General Insurance Concepts
Core vocabulary
Risk is uncertainty about loss; peril is the cause of loss; hazard increases the chance or severity of loss. Insurance deals mainly with pure risk (loss or no loss), not speculative risk (gain or loss). Insurable interest is a financial interest that would suffer loss; it is required at inception for life insurance and at the time of loss for property. Indemnity restores the insured to approximately the pre-loss financial position, subject to limits, deductibles, and coinsurance.
Managing risk
People retain, avoid, reduce, share, or transfer risk. Insurance transfers risk to an insurer. Insurers rely on the law of large numbers to predict losses, and they guard against adverse selection through underwriting. Moral hazard is dishonesty or careless behavior; morale hazard is indifference to loss. Insurance contracts are aleatory, unilateral, contracts of adhesion, and require utmost good faith. Representations are statements believed true; warranties are promised as true; concealment is intentional withholding of material facts.
Traps
Do not confuse peril with hazard. Insurable interest in life insurance is measured at policy issue, not at death. Subrogation and coinsurance are property/casualty ideas but appear in general-concept questions. A deductible is not a policy limit.
Rule of thumb
Ask whether the uncertainty can produce only loss (pure) or also gain (speculative); only pure risk is insurable.