Insurance Essentials
86 flashcards by MentisLibrary
Premiums, deductibles, coinsurance, and policy limits, plus how underwriting, claims, and each major policy type work. Learn the vocabulary before you have to read a policy under pressure.
- What is insurance?
- A contract in which an insurer accepts a defined financial risk from a policyholder in exchange for a premium.
- What is risk pooling?
- Combining many similar exposures so that individually unpredictable losses become collectively predictable.
- What is the law of large numbers in insurance?
- As the number of similar independent exposures grows, actual results converge on the expected result.
- What is a premium?
- The amount paid to keep a policy in force, usually monthly, quarterly, or annually.
- What is a deductible?
- The amount the policyholder pays out of pocket before the insurer starts paying on a covered claim.
- What is a copay?
- A fixed dollar amount paid for a specific covered service.
- What is coinsurance?
- A percentage of the cost the policyholder pays after the deductible is met.
- What is an out-of-pocket maximum?
- The most a policyholder can pay in a plan year for covered in-network services, after which the plan pays 100 percent.
- What is a policy limit?
- The maximum amount an insurer will pay under a coverage, either per occurrence or in aggregate.
- What is an exclusion?
- A specific loss, cause, or circumstance the policy states it will not cover.
- What is a rider or endorsement?
- An amendment that adds, removes, or modifies coverage in the base policy.
- What is a sublimit?
- A cap on a specific category of loss that is lower than the policy's overall limit.
- What is insurable interest?
- A genuine financial stake in the person or property insured, without which the contract is unenforceable.
- What is the principle of indemnity?
- Insurance restores the policyholder to their prior financial position, no better.
- What is subrogation?
- The insurer's right, after paying a claim, to pursue recovery from the party actually at fault.
- What is underwriting?
- The process of evaluating a risk, deciding whether to accept it, and setting the terms and price.
- What does an actuary do?
- Applies statistics and financial theory to price risk, set reserves, and project future claims.
- What is adverse selection?
- The tendency of people with higher-than-average risk to buy more insurance than those with lower risk.
- What is moral hazard?
- The tendency to take more risk once insured because someone else bears the loss.
- What is a claim?
- A formal request for payment under the policy after a covered loss.
- What does a claims adjuster do?
- Investigates a claim, determines whether it is covered, and estimates the amount payable.
- Actual cash value versus replacement cost
- Actual cash value pays replacement cost minus depreciation; replacement cost pays what it takes to replace with new.
- What is depreciation in a property claim?
- The reduction in an item's value from age, wear, and obsolescence, deducted under actual cash value settlements.
- Named perils versus open perils coverage
- A named perils policy covers only the causes it lists; an open perils policy covers all causes except those excluded.
- What is a peril versus a hazard?
- A peril is the cause of loss; a hazard is a condition that increases the chance or severity of a peril.
- What is a grace period?
- A window after the premium due date during which the policy stays in force despite non-payment.
- What is a lapse?
- The termination of coverage for non-payment of premium.
- What is the contestability period?
- A window, commonly two years, during which a life insurer may investigate and deny a claim for material misstatements on the application.
- What is a waiting or elimination period?
- The time that must pass after a covered event before benefits begin.
- What is term life insurance?
- Life coverage for a fixed period that pays a death benefit if the insured dies during the term, with no cash value.