Insurance Principles and Concepts
Core vocabulary
Risk is uncertainty about loss; insurance handles only pure risk (loss or no loss), never speculative risk. Separate the three look-alikes: risk (the chance of loss), peril (the cause - fire, wind, theft) and hazard (a condition that raises the chance or severity - physical, moral, morale).
Contract principles
A policy is a contract of adhesion (insurer-drafted; ambiguities construed against the insurer), aleatory (unequal dollar exchange), unilateral (only the insurer makes an enforceable promise) and one of utmost good faith - so representations, warranties and concealment matter. Indemnity restores the insured to the pre-loss financial position, never better; that is why limits and ACV exist. Insurable interest must exist at the time of loss for property (you cannot collect on a neighbor's burning house) but only at inception for life insurance. Subrogation transfers the insured's recovery right to the insurer after payment and blocks double recovery.
Insurers, agents, authority
Know stock vs mutual vs reciprocal vs captive/risk retention group vs surplus lines vs residual market (FAIR plan, workers compensation assigned risk pool). Producer authority is express, implied (acts incidental to the grant) or apparent (created by the insurer's own conduct). Classic trap: the insurer is bound by apparent authority even when the agent disobeyed express instructions. A binder gives temporary coverage; the producer holds premiums in a fiduciary capacity.
Rule of thumb
ACV = replacement cost − depreciation. A 20-year roof with 10 years of life left and a $20,000 replacement cost has an ACV near $10,000; paying that - not $20,000 - satisfies indemnity.