Insurance Principles and Concepts
Vocabulary that drives every question
Insurance transfers pure risk (loss or no loss). Speculative risk (chance of gain) is not insurable. A peril is the cause of loss - fire, windstorm, theft. A hazard is a condition that increases the chance or severity of loss: physical (icy steps, oily rags), moral (dishonesty, intent to defraud), morale (carelessness), and legal (a court climate that inflates awards).
The insurable-risk test
Losses should be accidental, definite and measurable, calculable in the aggregate (law of large numbers), spread over many similar exposure units, not catastrophic to the insurer, and the premium must be economically feasible. Adverse selection - attracting only the worst risks - is what underwriting exists to control.
Contract doctrines
Insurable interest: for property it must exist at the time of loss; for life, at application. Indemnity restores the insured to pre-loss condition, never better. Subrogation supports indemnity by letting the insurer pursue the negligent third party after paying the claim. Contribution splits a loss among insurers covering the same interest. Utmost good faith demands truthful representations (a material misstatement voids coverage), no concealment, and compliance with warranties. The policy is a contract of adhesion (ambiguity is construed against the insurer), conditional (duties are owed), unilateral (only the insurer makes an enforceable promise), and personal.
Traps
Peril vs. hazard confusion; subrogation vs. contribution; treating a warranty as if it were a representation; ignoring waiver and estoppel - an agent's act or the insurer's delay can surrender a right the insurer otherwise held.
Rule of thumb
Ask "what happened?" for the peril and "what made it happen or made it worse?" for the hazard. Ice on the walkway is a hazard; the fall is the peril.