Indemnification: Basic Insurance DefinitionsIndemnity, Policyowner, & Risk Definitions
Indemnification - This is the concept of restoring individuals to the same financial position they were at before a loss occurred. Indemnification is the central idea behind the concept of insurance.
Insurer - Another name for an insurance company.
Applicant - The individual who applies for insurance.
Insured - An individual who is insured or has insurance taken out on or for them for a specific interest.
- Named Insured--The person(s) listed as an insured in the Declarations page.
- First Named Insured--The first insured listed and the person to whom the insurer sends correspondence such as renewal notices, policy changes.
- Any member of the insured household who is a relative or is under 21 years of age.
- A child or parent living with the insured is included, regardless of age.
- Other members of the insured household who are under 21 years of age.
- Additional Insured--an individual or entity who, other than the named insured, qualifies as an insured under the policy. This is especially the case if there is a specific interest involved, such as a mortgage or a business arrangement.
Policyowner - The person who:
- applies for a policy
- takes responsibility for premium payment
- has the right to cash values, dividends, and policy proceeds
- has the ability to change beneficiaries and other policy particulars.
Risk - Risk is the probability or uncertainty that a loss will occur. It may be financial or non-financial; it may be speculative or pure. In insurance, the greater the risk, or chance for loss, the greater will be the premium charged to cover it.
- Pure Risk: A risk involving the probability or possibility of loss with no chance for gain. An example would be a homeowner who wants to guard against a possible house fire. Pure risks are generally insurable.
- Speculative Risk: A risk for which it is uncertain whether the final outcome will be a gain or a loss. Gambling is a speculative risk. Speculative risks are generally not insurable.
Elements of Insurable Risks - To be considered insurable, a risk must be:
- due to chance
- based on a large enough pool that the law of large numbers allows for the accurate prediction of loss
- selected from a diverse, randomly selected pool of insurable risks. Insurance deals with financial and pure risks. Speculative risks are generally not insurable.
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