III IC-77 flashcards

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

Pure risk

A situation with only two outcomes: loss or no loss. It is the classic insurable risk because the downside is measurable and no gain is possible.

Moral hazard

A condition of dishonesty or intentional behavior that increases the likelihood or size of a loss, such as arson or exaggerated claims, prompting exclusions and deductibles.

Law of large numbers

Statistical principle stating that as the number of independent similar exposure units increases, actual loss experience converges on expected loss, making premiums more predictable.

Insurable interest

A financial relationship in which the insured benefits from the continued existence of the subject matter and suffers loss if it is destroyed. Required for a valid contract.

Utmost good faith

The mutual duty of insurer and insured to disclose all material facts relevant to the risk. Breach may allow the wronged party to avoid the contract.

Principle of indemnity

Restores the insured to the same financial position held before the loss, no better and no worse. It prevents profit from insurance and underpins property claims.

Subrogation

After paying a claim, the insurer acquires the insured's legal right to recover the loss from the negligent third party, preventing double recovery by the insured.

Proximate cause

The dominant, effective, and direct cause linking a peril to a loss. Remote or incidental causes do not trigger cover under named-peril policies.

Contribution

When two or more policies cover the same loss, each insurer pays its rateable share so total payment does not exceed the actual loss.

Term life insurance

Pure death protection for a fixed period with no cash value. Pays the sum insured only if the insured dies within the term.

Whole life policy

Permanent cover with level premiums, guaranteed death benefit, and accumulating cash value. Participating versions may pay dividends.

Universal life

Flexible-premium permanent policy separating protection from savings. Cash value earns credited interest; mortality and expense charges are deducted periodically.

Incontestability clause

After a stated period, usually two years, the insurer cannot contest the policy for misrepresentation except for non-payment of premium or fraud.

Suicide clause

Policy provision limiting or excluding death benefit if the insured dies by suicide within a stated period, typically one or two years, from inception.

Average clause

Underinsurance provision: claim equals loss multiplied by sum insured divided by value at risk. Applied when the sum insured is below the required value.

Deductible or excess

The first amount of each loss borne by the insured before the insurer pays. It reduces small claims and moral hazard.

Reinstatement value

Settlement basis replacing damaged property with new equivalent without deducting depreciation, usually subject to a sum insured adequate for full replacement.

Business interruption cover

Pays lost profit and continuing fixed costs following an insured property loss, subject to an indemnity period and a defined gross profit basis.

Standard fire perils

Basic fire policy covers fire, lightning, and explosion of domestic gas. Other perils such as storm or flood require extension endorsements.

Valued policy

Property policy stating an agreed value for the subject matter, paid in full on total loss without further proof of value.

Co-payment

A fixed amount the insured pays per service or visit, with the insurer covering the balance. It controls utilization and moral hazard.

Pre-existing condition

A health condition diagnosed or treated before the policy began. Insurers may exclude it, apply a waiting period, or charge a higher premium.

Critical illness cover

Pays a lump sum on diagnosis of a listed condition after a survival period. It is not reimbursement and can cover income loss.

General average

Marine principle: a voluntary sacrifice of cargo or ship to save the venture, with the loss shared proportionally among all parties saved.

Institute Cargo Clauses A

All-risks marine cargo cover with few exclusions. Broader than B and C clauses, which list named perils only.

Hull and machinery cover

Marine insurance on the vessel itself, covering physical damage from perils of the sea, collision, fire, and latent defects under the Inchmaree clause.

No-claim discount

Motor premium reduction earned for claim-free years. It is reduced or reset after an at-fault claim, rewarding safe driving.

Own-damage cover

Motor cover insuring the insured's own vehicle against accident, fire, theft, and natural perils, in addition to compulsory third-party liability.

Claims-made policy

Responds to claims first made during the policy period, regardless of when the act occurred, subject to a retroactive date.

Professional indemnity

Covers liability for negligent acts, errors, or omissions in professional services. Usually claims-made with a retroactive date.

Solvency margin

The excess of admissible assets over required liabilities, providing a buffer against unexpected losses. Regulators set minimum thresholds.

IBNR reserve

Incurred but not reported reserve: funds set aside for claims that have occurred but not yet been notified to the insurer.