Texas All lines adjuster license insurance terms and related concepts Chapter 1

Law of Large Numbers - Answer- the more examples used to develop any statistic, the more reliable the statistic will be Underwriting - Answer- The process and insurance company uses to decide whether to except or reject an application for a policy insurance. underwriters evaluate the risk and exposure of a potential policyholders they decide how much coverage the policyholder should receive how much they should pay for it or whether even to except the risk and insure them. underwriting involves measuring risk exposure and determining the premium that needs to be charged to ensure that risk. peril - Answer- A cause of property losses I.E, fire, lightning, explosion, windstorm, hurricane, collapse of building, vandalism, accidental discharge, theft. hazard - Answer- Is a situation that poses a level of threat to life, Heath, property, or environment. Direct loss - Answer- Direct physical loss to property Indirect loss - Answer- A loss that arises as a result of damage to property, other than the direct loss to the property. If you own a taxi and someone totals out your taxi, you can't make money because you can't drive your taxi for fares. Principle of indemnity - Answer- Insurance will not pay more than the cost of the incident Property insurance - Answer- Covers the loss of real and personal property from perils such as fire, theft, windstorm Insuring Agreement - Answer- Summarizes the major promises of the insurer in exchange for premium payments by their customer. Deductible - Answer- Amount you must pay before you begin receiving any benefits from your insurance company Cancellation - Answer- Termination of an insurance policy by insurance company or insurer before the renewal date. All notices must be done in writing. Limit of Liability - Answer- The maximum amount for which an insurer is liable. The policy of declarations specifies limits. Loss settlement - Answer- The process used to determine the amount of the loss. Methods used to settle losses - Answer- Actual cash value- value of the property, based on the current cost to replace it, minus applicable depreciation. Replacement cost- the cost associated with replacing property at current market prices. Agreed value- the amount that the insured and insurer agree upon during the time of policy inception. Market value- the amount the property is worth in a competitive market. This amount is accepted by the buyer and seller. Casualty insurance - Answer- Protects a person from financial loss arising from bodily injury or property damage to others arising out of : ownership of property, operation of a motor vehicle, personal activities, business activities, robbery, and Worker's comp. liability - Answer- A person is legally liable for an accident if that person is found responsible for bodily injury or property damage to another party. Usually based upon the negligent acts of that person. negligence (n) - Answer- carelessness Tort - Answer- A civil wrong committed against someone else. This breach would determine if that person is negligent. The essential elements used to determine negligence : duty owed Duty breached Proximate cause Damages Punitive Damages - Answer- Money a court requires a defendant to pay in order to punish and make an example of the defendant. "Punitive" (punished or punishment by the court) Comparative Negligence - Answer- Is a partial legal defense that reduces the amount of damages that a person can recover based upon the amount that this person's own negligence contributed to the loss. (Two or more people Sharing fault in a negligent situation) Contributory Negligence - Answer- Is a law defense where a person's own negligence contributed to the harm that he or she sustained assumption of risk - Answer- Is a defense which bars a person that voluntarily and knowingly subjected oneself to danger. 3 types of negligent defenses / acts - Answer- Comparative negligence (compare or compared two or more) Contributory negligence (contribute, you contributed to negligent acts causing harm.) Assumption of risk (assume, taking on responsibility) Accident - Answer- An unexpected happening that may result in injury, loss, or damage. Act of god - Answer- An event arising out of natural causes with no human intervention which could not have been prevented by reasonable care or foresight. Examples of "acts of god" - Answer- Floods, windstorms, hurricane, hail, lightning. Additional Living Expenses - Answer- Those expenses sustained by insured household in order to maintain its normal standard of living. An insurance company would pay for a hotel but not pay for mortgage payment or cable bill if something happened to your home and needed repairs. adverse selection - Answer- The tendency of insured's who present a higher probability of loss to purchase or renew insurance more often than those who present a lower probability. All Risk Insurance - Answer- Insurance that covers loss caused by all perils except those specifically excluded in the contract. Appraisal - Answer- A form of dispute between the insured and the insurance company regarding the amount of the claim. Both parties hire appraisers to settle the dispute. If appraisers cannot settle the dispute, they will hire an umpire to settle it. attractive nuisance - Answer- a dangerous place, condition, or object that is particularly attractive to children that has to have warning or danger signs betterment - Answer- An improvement to property that puts it in a better condition than it was before the occupancy or loss breach of contract - Answer- The failure to comply with terms or conditions of an insurance policy that may result in restricted coverage or void the policy. Bodily injury - Answer- Physical injury to a person, including sickness, disease, and death. Claimant (n) - Answer- a person making a claim catastrophe - Answer- a large-scale disaster, misfortune, or failure that normally generates a large amount of property damage and / or bodily injury. coinsurance clause - Answer- A provision requiring a specified amount of insurance based on the value of the insured property. collision coverage - Answer- insurance that pays for damage to your car caused by colliding with another car or object without regard to who caused the accident. Commercial General Liability - Answer- insurance coverage type typically issued to contractors. It includes premises and operations, products and completed operations and other liability options comprehensive coverage - Answer- This coverage pays for damage to or loss of your automobile from causes other than accidents examples include flooding hail damage vandalism fires and deft Concealment - Answer- The act of purposefully not reporting information that would affect the