility for sending premiums to payable for producer commissionWhat is a Book of BusinessBook of Business: a group of policies with a common characteristic\n\n\nEx. Location, insurer, coverage providedWhat are the Purposes of Underwriting?1) Minimize Adverse Selection\n the tendency for those with high probability of risk to purchase coverage\n\n\n2) Protect Insurer's actual ability to provide coverage and not overextend insurance (Capacity)What sources do Underwriters use to Gather/Assess information?1) Expert Systems (Supplemental Software)\n2) Producers\n3) Inspection Records\n4) Gov't Documents\n5) Claims Files\n6) Insurance ApplicationsWhat is a Deductible?Deductible: a portion of a covered loss that is not paid by the insurer\n\n\nTypically applied to exposure that occur frequentlyWhat are the four (4) steps int he Underwriting Process?1) Gather Data/Information\n2) Make a Decision\n3) Implement the Decision\n4) Monitor the DecisionProspective Loss Costs \n\n\nvs.\n\n\nLaw of Large Numbers1) Prospective Loss Costs: loss data that is modified by development, trending or credibility; no concern for profits\n\n\n2) Law of Large Numbers: as the number of occurrences of an independent (but similar) event happen; the relative accuracy increases Class Rating \n\n\nvs.\n\n\nSpecific Rating1) Class Rating: using rates that reflect the average loss of events; all members of a class have the same rates (despite exposure differences)\n\n\n2) Specific Rate: insurance rates for unique characteristicsWhat are the two (2) goals of Claims?1) Maintain the Insurer's Promise\n Return claimants to preloss state, financially\n2) Support Profit GoalsFirst Party \n\n\nvs.\n\n\nThird Party Claims1) 1st Party Claim: a demand from the insured seeking to recover for loss/damage that is covered by insurance\n\n\n2) 3rd Party Claim: a demand against the insured/insurer seeking to recover from damages; mostly liability Define SubrogationSubrogation: the possibility of an insurer, after a loss has been recovered, being able to receive money from the party who is legally responsible for the lossDefine Loss ReservesLoss Reserves: an estimate of the amount of money an insurer should expect to pay on future losses that have not occurred, not been settled or not reported.Why is Insurance Regulated?1) Protect Consumers\n2) Maintain Solvency\n3) Prevent Destructive CompetitionHow do Regulations on Insurance Protect Consumers?1) Regulations ensure that forms/applications/languages are easier to comprehend, and ultimately benefit the consumer\n\n\n2) Ensure that insurance is available when needed; without unethical business behaviorHow do Regulations on Insurance Maintain Solvency?1) Solvency: the ability for an insurer to meet its financial obligations\n\n\n2) Gov't safeguards funds for policyholders\n\n\n3) Premiums are paid in advance, coverage extends to the futureDomestic vs. Foreign vs. Alien Insurers1) Domestic: licensed in the state domiciled in\n\n\n2) Foreign: insurers that write insurance in states outside their home state\n\n\n3) Alien: insurers licensed outside the USAdmitted Insurer\n\n\nvs.\n\n\nNonadmitted Insurer1) Admitted: an insurer with a license by the state to perform business\n\n\n2) Nonadmitted: insurers not authorized to do businessDefine Surplus Lines of InsuranceSurplus Lines: a form of "specialty" coverage that is not typically provided by an admitted insurer\n\n\nusually offered by nonadmitted insurersWhat are the three (3) types of Insurance Company Ownership?1) Stock Insurer\n2) Mutual Insurer\n3) Reciprocal InsuranceWhat is a Stock Insurer Ownership?The insurer's goal is the maximize profits for the shareholders\n\n\nOwned by stockholder; operated by BoDWhat is a Mutual Insurer Ownership?The insurer's focus is to provide insurance; no stocks\n\n\nOwned by policyholders; operated by BoDWhat is a Reciprocal Insurance Ownership?An unincorporated group of members that support each other as insured and insurers\n\n\nOwned by members; operated by an Attorney

Peril:A cause of loss [md] for example, fire, collision, or flood.Hazard:Something that increases the chance of loss [md] for example, overloaded electrical outlets, worn brakes on a car, or building on a flood plain.Law of large numbers:Principle that helps insurers predict the number of losses that will occur and allows them to provide large amounts of insurance for relatively little money. It states that the more examples used to develop any statistic, the more reliable the statistic will be.Insurable risk:A risk must meet certain criteria to be a suitable subject for insurance. These criteria are: pure risk, definite as to time and place, not expected, large enough to create financial hardship for insured, affordable to insured, can be assigned a financial value, will not occur to large number of insureds at the same time, and large number of persons with similar potential loss.Indemnity:When a loss occurs an individual should be restored the approximate financial condition they were in before the loss no more and no less.Aleatory contract:Contract that is contingent on an uncertain event that provides for unequal transfer between the parties.Contract of adhesion:A contract in which only one party draws up the terms and the other party simply consents to them; ambiguities in the terms are interpreted by courts in favor of the party who did not write the terms.Unilateral contract:A contract in which only one party is legally bound to perform its part of the agreement.First named insured:Person