General Insurance Flashcards

What is the primary purpose of an insurance deductible?

Answer: To share risk between the insured and insurer and deter small claims

A deductible is the amount the insured pays out-of-pocket before insurance coverage kicks in, which discourages minor claims and shares risk.

Which term describes the maximum amount an insurer will pay for a covered loss during a policy period?

Answer: Policy limit

The policy limit is the cap on the insurer's liability for covered losses during the policy period.

An insured misrepresents information on an insurance application. What is the likely consequence?

Answer: Policy rescission or denial of claims

Material misrepresentation on an application can void the policy, as insurance contracts require utmost good faith and accurate disclosure.

What does 'occurrence-based' coverage mean in a liability policy?

Answer: Coverage applies when the injurious event occurred during the policy period, regardless of when the claim is filed

Occurrence-based policies cover events that happen during the policy period even if the claim is filed after the policy expires.

Which of the following best describes 'moral hazard' in insurance?

Answer: The tendency of insured parties to take greater risks because they are covered

Moral hazard refers to the behavioral change where insured individuals may act less carefully because they know losses will be covered.

What is 'subrogation' in insurance?

Answer: The insurer's right to pursue a third party that caused an insurance loss

Subrogation allows the insurer, after paying a claim, to step into the insured's shoes and recover costs from the responsible third party.

A 'claims-made' liability policy differs from an 'occurrence' policy in that it:

Answer: Covers claims filed during the policy period, regardless of when the event occurred

Claims-made policies provide coverage when the claim is made (reported) during the active policy period, which may or may not be the same year as the triggering event.