Insurable Interest The financial interest a person or organization has in the object that is being insured RMI 4224 Quiz 1 Terms Chapter 2 Indemnity To make whole again Peril The cause of a loss Hazard A condition within an exposure that makes it more susceptible to a loss Physical Hazards Arise from structural operational or material characteristics of risk Moral Hazards Arise from character flaws in a person the leads him her to create a loss or exaggerate a loss Morale Hazards Arise from irresponsibility carelessness or indifference to a loss Named Perils A policy that lists each and every peril that is covered Open Perils A policy that covers all causes of direct physical loss or damage except those which are excluded Direct Loss Loss or damage as a direct result of a covered peril Consequential Indirect Loss A loss or damage that flows from or results from an insured s inability to use his her property because of direct loss to the property Blanket Insurance A method of writing property insurance with a single limit of insurance applying to more than one type of property real or personal or property at more than one location Specific Insurance A property policy with a specific limit of insurance written on a specific property Actual Cash Value Replacement Cost less depreciation Replacement Cost The cost to replace damaged property with like kind and quality at today s prices without a deduction for depreciation Market Value The value of the property determined by the amount of money people will pay for the property knowing all the relevant facts Book Value The historical cost price paid to acquire the property less accumulated depreciation Agreed Value The insured and the insurance company agree on a value of the property Found in some property insurance policies Stated Value A method of fixing the maximum amount payable in an insurance policy Most often used in automobile physical damage insurance Valued Policy A policy that declares the amount that is paid in the case of a total loss of the property Underwriting The process of selecting a risk and assigning a proper rating classification in a manner that ensures that the insured obtains insurance coverage and the insurance company obtains a profit Loss Ratio Individual calculation of Losses Premium Tells the underwriter how an individual applicant compares to other insureds Combined Ratio Loss Ratio and Expense Ratio Combines the company s overall loss ratio and expense ratio Ideally this number should be less than 100 Rate Price per unit Premium The amount charged for a certain amount of insurance coverage Judgment Rate Rates applied solely to individual insureds by the insurance company Manual Rates The traditional practice of rates being published on pages in a notebook or binder which is referred to as a rate manual Merit Rates Rates that consider the individual loss characteristics of a particular risk Experience Rating Considers the individual loss ratio of a particular insured Retrospective Rating Applies the loss history of the current year to a final premium for the same policy year Frame Construction A type of building in which the exterior walls are constructed of wood or similar combustible materials Joisted Masonry Construction A building with exterior walls constructed of masonry materials brick concrete adobe gypsum stone or tile Only the roof interior framing and floors are combustible Noncombustible Building A building with exterior walls floor and roof constructed of and supported by any noncombustible material Masonry Noncombustible Building Exterior walls have a fire resistive rating 0f 1 2 hours Floors must be made up of noncombustible or slow burning material Modified Fire Resistive Building exterior walls floor and roof made of masonry construction with a fire resistive rating of 1 2 hours Fire Resistive Meets construction requirements for a specified thickness of masonry exterior walls and a specified fire resistive rating for structural framing of not less than 2 hours Insuring Agreement Section of the policy that outlines the promises the insurance company makes to the insured Trigger The mechanism that sets in motion the obligation of the policy to respond Two types in liability policies occurrence and claims made Occurrence Bodily injury property damage must occur during the policy period for the policy to respond Claims Made Claim must be made during the policy period in order for the policy to respond Exclusions Policy provisions that limit or restrict coverage Conditions Obligations required of the insured and insurance company to carry out other policy provisions Endorsements Added to an otherwise complete policy to add coverage modify coverage clarify coverage exclude coverage and or comply with state specific requirements Insureds The persons or organizations specifically named on the Declarations Policy Period The period of time for which the insurance policy provides coverage Policy Territory The geographical area in which accidents occurrences or events must occur for coverage to be applicable under the insurance policy Cancellation The termination of the insurance policy by either party Non Renewal The action by the insurance company to terminate insurance coverage at the expiration date or anniversary date of the policy Deductibles The amount of loss under an insurance policy that an insured must pay or absorb before the insurance company pays its portion of the loss Other Insurance Provision that explains how the policy responds if other applicable insurance exists Non Concurrency Describes a situation where there are 2 or more insurance policies not written with the same terms and conditions Policy Limits The maximum dollar amounts an insurance policy pays for a covered loss Per Occurrence Limits The most an insurance company pays arising out of a single occurrence of a covered loss no matter how many people are injured or claims are made Per Person Limits The most which is paid for any one person Aggregate Limits The most a policy pays regardless of the number of claims during the policy period Also contains a per occurrence limit Split Limits Limits of insurance where the portions of payment limits are already designated between two types of insurance coverages Restoration of Limits Restoring a limit back to its original amount following the payment of a loss Some property policies do this once the insured shows proof of repair or actual replacement of the damaged property