whose name appears first in the declarations as an insured. Might be responsible for paying premiums, receiving cancellation notices, and agreeing to changes in the policy.Offer and acceptance:One party to a contract must make an offer, and the other party must accept it. With an insurance contract, the insured makes the offer by completing an application and the insurance company accepts the offer by issuing a policy.Consideration:A thing of value exchanged for the performance promised in the contract.Binder:Oral or written statement used to provide immediate insurance protection for a specified time period. Can be issued by the agent or the insurance company. Guarantees temporary coverage, but is not a guarantee that a policy will be issued.Material fact:A fact that would cause an insurer to decline a risk, charge a different premium, or change the provisions of a policy that was issued. The fact that an individual has caused three auto accidents in the past five years would be a material fact for a company issuing auto liability insuranceMisrepresentation:Written or verbal misstatement of a material fact involved in the contract on which the insurer relies. Can be grounds for the insurer to void the policy. Might be intentional or unintentional.Fraud:A deliberate misrepresentation that causes harm. Unlike misrepresentation, which might be either intentional or unintentional, fraud is always intentional and involves an allout effort by one party to deceive and cheat the other.Representations versus warranties:A representation is a statement in an application that the insured believes is true. A warranty is a specific agreement between the insured and insurer that certain conditions will be met. The key difference between the two is that a representation is not a part of the contract, but a warranty is. A policy cannot be voided on the basis of a representation, but it can be voided for breach of warranty.Waiver:Intentional relinquishment of a known right, such as not applying a policy condition that could be grounds to deny payment of a claim.Estoppel:Legal principle that prevents someone from asserting that something is not true after creating the impression that it is true. Under this principle, if a producer misinterprets a policy and tells an insured that a loss will be covered, the insurer cannot deny payment of the claim.Short rate versus pro rata cancellation:When an insurance policy is cancelled before its expiration date, any premium paid for insurance that will not be provided (unearned premium) must be returned to the insured. If the insured cancels the policy, the insurer is also allowed to keep a certain amount for expenses involved in issuing the policy (short rate cancellation). This is not permitted when the insurer cancels the policy (pro rata cancellation).Direct loss versus indirect loss:A direct loss is a financial loss resulting directly from a loss to property, such as tornado damage to a home. An indirect loss is a consequence of a direct loss, such as the expenses required to stay at a motel while tornado damage to a home is repaired.Actual cash value:Method of determining reimbursement for an insured loss; usually calculated by determining the property's replacement cost and subtracting an amount for depreciation. Depreciation is deducted because the insured has already had use of the property. Paying the full replacement cost would violate the principle of indemnity.Replacement cost:Losses may be reimbursed on a replacement cost basis, without deduction for depreciation, if the insured agrees to maintain insurance equal to a specified percentage of the property's value.Blanket insurance:Insurance that is written to cover more than one item of property at a single location or one or more items of property at multiple locations. Personal property coverage in Dwelling and homeowners policies is an example of blanket insurance.Valued policy:Certain hardtovalue items, such as art work, may be insured under a valued policy to avoid the difficulty involved in determining the property's value after it is damaged. The property is written for a specified amount that is used to value losses. Also called an agreed amount policy.Coinsurance:Policy condition that benefits insureds who insure property for its full value. If the insured maintains insurance equal to a specified percentage of the property's value, the insurer will fully reimburse losses (up to the policy limits). If the coinsurance requirement is not met, the amount paid for the loss will be reduced.Subrogation:The transfer of an insured's right to collect from a negligent third party to the insurance company. Under the subrogation condition, the insurance company will initially pay an insured's loss, and then attempt to recover that amount from the party who was responsible for the loss.Other insurance:Policy condition that stipulates how losses will be paid when more than one policy applies to a loss. If losses are paid on a primary/excess basis, the primary policy pays the entire loss (up to the policy limit) first, and the excess policy pays any amount not covered under the primary policy. When losses are paid on a pro rata basis, each policy pays a proportion of the loss based on the amount of coverage under its policy.Nonconcurrency:Occurs when property is insured by two or more policies that do not provide identical coverage. Nonconcurrency can result in coverage gaps or disputed claim payments.Negligence:Liability insurance policies cover certain