General Insurance Concepts
The vocabulary of risk
Risk is uncertainty about loss. Peril is the cause of loss (fire, death, accident). Hazard is a condition that increases the chance or severity of loss - physical (icy steps), moral (dishonest intent), or morale (carelessness). Insurance transfers pure risk (loss or no loss), never speculative risk (loss or gain). The law of large numbers allows insurers to predict group losses; adverse selection - the tendency of poorer-than-average risks to seek coverage - is why underwriting, exclusions, and waiting periods exist. Risk can also be avoided, retained, reduced, or shared.
Contract characteristics
Insurance is a contract of adhesion (drafted by the insurer; ambiguities construed against the drafter), aleatory (unequal exchange of value), unilateral (only the insurer makes an enforceable promise), conditional (benefits depend on conditions), and a contract of utmost good faith. Valid contract elements: offer and acceptance, consideration, competent parties, and legal purpose. Representations are statements believed true; concealment is intentional silence about a material fact; a warranty is a strict promise.
Principles and authority
Insurable interest, indemnity, subrogation, and coinsurance support the indemnity idea; life insurance is an exception because a life cannot be valued. Waiver is voluntary surrender of a known right; estoppel prevents the insurer from reclaiming it after the insured relied on it. Producers act with express, implied, or apparent authority.
Rule of thumb
Coinsurance example: an 80% coinsurance clause on a $200,000 building requires $160,000 of insurance. Carrying $120,000 means a $40,000 loss is paid at 120,000 ÷ 160,000 = 75%, or $30,000, less the deductible.