Insurance Principles and Concepts
Core vocabulary
Risk is uncertainty about loss. A peril is the cause of loss (fire, windstorm, collision). A hazard is a condition that increases the chance or severity of loss. Physical hazards are tangible - oily rags near a furnace. Moral hazard is dishonesty (arson for insurance proceeds). Morale hazard is carelessness or indifference (leaving a building unlocked). Exam questions constantly swap these words; read slowly.
What makes a risk insurable
Many similar exposure units, losses that are accidental, definite and measurable, losses that are not catastrophic to the insurer, and a calculable premium. The law of large numbers is what makes prediction work.
Contract principles
The policy is a contract of adhesion (insurer drafts it, so ambiguity is resolved in favor of the insured), aleatory (unequal exchange of value), unilateral (only the insurer makes an enforceable promise), and of utmost good faith. Insurable interest must exist at the time of loss for property coverage, but only at inception for life insurance - a favorite trap. Indemnity restores the insured to roughly the pre-loss financial position; life insurance and valued policies are exceptions. Subrogation and other insurance/contribution exist to protect the indemnity principle. Waiver is the voluntary surrender of a known right; estoppel prevents an insurer from denying a right after the insured reasonably relied on its conduct.
Rule of thumb
For every fact pattern ask two questions: what was the cause of loss (peril), and what condition made that loss more likely or more severe (hazard)? Example: a restaurant stores greasy rags beside a furnace (physical hazard) and the owner ignores the sprinkler inspection (morale hazard); a fire is the peril.