| GENERAL CONCEPTS |
| Insurance |
- Transfers the risk of loss from an individual to an insurer
- Based on the principle of indemnity
- Based on the spreading of risk (risk pooling) and the law of large numbers
|
| Hazards | Hazards give rise to a peril. There are 3 kinds of hazards:
- Physical - physical condition;
- Moral - a tendency toward increased risk;
- Morale - an indifference to loss
|
| Risk |
- Uncertainty regarding financial loss
- 2 types of risks:
- Pure - insurable because it involves a chance of loss only;
- Speculative - not insurable because it involves a chance of gain
- Methods of handling risk:
- Avoidance
- Retention
- Sharing
- Reduction
- Transfer
|
| Elements of Insurance Risk |
All of the following elements apply to an insurable risk:
- Due to chance: chance of loss beyond insured's control
- Definite and measurable: loss must have definite time, place and amount
- Predictable: number of losses must be statistically predictable
- Not catastrophic: there must be limits that the loss can't exceed
- Large exposure: insurer must be able to predict losses based on the law of large numbers
- Randomly selected exposure: insurer must have a fair proportion of both good and poor risks
|
| INSURERS |
| Stock |
- Owned by stockholders
- Issue nonparticipating policies (nonpar)
|
| Mutual |
- Owned by policyowners (policyholders)
- Issue participating policies (par)
- Pay dividends to policyholders which are a refund of excess premiums
|
| Fraternal Benefit Society |
- Not for profit organization
- Benevolent and charitable brotherhood
- Membership based on religious, national or ethnic lines
- Must be a member to receive benefits
|
| AGENT'S AUTHORITY |
| Express |
Powers specifically stated in the contract
|
| Implied | Not specifically stated in the contract, but is assumed necessary to conduct insurance business |
| Apparent | The appearance of a relationship between the agent and principal based on words or actions |
| COMPANY DOMICILE AND AUTHORIZATION |
| Domicile |
- Domestic - incorporated in this state
- Foreign - incorporated in another state of territory
- Alien - incorporated in another country
|
Authorized/
Admitted |
- Approved by the Department of Insurance
- Has a Certificate of Authority
|
Unauthorized/
Nonadmitted |
- No Certificate of Authority
- Cannot transact business in this state
|
| INSURANCE CONTRACTS |
| Elements of a Legal Contract |
All of the following requirements apply:
- Agreement: offer and acceptance
- Consideration: premiums and representations on the part of the insured; payment of claims on the part of the insurer
- Competent parties: of legal age, sound mental capacity, and not under the influence of drugs or alcohol
- Legal purpose: not against public policy
|
| Contract Characteristics |
- Adhesion - one party prepares the contract; the other party must accept it as is
- Aleatory - exchange of unequal amounts
- Conditional - certain conditions must be met
- Personal - between the policyowner and the insurance company
- Unilateral - only one of the parties to the contract is legally bound to do anything
|
| Legal Interpretations |
- Ambiguities in the contract are always resolved in favor of the insured
- The insured can reasonably expect coverage based on the agent's words and actions
- Utmost good faith - parties rely on each other for information
- Material misrepresentations(if intentional), breach of warranties, concealment, fraud - all can void the contract
- Waiver - voluntary act of relinquishing a legal right; estoppel - consequence of a waiver
|