General Insurance Concepts

Section 1: General Insurance Concepts

• Risk and Insurance: Risk is defined as the possibility of loss or harm. Types of risk include pure risk (loss only) and speculative risk (both gain and loss). Managing risk involves methods to reduce or eliminate the risk.
• Insurance Principles: The Law of Large Numbers states that as the number of risk exposures increases, the accuracy of predicting future losses improves, enabling insurers to set fair premiums. Insurable interest means the insured must stand to lose financially from the event insured against. Indemnity means the insured is restored to their pre-loss condition, not made better off. Subrogation is when the insurer takes over the insured's rights to pursue compensation from a third party.
• Types of Insurers: Insurers can be stock companies (profit for shareholders), mutual companies (profits returned to policyholders), fraternal insurers (memberships based on a common cause), or Lloyd's Associations (group of individuals).
• Insurance Contracts: Insurance contracts have specific elements including offer, acceptance, consideration (what each party gives in exchange), legal purpose, and competent parties.

Section 2: Property Insurance Basics

• Types of Property Policies: Policies cover various properties including homeowners, dwelling, and commercial properties. Different policies have specific advantages and disadvantages.
• Policy Components: Policies include declarations (details about the insured and coverage), insuring agreements (details about the coverages), exclusions (risks not covered), conditions (rules and regulations).
• Covered Perils: Named-peril policies only cover specific perils listed; open-peril policies cover damage from any cause except those specifically excluded. Different types of policies (basic, broad, special) offer varying levels of coverage.
• Valuation Methods: Actual Cash Value (ACV) considers depreciation, while Replacement Cost Value (RCV) pays the replacement cost without considering depreciation.
• Deductibles & Coinsurance: Deductibles are the amount the insured pays before the insurer starts to cover the loss. Coinsurance requires the insured to insure their property for a certain percentage of its value to receive full coverage.

Section 3: Homeowners Insurance

• HO Policy Forms: HO-1 to HO-8 policies offer varying levels of coverage and exclusions. Each policy has specific coverage for different risks.

Section 4: Auto Insurance (PAP)

• Part A - Liability Coverage: Covers bodily injury and property damage to others in accidents. Includes limits for the liability coverage.
• Part B - Medical Payments: Covers medical expenses for the insured and passengers involved in an accident.
• Part C - Uninsured/Underinsured Motorist Coverage: Covers the insured if the at-fault driver does not have insurance or has insufficient insurance.
• Part D - Coverage for Damage to Your Auto: Collision coverage pays for damages from accidents; comprehensive coverage covers property damage from non-collision incidents (e.g., theft, hail, fire).

Section 5: Miscellaneous Coverages & Endorsements

• Flood Insurance: A separate policy, as flood damage is often excluded from standard homeowners policies and covered by the National Flood Insurance Program (NFIP); covers damage caused by flooding.
• Umbrella Insurance: Provides extra liability protection beyond typical homeowners policies, exceeding liability limits.
• Earthquake Insurance: Covers damage resulting from earthquakes. Deductibles and policy triggers are part of the coverage.
• Personal Articles Floater (PAF): Separate coverage for valuable personal belongings beyond the regular coverage in the homeowners policy.

Section 6: Alabama-Specific Laws & Regulations

• State Minimum Auto Liability Requirements: Alabama has minimum requirements for auto liability coverage, including bodily injury and property damage.
• Insurance Producer Licensing & Continuing Education: Producers are required to have necessary licenses and continuing education to provide insurance services.
• Claims Settlement Regulations: Specific regulations govern claims settlements in Alabama.
• Unfair Trade Practices: Examples include twisting (misrepresenting a policy), rebating (giving incentives outside terms), and misrepresentation. Violations have consequences.

Explore risk management and insurance principles. Understand pure vs. speculative risks and the law of large numbers. Learn about insurable interest and the different types of insurers (stock, mutual, fraternal).