FX EXAM PROPERTY & CASUALTY WITH COMPLETE SOLUTION ( AWARDED A+)

FX EXAM PROPERTY & CASUALTY WITH COMPLETE SOLUTION ( AWARDED A+) Law of Large Numbers - The larger the number of people with a similar exposure to loss, the more predictable actual losses will be. Insurance - Transfers the risk of loss from an individual or business entity to an insurance company The three elements of insurable risk are - 1) Financial 2) Blood (relative) 3) Business Risk - The uncertainty or chance of a loss occurring Types of risks are - 1) Pure risk 2) Speculative risk What type of risk does insurance cover? - Pure risk What is pure risk? - It can only result in a loss or no change What type of risk is not insurable? - speculative risk What is speculative risk? - Opportunity for loss or gain. For example, gambling. What is a peril? - a specific cause of loss What is a hazard? - conditions or situations that increase the probability of a loss occurring What is a loss? - reduction, decrease or disappearance of value of the person or property insured. What is indemnity? - provision in an insurance policy that states that in the event of loss, an insured can only collect to the extent of the financial loss. The insured is not allowed to gain financially. Subrogation - insurer's legal right to seek damages from third parties after it has reimbursed the insured. Accident - The sudden, unplanned and unexpected event not under the control of the insured. Neither expected or intended. Occurrence - losses caused by continuous or repeated exposure to conditions neither intended or expected. Direct loss - direct, physical damage to buildings and/or personal property Indirect Loss (consequential) - results of a direct loss What is the most prevalent indirect loss for homeowners? - Extra living expense that may be incurred by the insured while the home is being repaired. What is the primary type of indirect loss for commercial property? - The loss of profits a business may suffer from closing business while repaired. General damages - compensates an injured person for pain & suffering, mental anguish and disfigurement Open Peril - ANY risk of loss not specifically excluded Named Peril - Specific covered perils. There is no coverage for unlisted perils Special damages - specific out-of-pocket expenses for medical, miscellaneous and loss of wages Property damage loss - value of property and loss of use Punitive damages - form of punishment for extreme, outrageous behavior, gross negligence or willful intent Negligence - failure to use the care that a reasonable, prudent person would have taken under similar circumstances Burglary - forced entry into or out of the premises of another with felonious intent. *Must have visible signs of forced entry or exit* Robbery - taking of property from care or custody of a person through threatening or causing bodily harm. Mysterious disappearance - disappearance of property without knowledge of how it disappeared. *Excluded from most policies* Theft - any act of stealing that encompasses both burglary and robbery Vacancy - No people and no property stored for a period of time (usually 60 days) Unoccupancy - nobody living or working in structure for a period of time, but some property is stored. Blanket insurance - A single property policy that provides coverage for multiple classes of property at one location or multiple classes at multiple locations. Specific insurance - Property policy that covers a specific kind or unit of property for a specific amount of insurance. Loss valuation - How a loss to an insured property will be valued at the time of loss. It is also a factor in determining the premium and amount of insurance required Actual cash value - recognizes reduction of value as property ages and wear & tear Formula for Actual Cash Value (ACV) - Current replacement-depreciation= ACV Replacement cost - cost to replace damaged property with like kind and quality at today's price without deduction for depreciation. * May provide excess of acv Market Value - amount a willing buyer would be willing to pay to a willing seller for the property prior to loss. *seldom used* Stated value - An amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. *scheduled amount is the max insurer will pay* Salvage value - Estimated value an asset will realize upon its sale at the end of its useful life. * may be sold as whole or in part* Absolute liability - imposed on defendants engaged in hazardous activities such as harboring wilding animals, using explosives etc. Which type of liability does not require that the injured party prove negligence? - Absolute liability Strict Liability - Implied warranty that product is safe. The business is then liable for defective products regardless of negligence. * If a product causes injury & claimant can prove defect, defendant will be strictly liable What term comes from old English law "respondeat superior?" - Vicarious Liablility What is vicarious liability? - Being held liable for acts of others. For example: Parents responsible for negligent act of kids or employers liable for employees. What are Limits of Liability? - The maximum amount of money the insurance company will pay for a particular loss or loss during a period of time. What does "per occurrence" mean? - The sublimit in a liability policy that puts a ceiling on payment for all claims that arise from a single accident occurrence In commercial general liability, what is a claims-made form? - It is used for specialty coverages, malpractice, errors & omissions, employment practices, liability, etc.