losses arising out of an insured's negligence. Negligence is the lack of reasonable care that is required to protect others from the unreasonable chance of harm.Proximate cause:Action that establishes a link between a person's negligent actions and resulting damage to a third party.Intervening cause:A separate action that breaks the chain of causation between a person's negligent actions and resulting damage to a third party. The intervening cause then becomes the proximate cause of loss.Personal injury:In the insurance industry, this term does not have the same meaning as bodily injury. It refers to losses arising out of such things as slander, libel, and invasion of privacy.Absolute liability:Type of law imposed on those involved in activities considered especially hazardous, such as activities involving dangerous materials, hazardous operations, and dangerous animals. A person involved in these activities can be held liable for damages arising out of them, even though the individual was not negligent.Supplementary payments:Expenses included in a liability insurance policy that are paid in addition to the policy's regular limit of liability. Typically includes defense costs, claim investigation expenses, bond premiums, first aid expenses, expenses incurred by the insured at the insurer's request, loss of earnings, prejudgment interest, and postjudgment interest.Covered perils: (Dwelling and Homeowner Coverages)Dwelling forms can provide basic, broad, or special coverage. Homeowner forms can provide broad or special coverage for owneroccupied dwellings and broad form coverage for tenants or condominium unit owners.Removal coverage: (Dwelling and Homeowner Coverages)both cover property against loss from any peril while being removed from a premises endangered by a covered peril, and for a specified number of days while it is away from the premises.Debris removal: (Dwelling and Homeowner Coverages)both contain debris removal coverage, which pays for the expense of removing debris resulting from a covered loss.Temporary substitute auto:An auto the insured rents or borrows while the insured's damaged auto is out of service because of its breakdown, repair, servicing, loss, or destruction. In both personal and commercial auto policies, temporary substitute autos are considered covered autos for liability coverage.Collision:One of two physical damage coverage options in personal and commercial auto policies. Covers damage caused by the impact of the auto with another object or vehicle or by the upset of the vehicle.Nonowned auto:In the personal auto policy, it is any private passenger auto, pickup truck, trailer, or van not owned by or available for the regular use of the named insured or a family member. Under the policy's physical damage coverage (but not liability coverage), a temporary substitute auto is considered a nonowned auto instead of a covered auto.Transportation expenses:Physical damage coverage in personal and commercial auto policies that covers transportation expenses incurred because of physical damage losses to the covered auto and loss of use expenses for which the insured is legally responsible because of loss to a nonowned auto.Extended nonowned coverage:Personal auto policy endorsement that eliminates most policy exclusions applicable to autos that are furnished or available for the regular use of the named insured or family membersNamed nonowner coverage:Personal auto policy endorsement that provides extended coverage for the use of nonowned autos to individuals who do not own a car.Interline endorsements:\n\n(Commercial Package policy)They may be used with more than one line of insurance. A single interline endorsement can be included in a package policy to modify several lines of insurance.Eligible occupancies:(Businessowners Policy)Generally, the business may not exceed 25,000 square feet of floor area or have more than $3 million in annual gross sales. For some types of risks, the building may not exceed a specified number of stories. Only certain wholesale, processing and service, restaurant, convenience store, and contract risks are eligible.Ineligible risks: (Businessowners Policy)The following risks cannot be covered under a Businessowners policy: auto repair or service stations; auto, motor home, mobile home, and motorcycle dealers; banks, credit unions, stockbrokers, and similar financial institutions; bars and pubs; buildings with a manufacturing occupancy; condominium associations other than office or residential condominiums; household personal property; business operations that involve manufacturing; one or twofamily dwellings; parking lots or garages; and places of amusement.Covered causes of loss: (Businessowners Policy)Businessowners property coverage is written on an open peril basis.Coverage extensions: Businessowners Policy)In the Businessowners policy, they include newly acquired or constructed property, property off premises, outdoor property, personal effects, valuable papers and records, and accounts receivable.Optional coverages:(Businessowners Policy)In the Businessowners policy, they apply only if designated in the declarations and usually require an additional premium. Optional coverages are available for employee dishonesty, mechanical breakdown, outdoor signs, and money and securities.Business personal property: (Commercial Property Insurance)Commercial property insurance can be written to cover business personal property, such as furniture, fixtures, machinery, and inventory.Personal