Starting with chapter 1 and adding on each week
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| risk | the possibility of loss
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| possibility | something that could occur
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| probability | the proportion of time that the even will occur in the long rum 0 to 1 or 0 to 100 percent
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| loss | a decline in value, usually in an unexpected or relatively unpredictable manner
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| loss exposure | losses that might occur
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| direct loss | the first or immediate loss following an event (peril)
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| indirect loss | secondary result following a peril (can have a secondary loss without having a direct loss)
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| peril | cause of a loss
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| hazard | act or condition that increases the likelihood of a loss or severity of a peril
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| physical hazards | structor, location, occupancy, exposure
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| moral hazards | dishonest tendencies
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| attitudinal hazards | carless or indifference (laziness, disorderliness, lack of concern for others
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| law of large numbers | size of the sample or insured population increase, the actual loss experience will more closely approximate the true underlying loss probability
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| mass | sample must be large enough to allow the true underlying probability to emerge
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| homogenity | have similar characteristics
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| independence | independently exposed - one exposure unit should not affect the likelihood of loss to another exposure unit
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| financial risks | loss of money, or can be non-financial risk
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| non financial ricks | pain and suffering, paralysis, loss of memory
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| particular risks | loss possibility that affect only individuals or a small group of individuals (embezzlement, lightning. disability, retirement)
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| fundamental risks | can affect large segments of society (widespread unemployment, runaway inflation, massive accident or pandemic)
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| static risks | exists part form changes in society (death, or fire damage)
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| dynamic risks | losses directly from changes in societies behavior or needs
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| pure risks | loss or no loss; they do not mix profits and losses
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| speculative risks | loss, no loss, no gain or gain (businesses, property values)
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| gambling | create a speculative risk by betting on an uncertain outcome; insurance does not create risk
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| personal risks | death, injury, illness, old age, unemployment
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| property risks | destruction or loss of property
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| liability risks | legally liable for unjust to another person or damage to another party's property
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| insurable risk | can be addressed with private insurance: 1. about of loss must be important; 2. loss much be of accidental in nature; 3. future losses must be calculable; 4. loss must be definite; 4. loss cannot be excessively catastrophic
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| risk-tolerance level | the degree to which that individual is attracted to or averse to the possibility of loss
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| adverse selection | those who are highly vulnerable to loss from a specific risk are more highly inclined to purchase specific insurance to cover related losses
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| private insurance | insurance owned by private insurance companies
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| government insurance | insurance programs that are run by the government (medicare, flood insurance crop insurance)
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| social insurance | helps solve the major social problems that affect a large portion of society (social security, medicare, unemployment insurance, workers' comp.) 1. compulsory employment-releated; 2. particle or total employer financing; 3. benefits prescribed by law; 4. benefits as a right; 5. emphases as social adequacy
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| social adequacy | provides minimum floor of benefits for all beneficiaries regardless of economic status.
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| individual adequacy | payments to private insurance premiums by individuals - different rates for different people based on actuarial analysis (underwritting)
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| individual insurance | usually owned by the insured or insureds family
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| group insurance | more then one person under a single contract issued to someone other then the insured
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| master contracts | contract entered into by the owner of the group insurance policy
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| certificates of insurance | evidence of insurance to those covered by group insurance
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| evidence of insurability | application for private insurance regarding physical condition, financial condition, or driving record of the would be insured
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| applicant | person or organization applying for insurance
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| policyowner | owner of the insurance policy
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| insured | person who is covered by the policy
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| line of insurance | type of insurance that a insurance company will cover (auto, home, life, property, etc...)
