Colorado Property and Casualty Insurance | 117 Questions and Answers(A+ Solution guide)
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Course
Colorado Property and Casualty Insurance
Institution
Colorado Property And Casualty Insurance
Law of Large Numbers - This states that the larger the number of people with a similar exposure to
loss, the more predictable actual losses will be. This law forms the basis for statistical prediction of loss
upon which insurance rates are calculated
Example of Law of Large Numbers - When an ins...
Colorado Property and Casualty Insurance Law of Large Numbers - ✔✔This states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be. Thi s law forms the basis for statistical prediction of loss upon which insurance rates are calculated Example of Law of Large Numbers - ✔✔When an insurance company issues a policy on a 35 -year old male, the company has no way of knowing or accurately predicti ng when he will die. But LOLN looks at a large group of similar risks -and makes some conclusions based on statistics of past losses Insurable Interest - ✔✔a person or property with insurable interest, meaning the person or property would incur financial loss if the insured's property or self were to be damaged Example of Insurable Interest - ✔✔Mortgagees and leaseholders may have insurable interest in their respective properties 3 Elements of Insurable Interest - ✔✔Financial (monetary), Blood (a relativ e), Business (a business partner) Extra Note - ✔✔Insurable interest must exist at the time of loss (person or property) Risk - ✔✔The uncertainty or chance of loss occurring Two types of Risk - ✔✔Pure and Speculative risk Pure Risk - ✔✔Refers to situations that can only result in loss or no change. No opportunity for financial gain. This is the only risk that insurance companies are willing to accept Speculative Risk - ✔✔This involves the opportunity for either loss or gain. an example would be gambling. This type of risk is not insurable Peril - ✔✔The causes of loss insured against in an insurance policy Life Insurance - ✔✔Insures against the financial loss caused by the p remature death of the insured Health Insurance - ✔✔Insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury Property Insurance - ✔✔Insures against the loss of physical property or the loss of its' i ncome producing abilities Casualty Insurance - ✔✔Insures against the loss and/or damage of property and resulting liabilities Hazards - ✔✔The conditions or situations that increase the probability of an insured loss occurring. (Slippery floors, congested traffic) Physical Hazards - ✔✔Are those arising from material, structural, or operational features of the risk. Apart from the persons owning/managing it Moral Hazards - ✔✔Refer to those applicants that may lie on an application for insurance, or have d one so in the past, or have submitted fraudulent claims against an insurer Morale Hazards - ✔✔Refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of existing insurance (If it breaks my insurance will pay to replace it) Indemnity - ✔✔Sometimes referred to reimbursement. Is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is no t allowed to gain financially because of the existence of an insurance contract. The purpose is to restore, but not allow the insured/beneficiary to profit Example of Indemnity - ✔✔Brenda has a homeowners insurance policy for 200k. Her home is destroyed and the expense to rebuild only comes to 150K. Brenda would only be given 150K (the amount of the loss) and the full 200K that her policy states that she may use Subrogation - ✔✔The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Based on the principle of Indemnity by preventing the insured from collecting on the loss twice. Accident VS. Occurrence - ✔✔An accident is a sudden, unplanned event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended An occurrence is a broader definition of loss than accident because it includes those losses caused by contin uous/repeated exposure to conditions resulting in injury to persons/damage to property that is neither intended or expected Direct and Indirect Loss - ✔✔The two types of property losses. Property insurance only covers direct losses. However, insurance po licies can be updated to protect indirect losses. Direct losses mean direct, physical damage to buildings and/or personal property. Indirect losses are also known as consequential losses and are considered a result of the direct loss (i.e. water damage as a result of firefighters putting out a fire in a building) Named Peril - ✔✔Is a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils. No coverage is provided for unl isted perils Open Peril - ✔✔Is a term used in property insurance to describe the breadth of coverage provided under the insurance policy form that insures against any risk of loss that is specifically excluded Negligence - ✔✔The failure to use the care t hat a reasonable, prudent person would have taken under the same or similar circumstances Vacancy and Unoccupancy - ✔✔Vacancy refers to an insured structure in which no people have been living/working and no property has been stored for the period of time required as stated in the policy
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