General Insurance Concepts
Risk and insurability
Insurance handles pure risk - chance of loss only - not speculative risk, which offers gain or loss. Losses are insurable when they are accidental, definite and measurable, large enough to matter, calculable across a pool, and not catastrophic to the insurer. Adverse selection (high-risk buyers seeking coverage) is controlled by underwriting, and the law of large numbers makes predictions reliable as the pool grows. Risk is managed by avoidance, retention, sharing, reduction, and transfer.
Contract characteristics
Insurance policies are contracts of adhesion (the insurer writes, the buyer accepts), aleatory (the values exchanged are unequal), and require utmost good faith - hence warranties, representations, and the duty to disclose material facts. Concealment and material misrepresentation allow the insurer to rescind.
Principles that differ between life and health
Indemnity restores the insured to approximately the pre-loss financial position. Life insurance is a valued contract that pays a stated face amount, not a reimbursement, and it pays regardless of other coverage. Subrogation - the insurer standing in the insured's shoes to recover from a third party - applies in property-casualty and in some health claims, but generally not in life insurance.
The insurable-interest trap
In life insurance, insurable interest must exist at policy issue, not at death. A business partner, key employee, or creditor may insure another's life; a stranger may not. Questions often shift the timing, so read the date carefully.
Rule of thumb
For "is this insurable?" run the checklist: pure risk, definite, accidental, measurable, affordable, calculable. For "who may insure X?" ask who would suffer a financial loss if X died today.