Alabama Property and Casualty Insurance Exam Prep Insurance verified answer The transfer of risk through a legal contract Property verified answer Covers real property and personal property against damage or loss resulting from covered causes of loss called perils Casualty verified answer Covers non property loss by a 3rd party Personal Lines verified answer Insurance coverages intended to protect individuals and their families Commercial Lines verified answer Property and casualty coverages for business firms nonprofit organizations and government agencies Risk verified answer Uncertainty of financial loss Pure Risk verified answer A risk that presents the chance of loss but no opportunity for gain Speculative Risk verified answer Chance of loss or gain Law of Large Numbers verified answer A principle stating that the larger the number of similar exposure units considered the more closely the losses reported will equal the underlying probability of loss Perils verified answer Causes of loss insured against in an insurance policy Named Peril verified answer A specific cause of loss listed and described in an insurance policy Also used to describe policies containing named perils Open Perils verified answer Insurance that covers all perils except those specifically noted as excluded Hazard verified answer Things that are not cause of loss but can increase the chance of a peril happening Physical Hazard verified answer A tangible characteristic of property persons or operations that tends to increase the frequency or severity of loss Moral Hazard verified answer When the act of insuring an event increases the likelihood that the event will happen Morale Hazard verified answer A condition of carelessness or indifference that increases the frequency or severity of loss Direct Loss verified answer A reduction in the value of property that results directly and often immediately from damage to that property Indirect Loss Consequential Loss verified answer A loss that arises as a result of damage to property other than the direct loss to the property Proximate Cause verified answer Legal cause It exists when the connection between an act and an injury is strong enough to justify imposing liability Elements of a Legal Contract verified answer 1 Agreement offer and acceptance 2 Consideration 3 Competent parties 4 Legal purpose Binder verified answer A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued 30 days DICE verified answer Four major parts to an insurance policy 1 Declarations 2 Insuring Agreement 3 Conditions 4 Exclusions 1 Policy Number 2 Parties 3 Property Description 4 Policy Terms 5 Policy Limits 6 Premium Declarations verified answer The section of an insurance policy containing the basic underwriting information such as the insured s name address amount of coverage and premiums and a description of insured locations as well as any supplemental representations by the insured Insuring Agreement verified answer The section of an insurance policy containing the insurer s promise to pay the description of coverage provided and perils insured against Promise to pay Perils Liabilities Conditions verified answer Provisions in the policy that qualify or place limitations on the insurer s promise to perform Rules of the Game Insured s duties in a loss Insurer s subrogation rights mortgagees rights Exclusions verified answer Causes of loss exposures conditions etc listed in the policy for which the benefits will not be paid not covered by policy Direct Liability verified answer A liability which arises in cases in which the officer committed an intentional or negligent tort in violation of the employing agency s orders or policies Insured is the wrongdoer Vicarious Liability verified answer Legal doctrine under which a party can be held liable for the wrongful actions of another party Insured is responsible for actions of the wrongdoer Contractual Liability verified answer Provides coverage against liability arising out of an insured s contractual obligations Insured assumes another s liability under a written agreement Absolute Liability verified answer Liability that does not require proving negligence Liability without proven fault Strict Liability verified answer The legal responsibility for damage or injury even if you are not negligent Liability without proven fault Legal Duty Negligence verified answer Owe an obligation to act or not act Breach of Duty Negligence verified answer Failure to comply with the duty Actual Loss Negligence verified answer Another suffers a loss Proximate Cause Negligence verified answer Legal cause exists when the connection between an act and an injury is strong enough to justify imposing liability The breach of duty is the direct cause of the loss Accident verified answer An unexpected happening that may result in injury loss or damage Occurence verified answer An event that happens over time Admitted Carrier Authorized Carrier verified answer An insurance company licensed and authorized to do business in a specific state and subject to regulation by the state insurance commissioner Nonadmitted Carrier Unauthorized Carrier verified answer Unauthorized insurer not regulated to get certificate of authority can only transact surplus lines insurance Domestic verified answer In the same state as the home office Foreign verified answer Not in the same state as the home office Alien verified answer Home office is in another country Commissioner of Insurance verified answer Appointed by the governor the commissioner heads the Alabama Department of Insurance which is responsible for ensuring the industry s financial soundness protecting policyholders and overseeing insurance rates Alabama Department of Insurance verified answer Protects claimants and policy holders in the event of the insurer insolvency Assessment verified answer Authorized insurers in the state are required to pay into the fund The amount they pay is based upon their share of the market in the state Common Methods of Rate Regulation verified answer 1 Prior Approval 2 File and Use DP 1 Basic Form verified answer Can be written for any amount on a ACV basis Covers basic fire lightening and internal explosion Other Perils must be endorsed DP 2 Broad Form verified answer DP 1 perils EC perils and VMM Damage by Burglars Falling objects Weight of ice snow or sleet Accidental discharge or overflow of water or steam Sudden and accidental