General Insurance Concepts
Core risk vocabulary
Risk is uncertainty about loss; a peril is the cause of loss (fire, wind); a hazard is a condition that increases the chance or severity (clutter, icy steps). Moral hazard involves dishonesty; morale hazard is carelessness. Insurable interest is a financial stake; in property it must exist at the time of loss, while in life insurance it must exist at inception.
Indemnity and policy mechanics
Indemnity restores the insured to pre-loss financial position, not profit. Subrogation lets the insurer pursue the at-fault party after paying, preventing double recovery. Deductibles share small losses; coinsurance shares underinsurance. Actual cash value is replacement cost less depreciation; replacement cost pays new without depreciation. Occurrence policies respond to injury or damage during the policy period; claims-made policies respond when a claim is made, subject to a retroactive date.
Contract and tort concepts
Insurance contracts are contracts of adhesion, aleatory, unilateral, and of utmost good faith. Representations are believed true; warranties are promised true. Waiver is voluntary surrender of a right; estoppel prevents inconsistent positions. Negligence requires duty, breach, proximate cause, and damages.
Worked example
Building value $500,000, 80% coinsurance, carried $300,000, loss $100,000. Required insurance = $400,000. Recovery = ($300,000/$400,000) × $100,000 = $75,000, subject to the limit. Rule of thumb: coinsurance punishes underinsurance; the deductible is subtracted separately.