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Essential General Insurance Terms Overview

Mar 8, 2025

General Insurance Terms: Definitions and Memorization

Overview

  • Lecture by Melissa, the Insurance Exam Queen, on general insurance terms.
  • The lecture covers 40 topics essential for the general insurance terms chapter.
  • Each concept includes term name, definition, explanation, repetition for memorization.
  • Recommended study method: listen, write, and repeat.

Key Concepts and Definitions

Risk

  • Definition: Uncertainty or chance of loss occurring.
  • Types: Pure Risk and Speculative Risk.

Types of Risk

  • Pure Risk: Loss or nothing, no chance of gain, only insurable type of risk.
  • Speculative Risk: Possible gain or loss, like gambling, not insurable.

Methods of Handling Risk

  • Acronym: I AM A STAR
    • Share: Collective risk management among friends.
    • Transfer: Using insurance to transfer risk to another party.
    • Avoid: Avoiding activities that might result in a loss.
    • Retain: Self-insuring or retaining small portion of risk.
    • Reduce: Taking steps to lower risk.

Insurance

  • Insurance: Transfer of risk to an insurance company.

Law of Large Numbers

  • More data leads to more predictability in assessing risk.

Exposure

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

Hazards

  • Definition: Increase the chance of a risk occurring.
  • Types:
    • Physical Hazards: Material and structural (e.g., gas cans in the garage).
    • Moral Hazard: Intentionally providing false information (e.g., lying on application).
    • Morale Hazard: Carelessness due to attitude (e.g., reckless driving).

Perils and Loss

  • Peril: The cause of loss, such as fire or hail.
  • Loss: Reduction or disappearance of value.

Indemnity

  • Definition: Restoring the insured to their previous financial condition.

Certificate of Authority

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

Types of Insurance Companies

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

Insurance Company Classification

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

Reinsurance

  • Transfer of risk from one insurance company to another.

Law of Agency

  • Definition: Describes the relationship between insurer and agent, with agent representing insurer.

Types of Authority

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

Fiduciary Responsibility

  • Definition: Agent's responsibility to submit collected premium to the insurance company.

Elements of a Legal Contract

  • Agreement: Offer (application) and acceptance (policy issuance).
  • Consideration: Value exchange. Insured provides application and premium, insurer promises to pay claims.
  • Competent Parties: Must be of sound mind, of age, not under influence.
  • Legal Purpose: Contract cannot be illegal or against public policy.

Characteristics of Insurance Contracts

  • Adhesion: Insurer writes the policy, customer must accept it as is.
  • Aleatory: Unequal exchange; small premium for large coverage.
  • Personal: Policy between insurer and insured.
  • Unilateral: Only insurer is legally bound to fulfill the contract.
  • Conditional: Both parties have rules and duties.

Customer Expectations

  • Reasonable Expectations: Coverage implied by agent during sale is expected.

Statements and Truthfulness

  • Representations: Statements believed to be true.
  • Misrepresentations: Untrue statements, not necessarily intentional.
  • Warranty: Absolutely true statement required.
  • Concealment: Withholding or hiding information.
  • Fraud: Intentional deception to cheat the insurer.

Conclusion

Full transcript