property of others:\n (Commercial Property Insurance)Commercial property insurance can be written to cover damage to personal property of others in the insured's care, custody, or control, regardless of whether the insured is legally liable for that loss.Agreed value: \n(Commercial Property Insurance)Optional commercial property coverage that suspends the coinsurance requirement and stipulates a certain value for designated property. If the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty.Business Income From Dependent Properties Form:\n (Commercial Property Insurance)Commercial Property form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own. This includes businesses that: deliver materials or services to the insured (contributing locations), are the primary purchasers of the insured's products or services (recipient locations), manufacture products for delivery to the insured's customers (manufacturing locations), or attract customers to the insured's business (leader locations).Additional coverages: \n(Commercial Property Insurance)The Commercial Property Building and Personal Property coverage form includes the following additional coverages: debris removal, preservation of property, fire department service charge, pollutant cleanup and removal, increased cost of construction, and electronic data.Coverage extensions:\n (Commercial Property Insurance)The commercial property building and personal property coverage form includes the following coverage extensions, which apply only if the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form: newly acquired or constructed property, personal effects and property of others, valuable papers and records [md] other than electronic data, property off premises, outdoor property, and nonowned detached trailers.Optional coverages: \n(Commercial Property Insurance)The commercial property building and personal property coverage form includes the following optional coverages, which apply only if designated in the declarations and require an additional premium: agreed value coverage, inflation guard coverage, and replacement cost coverage.Business personal property:Commercial property insurance can be written to cover business personal property, such as furniture, fixtures, machinery, and inventory.Personal property of others:Commercial property insurance can be written to cover damage to personal property of others in the insured's care, custody, or control, regardless of whether the insured is legally liable for that loss.Agreed value:Optional commercial property coverage that suspends the coinsurance requirement and stipulates a certain value for designated property. If the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty.Business Income From Dependent Properties Form:Commercial Property form designed for insureds whose business income is dependent on the ongoing operations of other businesses they do not own. This includes businesses that: deliver materials or services to the insured (contributing locations), are the primary purchasers of the insured's products or services (recipient locations), manufacture products for delivery to the insured's customers (manufacturing locations), or attract customers to the insured's business (leader locations).Additional coverages: \n(Commercial Property Insurance)The Commercial Property Building and Personal Property coverage form includes the following additional coverages: debris removal, preservation of property, fire department service charge, pollutant cleanup and removal, increased cost of construction, and electronic data.Coverage extensions:\n(Commercial Property Insurance)The commercial property building and personal property coverage form includes the following coverage extensions, which apply only if the insured has agreed to meet an 80% or higher coinsurance requirement or has purchased a reporting form: newly acquired or constructed property, personal effects and property of others, valuable papers and records [md] other than electronic data, property off premises, outdoor property, and nonowned detached trailers.Optional coverages:\n(Commercial Property Insurance)The commercial property building and personal property coverage form includes the following optional coverages, which apply only if designated in the declarations and require an additional premium: agreed value coverage, inflation guard coverage, and replacement cost coverage.Personal and advertising injury:\n(Commercial General Liability Insurance)In the Commercial General Liability (CGL) forms, this is injury that results from false arrest or imprisonment, malicious prosecution, wrongful eviction or entry, slander, libel, violation of personal privacy, use of another's advertising idea, or copyright infringement.Occurrence versus claims made forms: \n(Commercial General Liability Insurance)CGL coverage can be written on an occurrence or claimsmade basis. The major difference between occurrence and claimsmade forms is how coverage under the form is activated, or triggered. An occurrence form covers bodily injury (BI) or property damage (PD) that occurs during the policy period, regardless of when the claim is made. A claimsmade form pays for BI or PD losses for which a claim was first made against the insured during the policy period.Supplementary payments:\n(Commercial General Liability Insurance)The following supplementary payments are available under Coverage A and Coverage B of the CGL: expenses incurred by the insurance company; up to $250 for the cost of bail