General Insurance Concepts
Risk, peril, and hazard
Risk is uncertainty about loss. A peril is the cause of loss (fire, accident, death). A hazard is a condition that increases the chance or severity of loss: physical (icy steps), moral (dishonesty, such as hiding a smoker's history), or morale (indifference, such as skipping a seat belt because disability coverage exists). Insurance handles pure risk (loss or no loss) and rejects speculative risk (chance of gain), which is why a policy taken out on a stranger's life is void.
Insurable interest and utmost good faith
Life insurance requires insurable interest at policy issue; property insurance requires it at the time of loss. Contract principles fill in the rest: representations are statements believed true, warranties are guaranteed, and concealment or material misrepresentation of a fact lets the insurer rescind the contract. Waiver (giving up a known right) and estoppel (being barred from denying it later) limit an insurer that acts inconsistently.
Indemnity and pooling
Indemnity restores the insured to the pre-loss financial position; life insurance is a valued contract because a life cannot be priced, so the face amount is agreed in advance. The law of large numbers lets insurers predict losses across a large, similar pool, while adverse selection - poor risks seeking coverage - is countered by underwriting, exclusions, and waiting periods.
Insurers, agents, and reinsurance
Stock insurers are owned by shareholders; mutuals by policyholders; fraternals by members; reciprocals by subscribers through an attorney-in-fact. Reinsurance (treaty or facultative) spreads risk; retention is the portion kept. An agent represents the insurer; a broker represents the applicant.
Worked rule of thumb
Classify the hazard before answering: the condition is physical, dishonesty is moral, and carelessness because insured is morale.