1. Ch. 18 Insurance Law Pages 318 – 339 Insurance Fundamentals
Property and Casualty Insurance
Life and Social Insurance

2. 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

3. 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

4. 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

5. 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

6. Common Types of Insurance
Life Insurance
Fire insurance
Casualty insurance
Social insurance
Marine insurance
Inland marine insurance
Fidelity and surety bonding insurance

7. 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

8. 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

9. 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.

10. 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.

11. 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

12. 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