issuance or rate of an insurance contract. Concurrent Causation - Answer- The insurance theory stating that if loss or damages occur as a result of of more than one cause , one of which is covered and the other is not covered, the insurer will still cover the claim Conditions - Answer- The part of the insurance policy that details the rights and duties of the insured and the insurance company in the policy damages (n) - Answer- money paid by someone (usually) as a result of having lost a law suit Declarations Page - Answer- the part of the written insurance policy that states all the policy's specifics, including name of the policyholder , type of property insured, premiums and the term limits for the coverage Depreciation - Answer- The act of lowering an item's value due to use of wear and tear. Usually based on age , condition and life expectancy. Endorsement - Answer- A specific addition to a policy that alters the coverage and therefore the price of that policy. It can either add or remove specific types of coverage Exclusion - Answer- Provision in an insurance policy that indicates what is denied coverage. Examples of exclusions - Answer- Wear and tear, rust , rot, contamination, and mechanical break downs are all excluded from making a claim on. Expiration date - Answer- The date on which an insurance policy expires. Exposure - Answer- Is the measure of the possibility of a loss. Fraud - Answer- Is any intentional lying or misrepresentation by policyholders or claim adjusters in order to inflate a claims payment or receive a claims payment that would otherwise not be paid Incurred expense - Answer- These are expenses that have already been paid out and that have not yet been reimbursed. Example: If you paid $800 for a hotel, that $800 is the incurred expense because you already paid it, but you have not been reimburse by the insurance company for additional living expense. Insured - Answer- Is the party to an Insurance arrangement that has an insurable interest in the property that is being insured a loss payee or a lienholder can be considered an insured. ( the person that has purchased insurance) Who is the insurer - Answer- Insurance company Loss history - Answer- Is the insured's history of losses with other companies or the company that they are currently with . insurance companies view loss history as an indication of an insurance propensity for a claim in the future Material misrepresentation - Answer- Is a significant miss statement in an application form. If a company had access to the correct information at the time of the application the company might not have agreed to except the application. (Lying on application) Non renewal - Answer- A decision by an insurance company not to renew a policy. Notice of loss - Answer- Is the notice required by insurance companies immediately after an accident part of the standard provisions to finding a policyholder his responsibilities after a loss occurrence - Answer- Is an event that results in an insured loss which results in bodily injury or damages Overhead and profit - Answer- Is the amount of money that is dedicated to a general contractors cost of doing business in earning a profit . the insurance industry standard is typically 10% overhead and 10% in profit. Usually added on a loss that involves at least three trades and the repair process requires coordination by general contractor Personal Lines - Answer- Insurance coverages intended to protect individuals and their families. Such as, homeowners and auto insurance. Policy period - Answer- Is the Period a policy is in force from the beginning or affective date to the expiration date. For an insurance loss to be covered the event has to occur within the policy. Premiums - Answer- Is the amount of money paid by insured to an insurance company to obtain or maintain insurance policy reserves - Answer- Is a company's best estimate of what it will pay for claims. The amount representing actual or potential liabilities kept by an insurer to cover that in policyholders Salvage - Answer- Is the left over value of a claim when an insurance company recovers and sales property to reduce its financial loss. ( when you total your car, the insurance company pays you for the car and then auctions the car off to recoup some of the money they just paid you for the claim) Subrogation - Answer- Is the legal process by which an insurance company after paying a loss seeks to recover the amount of the loss from another party who is found to be legally liable for the loss. Subrogation is very important to insurance companies adjuster's and their policyholders. In layman's terms subrogation is making the responsible party of a claim pay for the damages that either they cost or their product caused. Total loss - Answer- Is a situation in which property is damaged and the cost of repair and salvage will exceed the value of that property. umbrella insurance - Answer- Refers to a liability insurance policy that protects the assets and future income of the name insured in addition to his or her primary policies. Umpire - Answer- Is a person hired by the two appraisers during the appraisal process to make the final determination as to the value of or extent of damage of the property in question Underinsurance - Answer- Inadequate insurance coverage by the holder of a policy. In the event of a claim under insurance may result in economic losses to the policyholder since the claim would exceed the maximum amount that can be paid out by the insurance policy Uninsured motorist coverage - Answer- Insurance that protects drivers from those with no insurance or inadequate insurance. If a policyholders car is damaged in a hit and run accident uninsured motorist will cover the damages to a car as a result of the hit-and-run. Vacancy - Answer- The condition of a property that is not being occupied or containing furnishings vandalism (n) - Answer- the crime of intentionally damaging things in public places Offer and acceptance - and offer must be made by one party and communicated to the other party. Competent parties - most entities involved in an insurance contract are deemed to be competent except, minors , mentally incompetent individuals and those under the influence of alcohol or drugs Legal object - To be legal in a contract must be drawn for legal purposes and not against public policy and insurance contract that Insurance stolen property is not a legal contract Consideration - each contact must be characterized by mutual giving and taking of something by each party. a valuable consideration is necessary to bind insurance coverage. With an insurance contract the insurance consideration is the premium paid for coverage. The insurance company consideration is its promise to pay for loss caused by a covered peril. - Answer- Four