Insurance Definitions
Terms
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- Risk
- Uncertainity regarding financial loss
- Speculative Risk
- There is a chance of loss, no loss, or a chance of gain
- Pure Risk
- There is a chance of loss or no loss
- Exposure
- Possibility of a loss
- Law of Large Numbers
- As the number of observations of an event increase, the closer the predicted outcome will be to the actual outcome.
- Insurable Interest
- Interest in the property that will result in a financial loss if the property is damaged or destroyed
- Principal of Indemnity
- Put someone back in the same general financial condition he was in before the loss. The principal of indemnity prohibits the insured from gaining from an insured loss
- Peril
- The actual cause of a loss
- Hazards
- situations that increase the chance of loss (frequency) or the size of the loss (severity)
- Direct Loss
- physical destruction or damage to property
- Indirect Loss
- financial loss that is incurred as a result of direct damage to property. Also called Consequential or Time Element losses
- Proximate Cause
- Uninterrupted sequence of events that produces a loss due to negligence, injury or damage.
- Domestic Insurer
- Insurance Company that is incorporated and formed under the laws of the state in which it is domiciled
- Foregin Insurer
- One domiciled and organized under the laws of one state but licensed to do businesses in another state
- Alien Insurer
- An insurance company formed under the laws of a country other than the United States