Accident
An unplanned, unforeseen event which occurs suddenly and at a specific place.
Arbitration
Arbitration is a method of claim settlement used when the insured and the insurer cannot agree on the amount of the loss.
Cancellation
Cancellation is the termination of an in-force insurance policy, either by the insured or the insurer, prior to the expiration of the policy.
Consideration
A consideration is the binding force in a contract that requires something of value to be exchanged for the transfer of risk. The consideration on the part of the insured is the representations made in the application and payment of the premium; the consideration on the part of the insurer is the promise to pay in the event of a loss.
Contract
A contract is an agreement between two or more parties enforceable by law.
Declarations
The declaration is the section of an insurance policy containing the basic underwriting information, such as the insured’s name, address, amount of coverage and premiums, and a description of insured locations, as well as any supplemental representations by the insured.
Exclusions
An exclusion is a cause of loss, exposure, condition, etc listed in the policy for which benefits will not be paid.
Hazard
A hazard is a circumstance that increases the likelihood of a loss. There are three types of hazards:
- Physical – a physical condition
- Moral – A tendency toward increased risk
- Morale – An indifference to loss
Indemnity
Indemnity, often referred to as reimbursement, is the compensation to the insured that restores them to the same financial position they possessed prior to the loss.
Insurable Interest
Insurable interest is any interest an insured may have in property that is the subject of insurance, so that damage or destruction of that property would cause the insured financial loss.
Law of Large Numbers
The Law of Large Numbers is a principle in insurance stating that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.
Example of The Law of Large Numbers:
When an insurance company issues a policy on a 45-year-old female, the company really has no way of knowing or accurately predicting when or how she will die. The Law of Large Numbers looks at a large group, in this case 45-year-old females with similar lifestyles and health conditions, and makes some conclusions based on the statistics of past losses.
Liability
Liability is defined as a responsibility under the law. There are two kinds of liability, strict liability and vicarious liability.
Loss Valuation
Loss valuation is a factor in determining the premium charged and the amount of insurance required. There are six types of loss valuation:
- Actual Cash Value (ACV)
- Replacement Cost
- Market Value
- Agreed Value
- Stated Value
- Salvage Value
Negligence
Negligence is the failure to use care that a reasonable, prudent person would use under the same or similar circumstances.
Nonrenewal
Nonrenewal is the termination of an insurance policy at its expiration date by not offering a continuation of the existing policy or a replacement policy.
Occurrence
Occurrence is a broader definition of loss, which differs from accident in that it includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.
Peril
Perils are the causes of loss insured against in an insurance policy. For example, property insurance insures against the loss of physical property or the loss of its income-producing capacity.
Policy Limits
The policy limit is the maximum amount an insured my collect, or for which an insured is protected under the terms of the policy.
Premium
A premium is a periodic payment to the insurance company to keep the policy in force.
Risk
Risk is the uncertainty as to the outcome of an event when two or more possibilities exist.
Subrogation
Subrogation is the acquisition by an insurer of an insured’s rights against any third party for indemnification of loss or other payment, to the extent that the insurer pays the loss.
Underwriting
Underwriting is the process of reviewing, accepting, or rejecting applications for insurance.
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