Ch. 18 Insurance Law

Pages 318 – 339Insurance FundamentalsProperty and Casualty

InsuranceLife and Social Insurance

18-1 Why Have Insurance? Who are the PLAYERS?

Insurance – a contractual arrangement that protects against loss

Indemnify – one party pays to compensate for such harm and makes good on the loss suffered by the party

Insurer – the party who agrees to indemnify

Insured – the party covered or protected Beneficiary – the recipient of the amount

to be paid

All Insurance Agreements are Contracts…

Step 1 – Application Offer Presented

OFFEROR (MAKES THE OFFER)

CONSIDERATION

OFFEREE (PERSON/COMPANY RECEIVING THE OFFER)

Insured Application Risk Insurance CompanyAcceptance and

Protection Guaranteed

Step 2 – Indemnification for premium or loss of insured item

All Insurance Agreements are Contracts… Continued

OFFEROR (MAKES THE OFFER)

CONSIDERATION

OFFEREE (PERSON/COMPANY RECEIVING THE OFFER)

Insured Premium Insurance Company

Promise to Pay if Loss Occures

Parts of an Insurance Policy

Insured

Beneficiary is his wife

Policy – the written contract of insurance

Face Value – the stated maximum amount that could be paid if the harm a person is insured against occurs

Premium – the consideration for a contract of insurance

Risk – possible loss arising from injury to or death of a person or from damage to property from a specified peril

Common Types of Insurance

Life Insurance Fire insurance Casualty insurance Social insurance Marine insurance Inland marine insurance Fidelity and surety bonding insurance

Life Insurance… Insurance that pays the beneficiary a set amount

upon the death of a specified person

Term Insurance – written for a certain number of years, generally, one, five, or ten If the insured dies within the policy term,

the beneficiary receives the face value of the policy

If the term ends before the insured dies, the contract ends with no further obligation on the insured or the insured.

Relatively inexpensive

Type of Life Insurance Continued…

Whole Life Insurance – (ordinary or straight life) payment of premiums for as long as the insured lives or until age 100 Premiums remain constant and the portion of

the premium goes into a savings program against which the insured can borrow at a relatively low interest rate.

If the insured dies, the face value less any outstanding loans against it is paid to the beneficiary

Types of Life Insurance Continued…

Limited Pay Life – variation of whole life insurance where policyholder pays premiums over a shorter period of time and at a higher amount. Coverage extends beyond the period of making

payments. Beneficiary receives the face value of the policy when

the insured dies, whether the death occurs during the period when premiums are being paid or after all payments have been made

Limited pay life has the advantage of enabling the insured to pay premiums during their high-earning-power years.

Type of Life Insurance Continued…

Endowment Life Insurance – requires the insurer to pay the beneficiary the policy’s face amount if the insured dies within the period of coverage, usually 20 years or until the insured reaches retirement age If the insured lives to the end of the coverage

period, the owner of the policy (usually the insured) is paid the face value

Premiums for this type are high Policy is attractive to people who need a large

lump sum available at the set point in time.

Casualty Insurance

Coverage for a variety of specific situations in which the intentional, negligent, or accidental acts of others or mere chance may result in loss Burglary, robbery, theft, and larceny

insurance Automobile insurance Liability insurance Disability, accident, or health insurance

What is Insurable Interest?

Insurable Interest – potential to sustain loss A person with contractual capacity can

acquire insurance if he or she would suffer loss if the insured property is damaged or destroyed or if the insured person is injured or dies

For Property = At the time of loss or injury For Life = At the time the policy is

created