Insuring Your Future Objective: Discuss the common types of insurance Identify when an insurable interest is present Bellwork: What kinds of insurance do people generally have?

 Insurance is a contractual arrangement that protects against loss.  One party (usually an insurance company) agrees to pay money to help offset a specified type of loss that might occur to another party.  The loss may be the death of a person, property damage, or injury resulting from exposure to risk.

 When one party pays to compensate or such harm, that party is said to indemnify, or make good, the loss to the suffering party.  The party who agrees to indemnify is called the insurer.  The party covered or protected is the insured.  The recipient of the amount to be paid is the beneficiary.  Often the insured is also then beneficiary, but that is NOT always the case.

 Insurance makes an important contribution to society.  By collecting relatively small premiums from many persons, an insurer builds a fund from which to pay insureds that suffer a covered loss.  This process spreads losses among a greater number of people.

 The written contract of insurance is called a policy.  The face value of a policy is that stated maximum amount that could be paid if the harm a person is insured against occurs.  However, a person who suffers a loss covered by insurance recovers no more than the actual value of the loss, even if this amount is less than the face value of the policy.

 The consideration for a contract of insurance is called the premium.  The possible loss arising from injury to, or death of a person, or from damage to property from a specified peril is called the risk.  The risk of most financial losses can be covered by insurance.

 Betty is about to open a bicycle store. Because she is unsure how large the market is for such an enterprise, she asks an insurance agent to write a policy that would pay back any amount she might lose from business operations.  Will the agent be able to sell her a policy that insures her against the risk of doing business?

 The risk of most financial losses can be covered by insurance.  Certain risks, however, cannot be covered.  Betty cannot be insured against business loss.  The risk of doing business is too unpredictable and too subject to the control of the would-be insured.  If she were insured, Betty could simply neglect the business and yet collect on the insurance when the store failed.

 There are seven major types of insurance. 1. Life Insurance 2. Fire Insurance 3. Casualty Insurance 4. Social Insurance 5. Marine Insurance 6. Inland Marine Insurance 7. Fidelity and Surety Bonding Insurance

 Insurance that pays the beneficiary a set amount upon the death of a specified person is life insurance.  There are three common types of life insurance: 1. Term 2. Whole (or ordinary) 3. Endowment  Insurance companies have also developed combination policies to meet the changing needs of their customers.

 Term insurance is written for a certain number of years.  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 insurer.  Term insurance is a relatively inexpensive type of life insurance.

 Whole life insurance (sometimes called ordinary or straight life insurance) provides for the payment of premiums for as long as the insured lives or until age 100.  The premium remains constant and a portion goes into a savings program against which the insured can borrow at a relatively low interest rate.  If the insured dies, the face values (less any outstanding loans against it) is paid to the beneficiary.

 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 endowment policies are high, but this type of policy has been attractive to people who need a large lump sum available at a set point of time.

 Insurance that indemnifies for loss or damage due to fire (and usually smoke as well) is fire insurance.  The typical fire insurance policy coverage may be increased to cover losses due to perils such as rain, hail earthquake, and windstorm.

 Casualty Insurance provides coverage for a variety of specific situations in which the intentional, negligent, or accidental acts of other or mere chance may result in loss.  Some of the most important types of casualty insurance include the following: 1. Burglary, Robbery, Theft, and Larceny Insurance 2. Automobile Insurance 3. Liability Insurance 4. Disability, Accident, or Health Insurance

 Such insurance protects against losses resulting from identifiable criminal behavior.  In addition, this form of insurance may also protect against the mysterious disappearance of property, this is, when the reason the property disappeared cannot be determined.

 This type of insurance indemnifies for losses arising from or connected to the ownership and operation of motor vehicles.  This important insurance coverage will be discussed in more detail later in this unit.

 Such insurance provides protection against claims of parties who suffer injury or other loss as a result of negligence or other torts committed by the insured.

 These policies protect the insured from the financial consequences of hospital bills and loss of income stemming from accident or illness.

 Under the provisions of the Social Security Act and related acts, millions of Americans insure themselves against unemployment, disability, poverty, and medical expense problems.

 Marine insurance indemnifies for loss of or damage to vessels, cargo, and other property exposed to the perils of the sea. It is perhaps the oldest type of insurance, dating back to ancient times.

 Inland marine insurance covers personal property against loss or damage caused by various perils where the property is located.  The property is also covered while it is being transported by any means other than on the oceans.

 Fidelity Insurance provides coverage against financial loss caused by dishonesty. Such dishonest acts include embezzlement or failure of one person to perform a legal obligation to another, such as constructing a building as promised.  Contracts of fidelity insurance are often known as surety bonds.