General Insurance Terms Definitions and Memorization

About This Audio

• Presenter: Melissa, the Insurance Exam Queen
• Purpose: To cover and help memorize general insurance terms for the insurance exam.
• Structure:
  1. Term/Concept Introduction
  2. Definition Explanation
  3. Repetition for Memorization (3 times)

Key Concepts

Risk

• Definition: Uncertainty or chance of loss occurring.
• Types:
  • Pure Risk: Loss or nothing, no chance of gain, insurable.
  • Speculative Risk: Lose or gain like gambling, not insurable.

Handling Risk

• Methods: Share, Transfer, Avoid, Retain, Reduce.
• Mnemonic: "I am a star at handling risk."

Insurance

• Definition: Transfer of risk.

Law of Large Numbers

• Definition: More data leads to more predictable losses.

Exposure

• Definition: Unit of measurement to determine insurance rates based on risk.

Hazards

• Types:
  • Physical Hazard: Material and structural risks (e.g., gas cans in the garage).
  • Moral Hazard: Lying on purpose (e.g., on an insurance application).
  • Morale Hazard: Carelessness or indifference to risk.

Peril and Loss

• Peril: Cause of loss (e.g., fire, hail).
• Loss: Reduction or disappearance of value.

Indemnity

• Definition: Restoring insured to previous financial condition.

Insurance Companies and Licensing

Certificate of Authority

• Definition: Allows insurers to sell in the state, making them admitted and authorized.

Types of Insurance Companies

• Stock Companies: Owned by shareholders, non-participating policies, dividends taxed.
• Mutual Companies: Owned by policy owners, participating policies, dividends not taxed.

Insurer Categories

• Domestic: Incorporated and selling in the same state.
• Foreign: Selling in a state but incorporated in a different state.
• Alien: Headquartered in another country.

Reinsurance

• Definition: One company indemnifies another.

Agent and Insurer Relationships

Law of Agency

• Definition: Agent represents insurer; agent's knowledge is the insurer's knowledge.

Types of Authority

• Express Authority: Written in the contract.
• Implied Authority: Assumed by the insurer.
• Apparent Authority: Assumed by the customer, also known as perceived authority.

Fiduciary Responsibility

• Definition: Agent submits premium collected to the insurance company.

Contracts

Elements of a Legal Contract

• Agreement: Offer and acceptance.
• Consideration: Both parties bring something of value.
• Competent Parties: Must be of sound mind, old enough, and not under the influence.
• Legal Purpose: Cannot be against public policy or illegal.

Contract Characteristics

• Adhesion: Insurer writes, customer takes it or leaves it.
• Aleatory: Unequal exchange.
• Personal: Policy is between customer and insurer.
• Unilateral: One-sided promise, legally binding for insurer.
• Conditional: Both parties have rules and duties.

Expectations and Statements

Reasonable Expectations

• Definition: Customer can expect coverage if implied by agent during sale.

Representations and Warranties

• Representations: Statements believed to be true but not guaranteed.
• Misrepresentations: Untrue statements.
• Warranties: Absolutely true statements.

Concealment and Fraud

• Concealment: Withholding or hiding information.
• Fraud: Deceiving or lying to cheat the insurance company.

Contact Information

• Questions or Support: Email [email protected]