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Auto Insurance - The transfer of the possibility of a
loss risk to an insurance company, which in
turn spreads the costs of unexpected losses to
many individuals. In most situations only a
small number of those insured will actually suffer a loss.
Insurance redistributes the financial consequences of
individual losses to all persons insured.
 If there were no
insurance mechanism, the cost of a loss would have to be
borne solely by the individual who suffered the loss. With
insurance, the cost of the loss is limited to the amount of
the insurance premium and any applicable deductions.
Indemnity -
Compensation to the insured that restores them to the same
financial position that they enjoyed prior to the loss.
Risk - Risk
is the uncertainty or chance of a loss occurring. The 2
types of risks are pure and speculative, only one of which
is insurable. Pure risk refers to situations that can
only result in a loss or no change. There is no opportunity
for financial gain. Pure risk is the only type
insurance companies are willing to accept.
Exposure is a unit of measure used to determine rates
charged for insurance coverage. A large number of units
having the same or similar exposure to loss are referred to
as homogeneous. The basis of insurance is sharing risk
between a large homogenous group with similar exposure to
loss.
Hazard are conditions or situations that increase the
probability of an insured loss occurring. Hazards are
classified as physical hazards, moral hazards or morale
hazards. Conditions such as slippery floors, or congested
traffic are hazards and may increase the chance of a loss
occurring. Physical hazards are those arising from the
material, structural, or operational features of the risk,
apart from the persons owning or managing it. Moral hazards
refer to those applicants that may lie on an application for
insurance, or in the past, have submitted fraudulent claims
against an insurer.
Morel hazard refers to an increase in the hazard presented
by risk, arising from the insured's indifference to loss
because of the existence of insurance. e.g. I'm not going to
bother fixing this. If it breaks my insurance will pay to
replace it.
Perils are the causes
of loss insured against in an insurance policy. Property
insurance insures against the loss of physical property of
the loss of its income producing abilities; casualty
insurance insures against the loss and/or damage of property
and resulting liabilities.
Loss is defined as the
reduction, decrease, or disappearance of value of the person
or property insured in a policy, by a peril insured against.
Insurance provides a means to transfer loss.
Accident - An unforeseen,
unintended, unplanned event which occurs suddenly and at a
specific place.
Comprehensive -
This coverage pays for loss or damage to the
your insured vehicle that doesn't occur in an auto accident.
The types of damages comprehensive insurance covers include
loss caused by fire, wind, hail, flood, vandalism or theft.
Medical Coverage
- Pays medical expenses regardless
of fault when the expenses are caused by an auto accident.
Uninsured Motorist - Pays your car's damages when an auto
accident is caused by a driver who doesn't have liability
insurance.
Underinsured Motorist
- Pays your car's damages when an
auto accident is caused by someone who has insufficient
liability insurance.
Rental Reimbursement - This type of coverage
will pay for a rental car if your car is damaged due to an
auto accident. Often this coverage has a daily allowance for
a rental car.
Personal Injury Protection - PIP: An automobile
insurance coverage. The insurers provide or offer to provide
first party benefits for medical expenses, loss of income,
funeral expenses and similar expenses without regard to
fault . |
Elements of Insurable Risks
The loss must be due to chance - a risk must involve the
chance of loss that is outside the insured's control.
The loss must be definite and measurable - An insurable risk
must involve a loss that is definite as to cause, time,
place and amount. An insurer must be able to determine how
much the benefit will be and when it becomes payable.
The loss must be predictable and measurable - An insurable
risk must be one whose occurrences can be statistically
predicted.
The loss cannot be catastrophic - Insures typically will not
insure risks that will expose them to catastrophic losses.
There must be limits that insures can be reasonably certain
their losses will not exceed.
The loss exposure to be insured must be large - There must
be a sufficiently large pool to be insured and those in the
pool must be grouped into classes with similar risks so the
insurer is able to predict losses based upon the law of
large numbers.
Insurance Contract - The insurance contract is a
personal contract between the insurer and insured where each
party must be able to rely on the other for valid critical
information. This ability for the parties to rely on one
another is called utmost good faith.
A representation is a written response to questions or
statements made on an application for insurance upon which
the underwriter relies in order to issue a policy. A
representation is something that you believe to be true to
the best of your knowledge. A misrepresentation is a false
statement of a material fact given to an insurer. If the
misrepresentation was intentional, the insured has committed
fraud and the insurer may be able to void the policy as of
issue date or deny the claim.
Insurance Policy Structure Pages - Declarations page -
Insurance agreement - Conditions page - Exclusions page -
Definitions page:
Declarations 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. It also contains any supplemental
representations by the insured. This is usually the first
page of the policy.
Definitions component of an insurance policy
clarifies terms used in the policy. Typically words that are
printed in bole-face, italics, or quotations have a
definition as to their meaning in that contract.
Insuring agreement - is the section of an insurance
policy containing the insurer's promise to pay. Among other
things, the description of coverage provided and perils are
found in the insuring agreement.
Additional Coverage is a provision in an insurance
policy that provides an additional amount of coverage for
specific loss expense, at no additional premium.
Examples: Claim related expenses; Reasonable expenses
incurred by an insured to protect damaged property from
further loss; Defense expense.
Conditions is the section of an insurance policy that
indicates the general rules or procedures that the insurer
and insured agree to follow under the terms of the policy.
Exclusions is the section of an insurance policy that
details what perils are not insured against and what persons
are not insured. Exclusions restrict some of the broad terms
used in the insuring agreement.
Endorsements are printed addendums to a contract that
are used to change the policy's original terms, conditions,
or coverage. Endorsements may be included at the time the
policy is issued or added during the policy term.
Endorsements must be in writing, attached to the policy and
signed by an executive officer of the insurer to have any
effect on the contract. Endorsement may be used to add or
delete coverage, or may be used to correct items such as the
insured name, address.
Common Policy
Provisions - Insured s means anyone that is covered
under the policy, whether named or not. First Named insured
is the individual whose name appears on the policy. Policy
Period is the time period, stated on the declarations page,
during which the policy provides coverage. Policy Territory
defines the location where coverage will be provided.
Cancellation is the termination of in force insurance policy
by either the insured or the insured prior to the expiration
date shown in the policy. Termination may be voluntary,
involuntary, or in mutual accordance with provisions
contained in the policy. Nonrenewal is the termination of an
insurance policy at is expiration date by not offering a
continuation of the existing policy or a replacement policy.
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