General Insurance Concepts
Risk vocabulary
Risk is uncertainty of loss; peril is the cause of loss (fire, death, illness); hazard increases the chance or severity of loss. Hazards are physical (icy steps), moral (dishonesty, fraud intent), or morale (indifference, e.g., not locking a door because insurance exists). Only pure risk (loss or no loss) is insurable; speculative risk (business, gambling) is not.
Characteristics of insurance contracts
Life and health policies are contracts of adhesion (insurer writes, insured accepts), unilateral (only the insurer makes an enforceable promise), aleatory (unequal exchange of value), and conditional (benefits depend on conditions being met). They require utmost good faith: material misrepresentation, concealment, or fraud can void coverage. Ambiguity is construed against the drafter (contra proferentem).
Contract elements and doctrines
Offer (application), acceptance (policy issued), consideration (premium plus truthful statements), legal purpose, competent parties. Representations are believed-true statements; warranties are guaranteed and a breach can void the contract. Waiver is intentional surrender of a known right; estoppel prevents the insurer from later asserting a right it waived if the insured relied on it. Subrogation lets the insurer pursue the at-fault party after paying a claim.
Traps
- Indemnity applies to health and property, not to life: a life policy pays a stated face amount, not "the value of a life."
- Insurable interest in life need exist only at policy issue; in health and property it is generally required at the time of loss.
- Adverse selection is the tendency of higher risks to buy or keep coverage; underwriting and exclusions counter it.
Rule of thumb
Match the treatment to the risk: avoid, retain, share, transfer, or reduce. Insurance is the transfer mechanism - and only for pure, measurable, accidental loss.