Property-Insurance Terms & Related Concepts 100% Correct

Property-Insurance Terms & Related Concepts 100% Correct Insurance The TRANSFER of financial responsibility associated with a potential of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals. Insurance Contract in which one party agrees to indemnify the other party against loss, damage, or liability arising from an unknown event. Indemnify Compensate (someone) for harm or loss: "insurance carried to indemnify the owner for loss". Insurable Interest The insured must have an insurable interest in the person or property covered by an insurance policy. In property insurance, the insured would incur a financial loss if the insured property was damaged. Maybe created by the ownership, custody, or control of a property. Must be demonstrated when policy is issued and always exists at the time of loss. Insurable Interest Example Mortgages and leaseholders may have an insurable interest in the property. 3 Elements of Insurable Risk 1. Financial-a monetary interest 2. Blood-a relative 3. Business-busines partner Risk The uncertainty or chance of a loss occurring. 2 Types of Risk 1. Pure 2. Speculative Pure Risk Refers to situations that can only result in a loss or no change. No opportunity for financial gain. Only type of which is insurable. Speculative Risk Involves the opportunity for either loss or gain. Not insurable. Ex. gambling or investing. Hazards Conditions or situations that increase the probability or chance of an insured loss occurring. Ex. slippery floors, congested traffic. 3 Classifications of Hazards 1. Physical 2. Moral 3. Morale Physical Hazards Those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it. Ex. Faulty wiring Moral Hazards Refers to those applicants that may lie on an application for insurance, or in past have submitted fraudulent claims against insurer. Morale Hazards Refers to an increase in the hazard presented by a risk, arising from the insured indifference to loss because of the existence of insurance. Ex. "I'm not going to fix, if it breaks, my insurance will pay for it." Perils Are the causes of loss insured against in an insurance policy. 2 Types of Perils 1. Named