Insurance - answer✔financial tool that protects individuals and organizations from unforeseen
and extraordinary financial losses by transferring risk to another party
insured - answer✔individual or organization that pays premiums in exchange for protection
insurer - answer✔Company, group, or government agency offering financial protection
insurance policy - answer✔A legally binding contract that defines the obligations of both the
insured and the insurer.
Principle of Indemnity - answer✔Restoration to previous financial condition; no more, no less
4 qualifications of a contract - answer✔1. agreement
2. consideration
3. competent parties
4. legal purpose
indemnification - answer✔Putting the policyholder back in the same financial condition he or
she was in before a loss occurred
reserve - answer✔pool of collected premiums that the insurer sets aside to pay claims
Six special characteristics of insurance contracts - answer✔1. Personal-it protects the insured's
financial interests, not the insured item itself.
2. Adhesion-since the insurer gets to set the terms of the contract, while the insured must simply
agree
3. Utmost good faith-requires complete honesty. Policy can be voided if this principle is violated
4. aleatory-contract depends on an unknown event
5. unitlateral-only one party, the insurer, makes a promise to perform
6. conditional-it only kicks in when there is a covered loss and certain conditions are met
Declarations Page - answer✔Provides a general overview of who the policy covers. Aka the "dec
page"
definitions page - answer✔not essential, but is common to most policies. Defines the important
terms in the policy
Insuring Agreeement - answer✔summarizes what the insurer will cover and how
conditions section - answer✔qualifies or limits an insurer's promise to pay or perform
exclusions section - answer✔specifically lists people, items, events, and causes of loss that are
not covered under the policy
endorsements - answer✔optional provisions that an add, reduce, or modify the policy's coverage
characteristics of government insurers - answer✔1. non profit
2. mandatory participation
3. benefits prescribed by law
4. designed to meet needs of general public
5. government has monopoly
Characteristics of Private insurers - answer✔1. sell insurance based on consumer preferences
2. offer a wide variety of insurance products
3. typically exist to generate a profit or benefit a group
4. insured party voluntarily participates
characteristics of stock insurance companies - answer✔1. always for profit
2 .usually publicly-traded
3. stockholders provide capital and participate in profits or losses
4. "non-participating" insurers: no dividends go to policy holders
examples: aflac, all state,geico
mutual insurance companies - answer✔1. owned by policy holders (no shareholders)
2. policyholders elect board of directors
3. "participating" insurers: policyholders participate in dividends
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