General Insurance Concepts and Contract Fundamentals
Risk vocabulary
Risk is uncertainty of loss; peril is the cause of loss (fire, death, illness); hazard increases the chance or severity of loss (physical, moral, morale). Insurance handles pure risk (loss or no loss), never speculative risk (chance of gain). Insurers rely on the law of large numbers and fight adverse selection through underwriting. Indemnity restores the insured to pre-loss financial position - the reason life insurance is valued by contract rather than by loss.
Contract characteristics
Life and health policies are contracts of adhesion (written by the insurer, ambiguities construed against it), aleatory (unequal exchange of values), unilateral (only the insurer makes a legally enforceable promise), and conditional (benefits depend on conditions being met). They require offer, acceptance, consideration, legal purpose, and competent parties. Applicants owe utmost good faith; false statements may be representations (true to the best of knowledge) or warranties (strictly true). Waiver is voluntary surrender of a known right; estoppel prevents the insurer from later asserting that right.
Agency authority
Express authority is written in the agency contract; implied authority is what is reasonably necessary to do the job; apparent authority arises from the insurer's own words or actions. The producer holds premiums in a fiduciary capacity.
Worked example
An applicant for life insurance has a terminal diagnosis he does not disclose. Insurable interest is measured at policy inception, but material misrepresentation or concealment in the application can let the insurer rescind within the contestable period. Contrast property insurance, where subrogation and indemnity limit recovery to actual loss.