General Insurance Concepts
Risk and its elements
Risk is uncertainty about loss. A peril is the cause of loss (fire, wind, collision); a hazard increases the chance that a peril will operate - physical (icy steps, oily rags), moral (deliberate fraud, arson for profit), or morale (carelessness because insurance exists). Insurance handles pure risk (loss or no loss) and avoids speculative risk (chance of gain), which is why gambling and ordinary investing are uninsurable.
Contract characteristics
A policy is a contract of adhesion (the insurer drafts the terms, so ambiguities are construed against it), aleatory (unequal dollar exchange), unilateral (only the insurer makes an enforceable promise), conditional (duties after loss must be met), and personal (it insures the insured's interest, not the property itself). Insurable interest must exist at the time of loss for property insurance and at inception for life insurance. Utmost good faith produces the rules on representations, warranties, and concealment, while waiver and estoppel can prevent an insurer from denying a coverage right it knowingly granted.
Indemnity mechanics
Indemnity restores the insured to approximately pre-loss condition. Actual cash value = replacement cost minus depreciation. Replacement cost pays new-for-old without a depreciation deduction. Coinsurance, deductibles, and policy limits are the tools that share loss and discourage underinsurance.
Worked example
A roof with a $40,000 replacement cost is depreciated 25% ($10,000). ACV is $30,000. With a $1,000 deductible the insured collects $29,000 under an ACV policy, but $39,000 under a replacement cost policy. Rule of thumb: subtract depreciation only under ACV, then subtract the deductible.