General Insurance Applications (GIA) flashcards

31 cards. Read the term and the definition here. The deck at the top of this page is optional.

Pure risk

A risk situation with only two outcomes: loss or no loss. It is the primary focus of insurance because losses are accidental and measurable, unlike speculative risk.

Insurable interest

A financial stake in the preservation of a person or property such that loss would cause genuine economic harm. It must exist for the contract to be enforceable.

Law of large numbers

Statistical principle stating that as the number of similar independent exposure units grows, actual loss results converge on expected results, making future losses more predictable for insurers.

Indemnity principle

The insured should be restored to approximately the same financial position held before the loss, neither better nor worse, preventing profit from insurance and reducing moral hazard.

Utmost good faith

A heightened duty requiring both insurer and applicant to deal honestly and disclose all material facts. Breach through misrepresentation or concealment can allow the insurer to rescind coverage.

Subrogation

After paying a covered loss, the insurer acquires the insured's legal right to recover from the responsible third party, preventing duplicate recovery and helping hold wrongdoers accountable.

Risk retention

A risk management technique in which the individual or business absorbs losses itself, using deductibles, self-insurance, or reserves rather than purchasing transfer coverage.

HO-3 policy form

A homeowners form insuring the dwelling and other structures on an open-peril basis while personal property is covered for named perils only, making it the most common homeowners form.

HO Coverage D

Loss of use coverage that pays additional living expenses and fair rental value when a covered peril makes the residence uninhabitable, typically for a stated time period.

Replacement cost 80% condition

Dwelling losses settle at replacement cost only if the limit is at least 80% of full replacement cost. Otherwise payment is reduced proportionally to the amount carried.

Personal auto liability split limits

Three separate caps stated as per-person bodily injury, per-accident bodily injury, and per-accident property damage, such as 100/300/50 in thousands of dollars.

Personal articles floater

A scheduled endorsement covering valuables such as jewelry on an open-peril, worldwide, agreed-value basis, usually with no deductible and requiring appraisal or receipt documentation.

Personal umbrella liability

Excess liability coverage over homeowners and auto policies that responds after underlying limits are exhausted, with a self-insured retention for uncovered exposures.

Flood exclusion

Homeowners and most property policies exclude flood and surface water damage. Separate flood coverage, often federally backed, is required to fill that gap.

Medical payments coverage

Pays reasonable medical expenses for others injured on the insured premises or by the insured's activities, regardless of fault, subject to a per-person limit.

Commercial general liability

A commercial policy covering bodily injury and property damage liability, personal and advertising injury, and medical payments arising from the insured's premises, operations, and products.

Claims-made trigger

Coverage responds to claims first made during the policy period, subject to a retroactive date, rather than to when the injury or damage actually occurred.

Business income coverage

Pays lost net income plus continuing normal operating expenses during the period of restoration after covered property damage, often after a short waiting period.

Coinsurance clause

A property provision requiring the insured to carry limits at a stated percentage of value; otherwise recovery is reduced by the ratio of carried limit to required limit.

Workers compensation

Statutory coverage providing medical benefits and wage replacement for employees injured on the job, generally without regard to fault, plus employer liability protection.

Commercial auto symbols

Numerical designations on a business auto policy that identify which autos are covered, such as any auto, owned autos, hired autos, or non-owned autos.

Equipment breakdown coverage

Covers loss from accidental breakdown of covered machinery and equipment, such as electrical arcing or motor burnout, which standard property forms typically exclude.

Combined ratio

The sum of the loss ratio and expense ratio. A result below 100 percent indicates an underwriting profit; above 100 percent indicates an underwriting loss.

Treaty reinsurance

An automatic agreement in which the reinsurer accepts a defined share or layer of all business within a specified class written by the ceding insurer.

Facultative reinsurance

Reinsurance negotiated separately for an individual risk, allowing the insurer and reinsurer to accept or decline each submission independently of any standing agreement.

Premium audit

A post-term review of exposure bases such as payroll or sales that adjusts the premium charged to reflect actual exposure rather than the estimate used at inception.

Unearned premium reserve

A liability representing the portion of written premium not yet earned, which must be returned if a policy cancels before expiration.

McCarran-Ferguson Act

Federal law confirming that states regulate the business of insurance and exempting insurance from most federal antitrust law to the extent it is state-regulated.

Twisting

An unfair trade practice in which a producer induces a policyholder to lapse or surrender coverage through misleading or incomplete comparisons of policies.

Rebating

Offering any inducement not specified in the policy, such as cash or gifts, to persuade a buyer to purchase insurance. Prohibited in most states.

Fiduciary premium duty

A producer holding premiums in a fiduciary capacity must keep them segregated from personal or operating funds and remit them to the insurer promptly as required.