Insurance and Risk Management Concepts

Certificate of Insurance

• A document used to provide information on specific insurance coverage.

• A type of insurance policy that covers all risks.

• A receipt for insurance premium payments.

• A summary of all insurance claims made by a policyholder.

Binders

• Temporary contracts of insurance that provide coverage until the permanent policy is issued.

• Long-term insurance policies that cover multiple years.

• Contracts that guarantee a fixed premium for life.

• Insurance policies that are not legally binding.

Stated/Agreed Value

• A value that is determined by the market at the time of loss.

• A value that is agreed upon by the insurer and insured at the time of policy issuance.

• A value that fluctuates based on the insured item's condition.

• A value that is set by the insurance company without input from the insured.

Market Value

• The price at which an asset would trade in a competitive auction setting.

• The total cost of production of an asset.

• The estimated worth of an asset based on historical data.

• The price set by the seller in a private sale.

Endorsements

• Amendments to the insurance policy that can add, remove, or alter the coverage.

• A type of insurance policy that covers only specific risks.

• A legal document that cancels an existing insurance policy.

• A summary of the terms and conditions of an insurance policy.

Physical Hazard

• A condition that increases the frequency or severity of loss.

• A type of insurance policy.

• A legal requirement for safety standards.

• A method of risk assessment.

Indemnity

• A principle in insurance that ensures the insured receives a payment equal to the loss incurred.

• A principle that allows the insured to profit from their insurance policy.

• A principle that requires the insured to pay a deductible before coverage applies.

• A principle in insurance that provides that when a loss occurs, the insured should be restored to the approximate financial condition occupied before the loss occurred, no better, no worse.

Salvage Value

• The estimated value that an asset will realize upon its sale at the end of its useful life.

• The total cost of an asset including installation and delivery.

• The amount of money spent on maintaining an asset during its useful life.

• The depreciation value of an asset over its useful life.

Morale Hazard

• An increase in the hazard presented by a risk, arising from the indifference of the person insured to loss because of the existence of insurance.

• A decrease in the likelihood of a loss due to increased safety measures.

• A situation where the insured party takes on more risk because they are covered by insurance.

• A type of insurance fraud where the insured intentionally causes a loss.

Moral Hazard

• The risk that a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk.

• The tendency of individuals to take on more risk when they are not personally responsible for the consequences.

• The situation where a party takes on excessive risk because they believe they will be protected from the negative outcomes.

• The phenomenon where individuals act more cautiously when they are fully aware of the risks involved.