bonds; cost of bonds to release attachments; reasonable expenses incurred by insured to assist in investigation and defense of a claim, including up to $250 per day for loss of earnings; all costs taxed against the insured in a suit; prejudgment and postjudgment interest; and defense costs for an indemnitee.General aggregate limit: \n(Commercial General Liability Insurance)Total limit of insurance coverage that will be paid in one policy for all coverages except the productscompleted operations hazard.Medical expense limit: \n(Commercial General Liability Insurance)Separate sublimit in the CGL for Coverage C [md] Medical Payments coverage. It is subject to both the per occurrence and the general aggregate limit.Loss sustained versus discovery forms:\n(Commercial Crime Insurance)Commercial Crime coverage is written on a loss sustained or discovery basis. The major difference between the forms is how coverage under the form is activated. Coverage under a loss sustained form is triggered by a loss sustained during the policy period, but not necessarily discovered during the policy period. Coverage under the discovery form is triggered by a loss discovered during the policy period, but not necessarily sustained during the policy period.Common law defenses:\n(Workers Compensation)Assumption of risk, contributory negligence, and the fellow servant rule.Compulsory compensation laws: \n(Workers Compensation)A type of state workers compensation law requiring each employer to accept and comply with all the law's provisions. Most state workers compensation laws are compulsory.Elective compensation laws: \n(Workers Compensation)A type of state workers compensation law under which employers have the option to accept or reject the law's provisions. If rejected, the employer cannot use the three common law defenses.Exclusive remedy: \n(Workers Compensation)The benefits stipulated in workers compensation laws are the only means available to employees against employers for injuries covered by those laws. Employees cannot sue their employers in court to obtain additional compensation.Expediting expenses:Coverage under the Equipment Breakdown Protection coverage form that pays extra costs necessarily incurred by the insured to make temporary repairs and expedite permanent repairs or replacement of the damaged property.Errors and omissions insurance:Type of professional liability insurance written for nonmedical professionals, such as insurance agents, accountants, architects, stockbrokers, and attorneys.Difference in conditions insurance:Type of Commercial Property policy that covers most insurable perils but excludes basic fire and extended coverage perils. It is usually written on large risks with a high deductible.Surplus lines:Term used to describe highly specialized insurance coverages that are not available or cannot be procured from authorized insurers within a state.RiskThe chance or uncertainty of loss.Hold Harmless Agreementshifts liability from an owner or contractor to a tenant or subcontractor.Insurancea contract or device for transferring risk from a person, business, or organization to an insurance company that agrees in exchange for a premium to pay for losses through an accumulation of premiums.Speculative Riskrisks in which there exist both the possibility of gain and of loss.Pure Riskinvolve only the possibility of loss.Physical Hazardarises from the condition, occupancy, or use of the property itself.Morale Hazardthrough carelessness or by irresponsible actions can increase the possibility for a loss.Moral HazradWhen a loss or situation is created on purpose to collect from the insurance company.Contractlegal agreement between two competent parties that promises certain performance in exchange for certain consideration.Contract CharacteristicsCompetent Parties, Legal Purpose, and Offer and Acceptance(agreement)Contract of Utmost Good FaithCompany relies on the truthfulness and integrity of the applicant. In return the insured relies on the companies promise and ability to provide coverage and pay claims.ConditionalThe Insured must notify the insurer about the loss. While the insurer must use the valuation method specified in the contract to settle the loss.DeclerationUsually on the first page, contains information like the names of the insured their address, the amount of the coverage, descriptions of the property or item being insured, and the cost of the policy.Insurance AgreementStates in general what is to be covered, the losses for which the insured will be indemnified, the type of property covered and the perils against which it is insured.ConditionsDescribe the responsibilities and obligations of both the insurer and the insured.ExclusionThe losses for which the insured is not covered.DefinitionsClarifies the meaning of certain terms used in the policy.EndorsementsModifications or changes to the original policy.Stock CompaniesStockholders receive the profits.Mutual CompaniesThe insured's are also members of the company. They can vote to elect the management and receive the profits in in forms of dividends or reductions in future premiums.Advance Premium CompaniesCharge non assessable premiums and are required to set money aside in case their claims experience is higher then expected.Assessment CompaniesCharge members a pro rata share of losses at the end of each policy period.Reciprocal CompaniesMembers share the insurance responsibilities with all the other members. Managed by an Attorney in Fact who handles the business of the