General Insurance Principles and Concepts
Risk, peril, and hazard
Insurance transfers pure risk (loss or no loss), not speculative risk (loss, no loss, or gain). A peril is the cause of loss - fire, wind, theft. A hazard is a condition that increases the chance or severity of loss: a frayed cord, icy stairs, poor housekeeping. Hazards come in flavors examiners love to blur - physical (tangible conditions), moral (dishonesty, such as arson for profit), and morale (indifference or carelessness because insurance exists). The law of large numbers lets an insurer predict losses across a large pool of similar exposures; adverse selection, the tendency of poor risks to seek coverage, undermines that prediction and drives underwriting.
Contract characteristics
Insurance policies are contracts of adhesion, drafted by the insurer, so ambiguities are construed against the drafter. They are aleatory (unequal exchange of value), unilateral (only the insurer makes an enforceable promise once premium is paid), conditional (benefits depend on the insured's compliance with duties), and built on utmost good faith. Insurable interest must exist at the time of loss for property and casualty coverage. Know the difference between a representation (believed true), a warranty (guaranteed), and concealment (intentional withholding of a material fact).
Indemnity and its supporting clauses
Property insurance indemnifies - it restores the insured, never profits them. That principle explains actual cash value versus replacement cost, subrogation, and other insurance provisions: all exist so a loss is not paid twice.
Rule of thumb
Five elements make a contract enforceable - offer, acceptance, consideration, legal purpose, and competent parties. A binder supplies temporary evidence of coverage on the same terms as the policy to be issued; always confirm it in writing.