Ch. 18 Insurance Law Pages 318 – 339 Insurance Fundamentals Property and Casualty Insurance Life 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 Company Acceptance and Protection Guaranteed

All Insurance Agreements are Contracts… Continued Step 2 – Indemnification for premium or loss of insured item 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 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 Beneficiary is his wife Insured

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? 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