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| uncertainty | state of mind
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| risk management | systematic process for dealing with risks
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| enterprise risk management | philosophy of managing and coordinating various types of risks and opportunities is inherent in a comprehensive personal financial plan
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| risk control | risk management techniques used to minimize the frequency and severity of losses
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| risk financing | techniques used to pay for any losses that do occur
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| risk avoidance | the party decided not to incur a loss exposure or to eliminate one that already exists
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| loss prevention | intended to lower the probability of loss or the frequency with which a given type of loss occurs
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| loss reduction | risk control measures that aim to reduce the severity of loss (sprinkler systems, annual exams, seatbelts, safety guards on equipment)
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| non insurance transfer | risk control measure (subcontracting)
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| risk financing | how to pay for a loss 1. risk retention, 2. risk transfer (self - insurance)
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| risk retention | keeps or retains the financial burden of any loss (deductibles are part of a risk retention program)
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| self-insurance | large business in which the business acts like an insurance company for its own risks
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| captive insurer | a large organization that establishes a separate company to ask as their insurance company and writes their own insurance
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| hold-harmless agreement | transfree agrees to pay claims, leaving the transferor fee of the obligation. (renting a party center - the paying party will have to pay for the loss, not the party center owner)
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| insurance equation | equation between the sources of income and the use of income
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| credibility | degree of reliability placed o past experiences to predict what will happen in the future
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| mortality | death
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| morbidity | health, disease
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| maximum possbile loss | the worst that could happen
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| maximum probable loss | the worst that is likely to happen
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| third-party administration (TPA) | a firm that acts as an administer for self-insurance programs for a fee
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| voluntary benefits | extra benefits that the employer does not help pay for (short term disability, long term disability)
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| cafeteria plan | employees can choose among several different types of benefits
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| premium-conversion plan | paying for coverages with pre-tax dollars
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| flexible spending accounts (FSA) / Sec. 125 plans | funds certain types of expenses other then premiums, pre-taxed
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| risk transer | shifts as much as possible of the financial consequences of a risk to some other party, individual or organization (low loss frequency but high loss severity)
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| noninsurance transfer | a contract through which one party transfer the legal responsibility for a specific activity and any resulting losses to another party (financial burden is transfers, NOT legal responsibility) (extended warranties)
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| domestic insurer | doing business within the state that they are incorporated in
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| foreign insurer | doing business outside of the state that they are incorporated in
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| alien insurer | company that is incorporated in a different country
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| non admitted insurer | not licensed or authorized within the policyowner's home state
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| surplus lines insurance | excess lines insurance; coverages that otherwise would not be available (for clients that have underwriting changeless, unique risks, hard to evaluate or unusually high limits of insuracne
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| stock insurance company | corporation owned by stockholders; policyowner does not receive dividends, stockholders are entitled to residual profits, issue contracts for a fixed cost
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| mutual insurance company | not-for-profit owned by its policy owners, policy owners receive dividend; when premiums are inadequate, dividends may be omitted and assessment may be levied on policyowners
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| advance-premium mutuals | owned by policyowners and have no stockholders, issues non assessable contract in which the cost of the insurance is set when the policy begins
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| assessment mutuals | policyowners may or may no pay an advance premium, but they can be assessed for a portion of the company's losses and expenses at the end of the policy period
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| demutualization | shifting of a mutual company to a stock company
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| mutual holding company | directly or indirectly controls a stock insurer, holding company controlled by the policyowner (original company - holding company has 51% of the stock of the newly created stock insurance company)
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| fraternal insurer | provides insurance for its members
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| reciprocal exchange | unincorporated pool of funds owned by the policy owners and managed by an attorney-in-fact
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| Blue Cross and Blue Shield plan | blue cross - hospital expenses / blue shield - physicians expenses, now most plans are combined
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| Lloyd's association | groups of individual insurers; each member is ordinarily liable for only a specified maximum
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| agent | producer for an insurance company; principal is to the insurance company -owns to the insurance company: 1. exercise reasonable care; 2. obey the principal's instructions; 3. maintain accurate accounting records; 3. keep the informed; 4. comply with the agency contract
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| binder | temporary evidence of insurance, and it is superseded when a written policy is issued
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| brokers | legally represents the policyowner
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| surplus lines broker (excess lines brokers) | places coverage with non admitted insurers for insured when no other local markets are available (amusement parks and ski resorts)
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| direct-response marketing | no agent involved, direct to consumer
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| general agency system | granted a franchise by an insurer to maker that insurance company's products, only one company, pays for all their own expenses
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| branch office system | where a life insurance company opens their own office
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| personal producing general agent (PPGA) | unlike a general agency the PPGA is expected to sell only and not worry about building an agency
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| independent agency system | represents multiple insurance company
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| exclusive agency system | represents only one insurance company or group of affiliated companies, high commissions on new business - low commissions on renewals
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| underwriting | selection and pricing of insurance applications that are offered to an insurer
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| field underwriting | an agent starts the underwriting process
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| reinsurance | arrangement in which an insurance company transfers to another insurance company some or all of the ricks it has taken on by writing primary insurance
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| treaty (automatic) reinsurance | exists when the primary insurer agrees in advance to transfer, or cede, some types of loss exposure and the reinsurer agrees to accept them; the reinsurer participates In the risk a soon as the primary insurer accepts the loss exposure
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| facultative reinsurance | reinsurance that is written on its own merits and is a matter of individual choice
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| independent adjustor | experts who have made loss adjusting their business; works for the insurers
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| public adjustor | experts who represents the public in settling property insurance claims against the insurer
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| rate making | the process of establishing the price to. be charge for insurance; costs of providing insurance plus a margin for profit
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| rate | price charged for each unit of coverage, called an exposure unit
