General Insurance Concepts
Core vocabulary
Risk is uncertainty about loss. Insurance handles pure risk (loss or no loss) - never speculative risk (chance of gain), which is why gambling and ordinary business investment are uninsurable. A peril is the cause of loss (fire, wind, theft); a hazard is a condition that increases the chance or severity of loss: physical (icy steps), moral (dishonesty, such as faking a claim), morale (carelessness, such as leaving keys in a car), and legal (a court climate of large verdicts).
Principles that decide claims
Insurable interest must exist at the time of loss for property and at policy inception for life. Indemnity means restoring the insured to roughly the pre-loss position - no profit. Actual cash value (replacement cost minus depreciation) enforces indemnity; replacement cost coverage modifies it. Subrogation lets the insurer pursue the at-fault party after paying, supporting indemnity and preventing double recovery; an insurer cannot subrogate against its own insured.
Utmost good faith governs the application: representations are believed true to the best of the applicant's knowledge, warranties are stricter promises, and concealment or fraud can void coverage. The policy is a contract of adhesion (written by the insurer; ambiguities are construed against the drafter), aleatory (unequal exchange of values), unilateral (only the insurer makes an enforceable promise), and conditional (duties after loss must be met).
Liability basics
Negligence requires duty, breach, proximate cause, and damages. Defenses include contributory negligence, comparative negligence, and assumption of risk. Vicarious liability holds one party responsible for another's acts; strict liability applies to inherently dangerous activities and defective products.
Rule of thumb
Ask cause or condition: fire is the peril; oily rags are the hazard. Then ask when: insurable-interest timing is the classic trap.