Insurance Concepts and Principles

Elements of Insurable Risks

• Risks must be measurable, accidental, and not catastrophic to be insurable.

• All risks are insurable regardless of their nature.

• Only catastrophic risks can be insured.

• Gambling losses are always insurable.

Policy Structure: Conditions

• Obligations of both parties, such as premium payment, proof of loss, and cooperation during claims.

• Only the insurer's obligations regarding claims processing.

• Conditions that apply only to the policyholder's responsibilities.

• General terms and conditions that do not specify obligations.

Authority and Powers of Producers: Implied

• Written powers explicitly stated in a contract.

• Not written but necessary to do the job. Example: Scheduling client meetings.

• Powers that are only verbal and not documented.

• Powers that can be revoked at any time.

Distinct Characteristics of Insurance Contracts: Conditional Contract

• Obligations depend on certain conditions. Example: Insured must file a claim to receive payment.

• Obligations are fixed and do not change over time.

• Obligations are only applicable if the insurer decides to pay.

• Obligations are based on the insured's previous claims history.

Negligence

• Failure to exercise reasonable care.

• A legal term for intentional harm.

• A type of insurance coverage.

• A method of conflict resolution.

Utmost Good Faith

• Both parties must act honestly and disclose all material facts during the insurance transaction.

• Only the insurer must disclose all material facts during the insurance transaction.

• Both parties can withhold information if it benefits them.

• The insured must act in good faith, but the insurer does not have to.

Insurable Interest

• A person must have a lawful and substantial economic interest in the property insured.

• Anyone can insure any property they wish.

• Insurable interest is not necessary for a valid insurance policy.

• Only the owner of the property can have insurable interest.

Policy Structure: Additional/Supplementary Coverage

• Extra coverages included without additional premium, such as debris removal or fire department service charges.

• Coverage that requires an additional premium for specific risks.

• Basic coverage that does not include any additional services.

• A type of insurance that only covers property damage.

Causes of Loss (Perils): Special/Open Perils

• All perils covered unless excluded.

• Only specific perils are covered.

• No perils are covered under this policy.

• Only natural disasters are covered.

Damages: Compensatory

• Special: Quantifiable (medical bills, lost wages).

• General: Non-economic (pain, suffering).

• Special: Non-quantifiable (emotional distress).

• General: Economic (property damage).