Property & Casualty Insurance Fundamentals Flashcard

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Peril (in insurance terms)

Back

The cause of loss, such as fire or theft

Answer explanation

In insurance, 'peril' refers to the specific cause of loss, such as fire or theft. This definition distinguishes it from other terms related to insurance, making 'The cause of loss, such as fire or theft' the correct choice.

Front

Which type of insurer is incorporated in another U.S. state?

Back

Foreign

Answer explanation

A foreign insurer is one that is incorporated in a state other than the one in which it is operating. Therefore, the correct answer is 'Foreign', as it refers to insurers incorporated in another U.S. state.

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What is the role of an underwriter in insurance?

Back

To evaluate risk and determine eligibility and pricing

Answer explanation

The correct choice is to evaluate risk and determine eligibility and pricing. Underwriters assess potential policyholders' risk levels to set appropriate premiums and ensure the insurer's financial stability.

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What does the term 'admitted' refer to in insurance?

Back

An insurer authorized to transact business by the state

Answer explanation

In insurance, 'admitted' refers to an insurer that is authorized by the state to conduct business. This means the insurer meets regulatory requirements and can offer policies in that state.

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What is the principle of indemnity in insurance?

Back

The policy restores the insured to their pre-loss condition without profit

Answer explanation

The principle of indemnity ensures that the policy restores the insured to their pre-loss condition without allowing them to profit from the loss, making the second choice the correct answer.

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What is a requirement for a valid insurance contract?

Back

The contract must have a lawful objective

Answer explanation

For an insurance contract to be valid, it must have a lawful objective. This means the purpose of the contract cannot involve illegal activities, making this choice the correct requirement.

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What does 'loss ratio' measure in insurance?

Back

The profitability of underwriting

Answer explanation

The 'loss ratio' measures the profitability of underwriting by comparing losses incurred to premiums earned. A lower loss ratio indicates better profitability, making this the correct choice.

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What is an example of a 'conditional' insurance contract?

Back

The insured must report claims timely for coverage to apply

Answer explanation

A 'conditional' insurance contract requires certain conditions to be met for coverage. The correct choice, 'The insured must report claims timely for coverage to apply,' highlights this condition, as timely reporting is essential for claim eligibility.

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What is the purpose of deductibles in insurance policies?

Back

To control insurer costs by having the insured share in the loss

Answer explanation

Deductibles in insurance policies serve to control insurer costs by requiring the insured to share in the loss. This reduces the number of small claims and encourages responsible behavior, ultimately benefiting both parties.

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Occurrence (in insurance terms)

Back

A sudden or repeated exposure to conditions resulting in loss

Answer explanation

In insurance, 'occurrence' refers to a sudden or repeated exposure to conditions that result in loss, making it crucial for determining coverage and claims.