General Insurance Concepts
Core vocabulary
Insurance transfers pure risk (loss or no loss); speculative risk (chance of gain) is not insurable. A peril is the cause of loss (fire, death, accident); a hazard increases the chance or severity of loss - physical (icy steps), moral (intentional dishonesty), or morale (indifference, such as leaving a car unlocked). Adverse selection is the tendency of poor risks to seek coverage; underwriting, exclusions and pricing control it, and the law of large numbers makes prediction workable across large groups.
Contract features
A valid insurance contract needs offer and acceptance, consideration, legal purpose and competent parties. It is a contract of adhesion (insurer drafts, ambiguity is construed against the drafter), aleatory (unequal exchange), unilateral (only the insurer can be sued for breach), conditional (benefits depend on conditions), and one of utmost good faith (no concealment or misrepresentation). Indemnity restores the insured to pre-loss financial position; life insurance is valued rather than indemnity, so subrogation generally does not apply to life policies.
Authority and legal doctrines
Agents may hold express authority (written in the agency agreement), implied authority (customary acts), or apparent authority (what a reasonable third party believes based on the insurer's conduct). Insurers are bound by apparent authority. Waiver is voluntary surrender of a known right; estoppel prevents a party from asserting a right after conduct that misled another. Representations are believed true; warranties are guaranteed true; concealment is intentional silence about material fact.
Rule of thumb
Ask two questions: does the insured lose money or make money (pure versus speculative), and must the interest exist at purchase or at loss? Life insurance requires insurable interest at application only; property insurance requires it at the time of loss.