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Transferring pure risk (no gain) from individuals to a group. Pools large numbers of individual risks. Charge small premium to each in pool.
Based upon economics or an equity position. Insurable interest is required at the time of loss in order to recover on a policy.
The Uncertainty of loss. For example, when you drive your car, the risk is that you may become involved in an accident.
Something that increases the risk. Drinking while driving is a hazard, since it greatly increases the chance of an accident. There are physical hazards that result form material or structural features of a risk, as opposed to human or management factors, such as an oily rag left by the furnace. There are moral hazards, which are circumstance of morals or habits that increase the profabilty of a loss from an insured peril, such as an insured previously convicted of arson. Lastly there are morale hazards, which are an increase in the hazards presented by a risk arising from the insured's indifference to loss because of the existence of insurance. For example, and insured fails to repair faulty wiring, believing it is less expensive to pay insurance premiums than to pay an electrician.
The Cause of loss. Wind is a Peril. It may damage your roof. Some policies, such as the Standard Fire Policy, are named or specified perils, meaning that if whatever happens to the structure is not names as a peril in the policy, there is no coverage. Other policies, such as the HO-3, are all risk on the building structures, meaning that whatever may happen is covered unless the Peril is excluded. All Risk Policies are sometimes called Open Peril Policies.
Damage Resulting to the structure caused by a peril, such as Fire, Lightning, etc.., which are examples of...
Direct - Fire = House burns down
Indirect losses, sometimes called consequential losses, such as rental value or loss of use are covered on some policy forms as well. Losses of this nature are also called time element losses, since they occur over a period of time.
This is a negligence term. meaning that a party's negligence must be the "proximate cause" or reason for the resulting injury to others. Generally, there must be a direct chain of events leading from the negligent act up to the resulting injury or property damage in order for the negligent act to be considered the proximate cause.
The amount the insured must pay on every claim. The purpose of the deductible is to discourage the insured from turning in small claims to the insurance company, since they are very costly to process. The higher the deductible, the lower the premium. Hence, by having a deductible the insurance company will end up paying less of every claim.
The word indemnify means to pay. Property insurance policies are contracts of indemnity, meaing that the insured may not recover more than he actually lost. For example, if you had two policies covering the same property, and you were hoping to be able to collect from each policy in the event of a loss you would be in violation of this principle. This, of course, would be prevented from happening by the Pro-Rata Liability clause in a Property Insurance contract.
Actual Cash Value?
Replacement cost (at the time of loss) minus depreciation (based on the age of the structure), if any, equals actual cash value.
Replacement Cost - Depreciation = Actual Cash Value
Starting with the DP-00-02 Broad Form Fire insurance policy, the contract promises to pay all covered property insurance losses to the building structure in full (without deduction for depreciation) if the insured carries 80% of the full replacement cost of the structure as a policy limit at the time of the loss. Remember, you can never recover more than the policy limit.
Limits of Liability?
The Policy Limits. However on HO policies, the cost of defense (hiring a lawyer to defend you) is in ADDITION TO LIMITS. On property insurance, such as the Standard Fire Policy, the policy will pay the ACV, or the policy limits, whichever is less. The policy limits are shown in the policy's Declarations ( on the first page of the contract).
Coinsurance/Insurance to value?
In property insurance, a clause under which the insured shares in losses to the extent that he is under-insured at the time of the loss. On a DP-00-02, in order to get replacement cost coverage the insured must insure his building structure for at least 80% of the current replacement cost. This is the co-insurance requirement, sometimes called the 80% clause. This clause is designed to ensure that the insured carries adequate policy limits.
Something SUDDEN or UNFORESEEN, that results in damage, injury or upset of some kind, like a car wreck.
Something occurring over A PERIOD OF TIME, but still covered by the policy.
Cancellation may be done either by the insured or insurer. Cancellation is done mid-term. If the insurer is canceling the policy mid-term they must have a specific reason and give written advance notice of cancellation. In a cancellation situation a refund is due to the insured, either short-rate if the insured cancelled the policy, or pro-rata if the insurer cancels the policy.
Occurs at the policy anniversary date. The insurer must give the insured advance written notice that their policy will not be renewed. No premium refund is due.
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