An Act of God is an unpreventable destructive occurrence that results from natural forces. Insurance and contract laws often include clauses to address losses resulting from such events.
Casualty insurance provides protection against the financial impacts arising from accidents, injuries, and legal liabilities, safeguarding both personal and business interests from unexpected losses.
A Certificate of Insurance (COI) is a document that verifies the existence of insurance coverage, including details about the type and extent of coverage provided. It serves as proof of insurance for the insured party, typically issued by the insurance company or broker.
Credit Default Swaps (CDS) are financial agreements that function as a form of insurance against the default of a borrower. They allow the transferral of credit risk between parties.
Credit life insurance is a policy that pays off a borrower's debt if they die or sometimes if they become disabled. It contrasts with mortgage insurance, which is specifically designed to protect lenders from defaults.
A deductible is the amount a homeowner must pay out-of-pocket toward a covered damage or loss before their insurance company steps in to cover the remaining costs. Policies with higher deductibles typically come with lower premiums.
Due diligence is the process by which an individual or organization makes a reasonable effort to gather and provide accurate, complete information before executing a financial transaction or agreement. It often precedes the purchase of property and includes a careful examination of physical, financial, legal, and environmental characteristics.
An entrepreneur is an individual who initiates, manages, and assumes the risks of a business or enterprise. Entrepreneurs can be found in various industries and sectors and often innovation, creativity, and finance play significant roles in their success.
Errors and Omissions Insurance (E&O Insurance) is a form of liability protection that provides coverage against claims of professional malpractice and mistakes in business dealings made by the insured party. It is essential for professionals who provide services and advice to clients, including real estate brokers, to safeguard against potential legal actions arising from errors or omissions in their work.
Exposure in a financial context refers to the amount of money that one might potentially lose on an investment or business operation. It represents the degree of risk associated with the unprotected portion of an investment or asset.
Extended coverage is a type of insurance that provides protection against specific incidents that are typically excluded from standard insurance policies. This coverage can help property owners mitigate risks that are unique to their properties or situations.
Financial leverage refers to the use of borrowed funds to increase an investment's potential return. While it can amplify returns, it simultaneously increases the risk of loss.
Force majeure refers to an inevitable or unforeseeable event beyond the control of a contractual party, which prevents the performance of contractual obligations, often included in contracts as a protective clause to release the affected party from liability due to non-performance or delayed performance.
A high loan-to-value (LTV) loan covers more than 100% of the market value of the home. Typically, the coverage can go up to 125% of the property's value. These loans are mainly used for refinancing, making them a form of home equity loan, and are generally reserved for the lowest-risk borrowers.
A Hold Harmless Clause in a contract is a provision by which one party agrees to protect another party from claims, lawsuits, or any legal liabilities arising from a specific situation or activity.
Indemnification refers to a contractual obligation typically found in insurance agreements where one party agrees to compensate the other for any potential loss or damage incurred. This concept is widely used to manage risk, particularly in real estate transactions.
Insurance provides protection against loss resulting from hazards such as fire and wind over a specified period. The property owner's risk is assumed by the insurer in return for the payment of a policy premium. It is a crucial element in real estate transactions and property management.
Insurance coverage refers to the total amount and type of insurance a property owner maintains to protect against various risks, including hazards, liability, and other potential losses.
An investment involves the allocation of resources, usually money, into assets or ventures with the expectation of generating income or profit. It aims at wealth preservation and enhancement.
The National Flood Insurance Program (NFIP) is a program created by the U.S. Congress in 1968 through the National Flood Insurance Act of 1968. The NFIP's aims are to reduce the impact of flooding on private and public structures by providing affordable insurance to property owners and by encouraging communities to adopt and enforce floodplain management regulations.
A nonperforming loan (NPL) is a loan for which the borrower is not making interest payments or repaying any principal. This typically occurs when payments are more than 90 days past due or the maturity date has already passed without full repayment.
Other People’s Money refers to borrowed funds that are invested in a money-making venture. This strategy uses debt to maximize investment profits or minimize the risk of personal loss. The underlying principle is financial leverage, which can significantly affect the return on investment.
Participation refers to the sharing of ownership in a loan by two or more investors, enabling them to collectively pool resources and share the risks and rewards associated with the loan.
A performance bond is a type of surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.
Perils in the context of real estate refer to various risks that can cause damage to a property, which are often covered under homeowner's insurance policies.
Reinsurance is the practice where insurance companies transfer portions of their risk portfolios to other parties to reduce the likelihood of paying a large obligation resulting from an individual claim. This process helps insurance companies stay solvent by mitigating the impact of significant or catastrophic losses.
Risk vs. Reward is a financial concept that attempts to compare the potential fluctuations, especially the downside, with potential benefits of an investment or financial decision.
The Risk-Based Capital Requirement is a regulatory standard that determines the minimum amount of capital that federally chartered lending institutions must hold, based on the risk profile of their employed assets. The requirement ensures that institutions maintain sufficient capital to manage potential losses and maintain financial stability.
Speculation in real estate refers to investment decisions made based on predictions about the future value of property. This can involve acquiring property with the expectation of selling it off at a higher price after a favorable market change or development.
Systemic risk refers to the potential for a major disruption in the function of an entire market or financial system, as opposed to just one or a few individual entities. It cannot be mitigated by diversification and is also known as market risk.
An underwriter inspects and evaluates the level of risk associated with insuring loans, securities, and other types of investments, making decisions that can significantly influence lending practices, policy formulation, investment strategies, and risk management.
A white elephant in real estate is a property that is too expensive to maintain relative to its value or revenue-generating capability, often making it a financial burden instead of an asset.