reciprocal.Lloyd's AssosiationA voluntary association of individuals, or groups of individuals who agree to share in insurance contracts. Each individual or syndicate is individually responsible for the amount of insurance they write.Fraternal Benefit Societyan incorporated society without capital stock, operated on the lodge system and conducted solely for the benefit of is members.Risk Retention GroupsGroup self insurance program formed by product manufactures to insure against product liability.Purchasing GroupsUsed to purchase liability insurance on a group bassis.Liability Risk Retention ActAmended in 1986Self Insuarnacepart of all the risk comes back.Lines of insuranceProperty, Casualty, Life, Health and DisabilityProperty InsuranceDwelling, Homeowners, Commercial Property, Inland Marine, Ocean Marine, and Crime.Casualty InsuranceLiability, Aviation, Auto, Workers Comp, and Surety Bonds.Life InsuranceDesigned to handle the risk of premature death or the risk that an individual may outlive their financial resources.Health and Disability InsuranceHandles the risk of medical bills and loss of income resulting from injury or sickness.AgentRepresents the insurance company, is the link between the company and the insured. Sells insurance, issues and counter signs policies, collects premiums.CountersignThe agent signs each new policy prepared by the company before delivering it to the insured.Field UderwritingUsing pre established criteria to seek out the type of business that is likely to be acceptable to the company.ApplicationThe insured's offer.Suspense (Diary System)A way to keep track of when a policy will need to be renewed.Service NeedsName changes, change in method of payment, and accurate record of such changes must be documented.Agency RelationshipWhen one party (the agent) is authorized to act on behalf of another (the principal).Express AuthorityThe authority specifically given to an agent, either orally or written by the principal.Implied AuthorityAuthority given by the insurance company to the agent that is not formally expressed.Apparent AuthorityA doctrine that holds that an agent may have whatever authority a reasonable person would assume that they have.SolicitorCan sell insurance collect premiums but cannot issue or counter sign policies.BrokerRepresents the insured. Cannot bind an insurer to an insurance contract.ProducerGeneral term used to describe someone who sells insurance such as an agent broker or solicitor.ConsultantDoes NOT sell insurance sells advice on insurance.Earned PremiumThe premium the company actually earned by providing insurance protection for the designated period.Incurred LossInclude amount paid on claims for covered losses and various expenses related to handling claims.Underwriting ExpensesThe costs required to acquire and maintain a book.Written PremiumThe gross amount of premium income on the companies book.Combined RatioLoss Ratio + Expense RatioUnderwritingthe process of selecting certain types of risks and rejecting others so the company can have the book that it wants.ReinsuranceWhen insurance companies purchase insurance to cover their own exposure and loss.State Insurance Department Area of ResponsibilitiesCompanies, Agents, Ratification, and EnforcementAdmitted (Authorized) Insurance CompaniesMeets the states standards and is allowed in the state.Non Admitted (Unauthorized) Insurance CompanyMay only do business in the state under special circumstances.InsolventWhen an insure does not have the funds to meet all of the financial obligations it is contracted to meet.Insurance guarantee AssociationProvides funds for payment of unpaid claims when an insurer becomes insolvent.FiduciaryA person who stands in a special relationship of trust to another person.TwistingA form of misrepresentation in which the agent convinces the client to cancel already existing insurance and buy another policy from the agent.RebatingGiving or offering benefits other then those specified in the policy, such as cash, gifts or securities to induce a customer to buy insurance.Unfair DiscriminationGiving a lower or higher rate then another insured in identical circumstances.Ratificationthe approval by state insurance department of the policy forms, endorsements, and rates used by companies in their state.Prior ApprovalCompanies must obtain official approval before using new forms and rates.File and UseCompanies may use forms and rates as soon as they are filed. But after states review they can still be rejected.Open CompetitionCompanies compete openly with forms and rates as long as they meet adequacy and nondiscrimination requirements.RatesThe basic charges an insurance company sets for various types of insurance.Adverse SelectionThe tendency for people with a greater then average exposure to loss to purchase insurance.Class 1 FrameStructures have outside supportClass 2 FrameJoisted MasonryClass 3 FrameNon CombustibleClass 4 FrameMasonry Non CombustibleClass 5 FrameModified Fire ResistiveClass 6 FrameFire ResistiveJudgment RatingConsiders the individual risk.Manuel RatingRate per unit * # of units = premiumMerit RatingStarts with manual rating and are then modified to reflect unique characteristics of the risk that are not reflected in the manual rate.Experience RatingModifies the manual premium on the basis of the insureds loss experience.Retrospective RatingBases the insured's premium on losses incurred during the policy period.Schedule RatingApplies a system of debits or credits to reflect characteristics of a partic