Insurance Concepts Flashcard

Front

What is the process insurers use to determine the appropriate premium to charge for a specific risk?

Back

Rate development

Answer explanation

Rate development is the process insurers use to analyze various factors, including risk exposure and historical data, to determine the appropriate premium for a specific risk. This ensures that premiums are aligned with the level of risk.

Front

Which of the following is NOT a type of insurance? Property insurance, Hazard insurance, Health insurance, Life insurance

Back

Hazard insurance

Answer explanation

Hazard insurance is not a standalone type of insurance; it typically refers to coverage for specific risks within property insurance. The other options—property, health, and life insurance—are recognized types of insurance.

Front

What component of an insurance policy specifies what is NOT covered?

Back

Exclusions

Answer explanation

The component of an insurance policy that specifies what is NOT covered is called 'Exclusions'. This section clearly outlines the limitations and exceptions to the coverage provided by the policy.

Front

Which basis of coverage compensates for the replacement cost minus depreciation?

Back

Actual Cash Value (ACV)

Answer explanation

Actual Cash Value (ACV) compensates for the replacement cost of an item minus depreciation, reflecting its current value. This distinguishes it from Replacement Cost, which covers full replacement without depreciation.

Front

What type of hazard involves dishonest behavior, such as faking a claim?

Back

Moral hazard

Answer explanation

Moral hazard refers to situations where dishonest behavior, like faking a claim, occurs because individuals may take risks knowing they are protected from the consequences. This distinguishes it from other types of hazards.

Front

Which type of peril policy covers all risks except those specifically excluded?

Back

Special (Open) Perils

Answer explanation

A Special (Open) Perils policy covers all risks except those specifically excluded in the policy. This contrasts with Named Perils policies, which only cover risks explicitly listed.

Front

What type of loss is the immediate result of a peril, such as fire damage to a building?

Back

Direct Loss

Answer explanation

Direct loss refers to the immediate damage caused by a peril, such as fire damage to a building. It is the direct result of the event, distinguishing it from consequential or indirect losses that occur later.

Front

Which loss valuation method pays the full cost to replace damaged property without deducting for depreciation?

Back

Replacement Cost

Answer explanation

The Replacement Cost method pays the full cost to replace damaged property without deducting for depreciation, unlike Actual Cash Value which considers depreciation.

Front

What type of construction is characterized by masonry walls with wood floors or roofs?

Back

Joisted Masonry

Answer explanation

Joisted Masonry is defined by its use of masonry walls combined with wood floors or roofs, making it distinct from other types like Noncombustible or Fire Resistive, which do not incorporate wood.

Front

What is the term for failure to use reasonable care, resulting in damage or injury to another?

Back

Negligence

Answer explanation

The term 'Negligence' refers to the failure to exercise reasonable care, leading to damage or injury to another person. It is a key concept in tort law, distinguishing it from terms like 'tort' or 'hazard'.