General Insurance Terms Definition and Memorization

Introduction

• Audio is meant to help with memorization of general insurance concepts and definitions.
• 40 topics covered, each with term, concept name, definition, explanation, and repetition.
• Recommended study method: listen, write down terms, and read along.

Key Concepts

Risk

• Definition: Uncertainty or chance of loss occurring.
• Types of Risk:
  • Pure Risk: Loss or nothing, only insurable.
  • Speculative Risk: Chance of gain or loss, not insurable.

Handling Risk

• Acronym: I AM A STAR (Share, Transfer, Avoid, Retain, Reduce)
  • Share: Informal insurance among a group.
  • Transfer: Traditional insurance, transferring risk to insurer.
  • Avoid: Avoid potential loss scenarios.
  • Retain: Self-insurance or accepting deductibles.
  • Reduce: Taking steps to minimize risk.

Insurance

• Definition: Transfer of risk to the insurer.

Law of Large Numbers

• More data leads to more predictable losses.

Exposure

• Definition: A unit to determine rates based on riskiness.

Hazards

• Increase the chance of a risk occurring.
  • Physical Hazards: Material and structural hazards.
  • Moral Hazards: Lying, e.g., on insurance applications.
  • Morale Hazards: Carelessness, e.g., reckless behavior.

Perils and Loss

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

Indemnity

• Insurer restores the insured to their previous financial condition.

Types of Insurers

Certificate of Authority

• Allows insurers to sell in a state, making them admitted.

Stock vs. Mutual Companies

• Stock Companies: Owned by shareholders, non-participating policies, taxed dividends.
• Mutual Companies: Owned by policy owners, participating policies, non-taxed dividends.

Location-based Insurer Types

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

Reinsurance

• One company indemnifies another to manage large risks.

Agent and Insurer Relationship

Law of Agency

• Agents represent insurers; agent’s knowledge is insurer’s knowledge.

Types of Authority

• Express Authority: Written in the contract.
• Implied Authority: Assumed by the insurer.
• Apparent Authority: Perceived by the customer.

Fiduciary Responsibility

• Agents must submit collected premiums to the insurer.

Contracts and Agreements

Legal Elements

• Agreement: Offer (application) and acceptance (policy issued).
• Consideration: Both parties provide value (app + premium vs. promise to pay).
• Competent Parties: Sound mind, legal age, sober.
• Legal Purpose: Must not break laws or public policy.

Contract Characteristics

• Adhesion: Insurer writes the policy, take-it-or-leave-it.
• Aleatory: Unequal exchange, small premium vs. large payout.
• Personal: Policy is between the customer and insurer.
• Unilateral: Only the insurer is legally bound.
• Conditional: Rules must be followed by both parties.

Other Terms

• Reasonable Expectations: Coverage implied by agent should be expected.
• Representations: Statements believed to be true.
• Misrepresentations: Untrue statements.
• Warranty: Absolutely true statement.
• Concealment: Withholding or hiding information.
• Fraud: Deceiving to cheat the insurer.

Conclusion

• For questions, contact at [email protected].
• Encouragement to pass the exam.