LOMA 280 key terms

The chance that a loss or other unwanted event will happen. In insurance, it refers to the uncertainty about outcomes and the possibility of financial harm.

A situation offering only the possibility of loss or no change, with no chance of gain. Insurers generally insure pure risks such as fire or accidental injury.

A situation that involves the possibility of either gain or loss, such as investing in a business or gambling. Private insurers typically do not insure speculative risks.

The specific cause of a possible loss, such as fire, windstorm, theft, or collision. A policy lists the perils it covers and those it excludes.

A condition that increases the likelihood or severity of a loss from a peril. Examples include faulty wiring, icy sidewalks, or poor health habits.

A condition in which a person's dishonest tendencies or character increase the chance of loss, such as intentionally causing a fire to collect insurance money.

Carelessness or indifference toward loss because insurance exists, such as leaving a car unlocked or a door open because a policy would pay for theft.

A financial stake in a person or property such that loss or damage would cause a genuine economic hardship. It must exist at the time of loss for property insurance.

A statistical principle holding that as the number of similar exposure units increases, actual results come closer to expected results, making losses more predictable for insurers.

The tendency of people with greater-than-average risk to seek or keep insurance more eagerly than lower-risk people, which can raise costs for an insurer.

The process of evaluating an applicant's risk and deciding whether to accept it, what premium to charge, and on what terms a policy will be issued.

The amount a policyholder pays an insurer in exchange for insurance coverage. It reflects expected losses, expenses, and a margin for profit and contingencies.

The written contract between an insurer and a policyholder that states the promises, conditions, exclusions, and limits of the coverage provided.

The company that assumes risk by issuing an insurance policy and promises to pay covered claims in return for premiums.

The person or entity that owns an insurance policy and typically pays the premium, whether or not that person is the insured life or covered property.

The person, group, or property protected by an insurance policy. The insured may differ from the policyholder, as when a parent insures a child.

The person or entity named to receive policy proceeds, typically in life insurance, when the insured dies or another specified event occurs.

The principle that insurance should restore a policyholder to approximately the same financial position as before a loss, not create a profit from it.

Insurance purchased by an insurer from another insurer to spread risk, protect against large or catastrophic losses, and increase its capacity to write business.

The amount of a covered loss a policyholder must pay before the insurer begins to pay. A higher deductible usually lowers the premium.

A cost-sharing arrangement in which the insured and insurer split covered costs in a stated proportion, or a property clause requiring coverage of a minimum percentage of value.

A method of valuing insured property as replacement cost minus depreciation. It reflects what the damaged item was worth just before the loss.

The amount needed to repair or rebuild damaged property with new materials of similar kind and quality, without subtracting depreciation.

The stated sum payable under a life insurance policy on the death of the insured, unless reduced by loans, withdrawals, or other policy provisions.

The money an insurer pays to a beneficiary when the insured person dies while the life insurance policy is in force and premiums are current.

The savings component of a permanent life insurance policy that builds over time and may be borrowed against or received if the policy is surrendered.

Life insurance that provides protection for a specified period, such as 10 or 20 years, and pays a benefit only if death occurs during that term.

Life insurance that stays in force for the insured's whole life, provided premiums are paid, and that typically accumulates a cash value.

A contract in which an insurer makes a series of payments to a person, often used to provide retirement income in exchange for a lump sum or periodic deposits.

Coverage that pays for or reimburses medical expenses, such as hospital care, physician visits, and prescriptions, and may also provide disability income benefits.

Coverage that replaces part of a person's earned income when illness or injury prevents the person from working for a specified period.

Coverage that protects against financial loss from damage to or destruction of real and personal property, such as a home, vehicle, or business building.

Coverage that protects against legal liability for harm to others and losses from accidents, such as auto liability or workers' compensation claims.

Coverage that pays amounts an insured becomes legally obligated to pay because of injury or damage to another person or that person's property.

A policy provision that specifies losses or situations the policy does not cover, such as intentional acts, war, or normal wear and tear.

A property policy that covers only the perils specifically listed in the contract, leaving all other causes of loss uninsured.

The person who investigates a reported loss, determines whether the policy covers it, and estimates the amount the insurer should pay.

A professional who uses mathematics and statistics to estimate future losses, set premiums, and evaluate the financial soundness of an insurer's reserves.