Objective 08.02 Interpret the nature, theory, and different types of insurance INTRODUCTION TO...
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Transcript of Objective 08.02 Interpret the nature, theory, and different types of insurance INTRODUCTION TO...
Objective 08.02 Interpret the nature, theory,
and different types of insurance
Objective 08.02 Interpret the nature, theory,
and different types of insurance
INTRODUCTION TO INSURANCEINTRODUCTION TO INSURANCE
Nature of InsuranceNature of Insurance
The concept of insurance involves risk pooling or spreading losses over a greater number of people.
An insurance company collects and pools premiums from many individuals or businesses for the payment of future claims.
Risk ManagementRisk Management
the process of managing one’s exposure to risk.
– Examples• Using a seat belt• Installing smoke detectors• Driving a vehicle• Playing sports• Purchasing an insurance policy
Risk ManagementRisk Management
Managing risk includes:
– Transfer part of risk of financialloss to an insurance company• Auto, life, health, disability, property insurances
– Retain (keep) the risk of financial loss using high deductible
– Abstain or choose not to participate in risky activities• Do not drive car, buy home, play sports, etc.
Decisions are based on their individuals and Risk
ADHESION CONTRACT ADHESION CONTRACT
standard form contract that is written primarily by one party (Insurance policies)
Policyholder (buyer) cannot usually change:– Policy language – Perils covered
Policyholder can change:– The dollar limit of coverage– Specific items to be covered
Unconscionable if they take advantage of one party
Insurance Insurance
Planned protection provided by sharing economic losses
• Insurance companies provide a risk management service to consumers
• Insurance does indemnify or financially repay the insured a portion of the loss
• All insurance policies have a specified limit of coverage
NC Department of InsuranceNC Department of Insurance
Insurance is a highly regulated business activity governed by the laws of each state
NC Department of Insurance (NCDOI) handles:– Consumer complaints– Fraud investigations and prosecution– Approval of requested rate increases/decreases– Regulation of agent licensing requirements– Censuring unethical/illegal actions of agents
Head of NCDOI is the insurance commissioner
Insurance – Basic TermsInsurance – Basic Terms
Insurance policy- a contract issued by the insurance company (insurer) for coverage of the policyholder
Policyholder- the person who buys or owns the policy
Insured – the person whose life or property is insured, may or may not also be the policyholder
More Basic TermsMore Basic Terms
Insurer- the insurance company thatprovides planned protection againsteconomic losses
Binder- a temporary document proving the insurance contract is in force until the actual policy is issued by the insurer
Insurable InterestInsurable Interest
A financial interest in property or a person’s life that permits someone to buy insurance to protect against the financial loss of that property or person’s life
Examples:– You can insure cars owned or leased by you, but
not a car belonging to another person
– You can purchase life insurance on someone whose death would be a financial loss to you
PremiumPremium
The amount of money the policyholder must pay for insurance coverage
1.An insurance underwriter determines the cost of the policy using risk factors and statistical data
2.An agent represents the company to the consumer
3.Equals consideration in the insurance contract
Non-Payment of PremiumNon-Payment of Premium
If the premium is not paid, the policy may lapse or cancel, voiding thecontract
If claims are made after a lapse, the claim is denied
Grace period (not required)– Late premiums are received – Policies are reinstated
ClaimsClaims
The request for payment from an insurance company to cover the financial losses
Examples:– Automobile-car accident– Medical-doctor’s appointment– Life-covered person dies– Disability-out of work for health reasons– Unemployment-laid off from job
Deductibles Deductibles
Cost of the claim paid by the insured.
– Deductible • On auto coverage, the amount the insured
pays before the insurer pays collision or comprehensive damage claims
• On health coverage, the amount the patient pays before the insurance company pays any covered medical expenses
Deductibles Deductibles
–The insured chooses the amountof risk retained by choosing the deductible amount
–The higher the deductible chosen by the insured, the lower the premium for the coverage.
Self Insurance: no insurance is purchased or purchase from your investment accounts
• 100% self insurance = 100% risk retention
ExclusionsExclusions
Limitations to policy coverage
Examples:– No coverage for flood on homeowners policy– No coverage for CD player in car unless
permanently attached to vehicle– No coverage for self inflicted injury filed as
worker’s compensation claim
Insurance FraudInsurance Fraud
False claims made to an insurancecompany
Federal prosecution is more frequent under mail and wire fraud schemes because the USPS is involved
Insurance Fraud ExamplesInsurance Fraud Examples
– Arson for profit (felony)– Staging car accidents (felony)– Inflated cost of damage repairs– Faked deaths for life insurance (felony)– Overstated health care billings or service not provided– Phony workers compensation filed when hurt at home
not work– False statements made on an application may also
create a voidable contract for the insurance company