Insurance Principles and Concepts
Insurance transfers the financial consequences of fortuitous loss from one person to a pool of similarly exposed policyholders. Six ideas carry most of the exam weight: risk pooling and the law of large numbers (predictability improves as exposure units grow), insurable interest (the insured must suffer genuine pecuniary loss), indemnity (restore, don't enrich), fortuity (intentional or certain loss is not covered), subrogation (after paying, the insurer steps into the insured's shoes against the responsible party), and utmost good faith (material disclosure by the applicant, fair dealing by the insurer).
Classify the contract correctly. It is a contract of adhesion (insurer-drafted, so ambiguity is construed against the drafter - contra proferentem), aleatory (performance depends on chance), and conditional (coverage depends on the insured honoring duties after loss). Separate the three hazards: physical (icy stairs), moral (dishonest intent to create or inflate a loss), and morale (indifference or carelessness because insurance exists).
Traps that show up repeatedly: confusing indemnity with "new for old" - replacement cost is a contractual enhancement, not a principle; assuming an adjuster's casual remark waives a policy condition (authority and reliance matter); mixing "proximate cause" with "efficient proximate cause" without reading the policy's concurrent-causation language; and treating coinsurance (a limit-to-value credit/penalty mechanism in commercial property) as a copayment.
Rule of thumb: if paying the claim would leave the insured financially better off than before the loss, re-examine the valuation method, the deductible, and the subrogation position before issuing payment.