components requiring for a contract to be considered legal and enforceable. Unilateral contract - The insurance contract is unilateral in that it can be enforced by only one party. the company cannot force premium payment but the insured can enforce the contract if all premiums are paid and a valid claim is presented. Adhesion contract - The insurance contract is an adhesion contract and must be excepted by the insured as written by the company. Aleatory contract - as an aleatory contract, the insurance policy is valid even though there are unequal exchanges. Ex. The insured may pay $100 for $100,000 of coverage. Valued contract - A valued contract states the amount to be paid in in the event of a covered loss. Personal contract - this type of insurance contract insured the person who owns the property, not the property itself. Conditional contract - The conditional contract includes a number of conditions with which both the insured and insurer must comply. Insurance policy is a conditional contract. For example the insured must notify the insurance company when a loss occurs the insurer must use the valuation methods specified in the policy to settle the loss - Answer- The elements of the insurance contract ( special features of the insurance contract) Declarations pages - details about the policy and the policy holder Insuring agreement - this section describes the coverage in detail and what the insurance company WILL cover Conditions - the obligations or duties of each party to the contract. ( the insured and insurer) Exclusions - this section describes the coverage in detail and what the insurance company WILL NOT cover - Answer- The four parts of an insurance contract Policy Definitions - Answer- This section clearly defines important terms of reference and insuring agreement and other sections of the policy Policy Territory - Answer- This identifies the place when coverage under the policy applies. Additional coverage - Answer- These coverages apply only in certain circumstances have reduced or separate limits of liability or require the insured to meet certain requirements before they are applicable. Third party provisions - Answer- The standard mortgage or loss payable clause specifies the rights and duties of the mortgagee or loss payee under the policy. For example the mortgagee maybe expected to pay the premium if the insured fails to do so. - no benefit to Bailee a person or organization that has temporary position of someone else's property such as a dry cleaner is a condition that states that the Bailee is not covered under the insurance policy while the belly has possession of the insureds property Extensions - Answer- These are included in a policy to extend coverage beyond the policy limits of liability. Example: and automobile policy has a Transportation expense extension that pays for temporary transportation cost over and above the policy limits or coverages such as rental car. Utmost good faith - Answer- An obligation to act in complete honesty and to disclose all relevant facts. Reasonable expectations - Answer- This principle protects the insured from technical language Hayden provisions in confusing language Representations - Answer- oral or written statements made by an individual seeking to enter into a contract. Unless they are fraudulent misrepresentation cannot void a contract. He miss statement would be considered material if the insurer would not have issued the contract if correct information had been known at the time of the application Warranties - Answer- statements made by the applicant regarding the nature of the risk to be insured. Unlike representations if warranted statements are found to be false they cause the policy to be voided by the insurer The basic difference between a warrant and a representation - Answer- A warrant is a part of the contract itself and must be strictly complied with. Example: A working and activated alarm system is on your house or business. If your home or business is broken into and items were taken, the insurance may not pay for any damages or claims because alarm was not working or active as stated. A representation is usually any incidental statement proceeding the formation of a contract and not actually a part of it. Waiver - Answer- Waiver is a claim representative may overlook a policy exclusion that would normally be grounds to deny a claim. Thereby waiving the policy exclusions. estoppel - Answer- the intentional or unintentional impression by the insurance company there a certain fact exist when it does not. If the insured relies on that fact and is damage as a result the company estopped from denying the claim. Example: if an insurance agent tells you something is covered in a claim (even though it is found to not be covered) the insurance company must cover the claim. Binder - Answer- Gives you temporary protection until a policy is issued. The time. For written binders is usually 30 days but really more than 60 days. Binders may usually be canceled by a company or agent with two business days notice. Binder sees automatically once the policy is written or decline. Proposal - Answer- an outline or quotation of coverage and premiums before any coverage is issued or enforce. Actuarial - Answer- (adj.) Calculating; pertaining to insurance statistics . Responsible for rate making and determines the rates charged by the insurer. sales and marketing - Answer- The department in a company that deals with selling and advertising products Captive - The insurance contracts with independent agencies to represent and sale for only the insurance company. The insurance company owns and controls all accounts policy records and renewals. Direct writer - The direct writing agent is it an employee of the insurance company and maybe paid a salary commission or a combination of both. The insurance company owns and controls all accounts policy records and renewals. Direct response - this system does not use agents but rather solicits through direct mail our Tele marketing. The insurance company owns and controls all accounts policy records and renewals. Independent agent - The independent agent is an independent contractor who contracts with several different companies to represent and sell insurance for those companies. This agent receives only a commission from the various insurance companies. The independent agent owns and controls the accounts policy records and renewals. - Answer- What are four basic distribution systems used to market insurance Underwriting - Answer- the selection classification and acceptance or rejection of a proposed insured according to the insurance underwriting standards. What are the four basic steps for the underwriting process - Answer- Gathering necessary underwriting information Making the underwriting decision