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| premium | price charged for the amount of coverage the policy provides; rates multiplied by the number of units of coverage
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| pure (net) rate | 1. requited an estimate of the future loss cost per unit of coverage during the policy period; 2. loading is added to cover the insurers expected operating expenses and provide for a profit
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| gross rate | the sum of pure (net) rate and loading added together
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| advisory organization | organization that assists insurers by collecting and furnishing loss statistics or by submitting rating recommendations
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| class rates | groups rates with an average price per unity of insurance that applied to each category or classification of similar insureds
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| specific rate | created for one particular insured based on that insured's own risk characterists
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| net single premium | an amount that the insurer would need to today from all insureds in a classification, together with future investments earrings, to pay all claims within that class of insured as those claims arise. The premium is spread or leaved over the policy's payment period
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| net level annual premium | a change that is based on spreading out the new level premium over the policy's premium payment period; a level annual loading amount is added to cover commissions, premium taxes, administrative expenses and all for profits
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| loss ratios | divide losses incurred plus loss adjustment expenses incurred by earned premiums
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| National Conference of Insurance Legislators | NCOIL
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| National Association of Insurance Commissioners | NAIC
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| model law | a draft bill; suggested wording for a new law that is for consideration by state legislators; worked on with NAIC
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| model regulation | a draft regulation that may be implemented by a state insurance department if the model law is passed
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| prior approval law | rates must be filed with the insurance commission before going into effect
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| file - and - use law | immediate use of the filed rates; commissioner may disapprove of the rates within a certain time frame
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| use - and - file law | rates must be filed with the insurance commission within a certain time after they are first used
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| flex-rating | no regulatory approval is needed is the proposed change is less then 5-10%
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| open competition | relies on competition to set rates; absence of government regulations
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| legal reserve | in life insurance only - the amount that, augmented by premium payments under outstanding contracts and interest earnings, is sufficient to enable the life insurer to get its expected policy obigations
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| unearned premium reserve | in property and liability insurance, must alway be adequate to pay a return premium to all policy owners if their policies are canceled prior to expiration
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| loss reserve | reflects the insurer's liability for losses that have already occurred but have not yet been paid or settled
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| non admitted asset | office furniture, office supplies, as well as premiums that are 90 days or more past due
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| unfair trade practices | an act that prohibits unfair trade practices that included: rebating, twisting, misappropriation and commingling of funds
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| rebating | return of any part of the premium, expect in the form of dividends
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| twisting | where an agent may induce the policyowner to cancel the contract to take out a new contract on an unfair or incomplete comparison of the contracts
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| misappropriation | an agent's unlawful keeping of funds belonging to others
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| commingling of funds | where an agent mixed the insured's or the insurer's fund with the agent's personal funds
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| premium tax | 2% of the gross premiums policyowners pay.; resembles a sales tax on insurance premiums
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| rehabilitation | the process of restoring an insurer to financial stability
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| guaranty fund | a state fund designed to at lease partially protect consumers against insurer insolvency; the guaranty is an agreement by which one party assumes another's debt; all insurance companies pay into the fund
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| misleading advertising | restrained by many regulations that require full and fair information in advertisements by insurance companies and agents
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| unauthorized entity | an insurance company that has not gained approval to place insurance business within the jurisdiction of where it wants to sell
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| unilateral contract | in which one party to the contract makes a binding promise that, if broken, gives rise to an action against that party for breach of contract
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| conditional contract | an agreement in which one party has an obligation to perform only if the other party meets certain conditions specified in the agreement
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| contract of adhesion | is prepared in all its detail by one party (the insured)
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| parol evidence rule | legal principle that specifies that oral contemporaneous evidence may not be used to contradict or vary the terms of a valid written contract
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| contract of indemnity | to pay an amount directly released to the amount of the loss; property, liability and health insurance
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| valued contract | specifies the amount that the insurer will pay in the event of a specified loss, usually a total loss, life insurance
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| insurable interest | right or relationship with regard tot he subject matter of the insurance contract
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| subrogation | provides that an insurer who has paid a claim under a contract of indemnity takes over any right os revoker that the insured might have against any party
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| concealment | failure to affirmatively disclose relevant information
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| mistrepresentation | a false statement of material fact; remains silent when there is an obligation to speak; making an untrue statement
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| voidable contract | may be affirmed or rejected at the option of one of the parties by either concealment or misrepresentation, although it is binding on the other - an insurer may or may not void
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| void contract | no legal effect, and weight party may enforce it
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| fraud | a lie
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| warranty | specific questions on the application may be considered
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| representation | an incidental statement preceding the contract; to make the contract voidable it must be both false and material (information that made the one party or the other want to sign the contract)
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| declarations | factual statements that identify the specific person, property, or activity being insured; also provide descriptive information about the policy
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| definitions | key terms and are a major help in precisely defining the insured's intentions
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| insuring agreement | the core of any insurance policy, the insuring agreement that spells out the basic promise of the insurance company
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| exclusions | usually applies to certain perils. type of losses, property or activities that are specially removed from the policy
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| noncancelable | the right to renew the coverage at each policy anniversary date, although possibly only until state age, can not be cancelled by the insurer and future rated are guaranteed within the contract
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| guaranteed renewable | policyowner has the right to review at each policy anniversary date, but only until the stated age, coverage cannot be canceled duding the period of coverage, but rates can be increased over a broad class of insureds
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| optionally renewable | gives the insurer unilateral right to refuse to renew the policy at the end of the policy period, if renewed changes can be made
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| endorsement rider | provision added to the policy to which the scope of its coverage is clarified, enlarged or restricted, if it conflicts with the terms of the policy, it takes precedence
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