Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 1 Chapter 19 Insurance Law Chapter 19 Insurance Law Insurance Fundamentals Property and Casualty Insurance Life and Social Insurance

Law for Business and Personal Use © South-Western, a part of Cengage Learning 19.1 INSURANCE FUNDAMENTALS Slide 2 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 3 Chapter 19 WHY HAVE INSURANCE? What is Insurance? Contractual agreement that protects against loss An insurance company agrees to pay money to help offset a specified type of loss that MIGHT occur to another party This payment is usually set at a minimum Not used for frequent, smaller occurrences Insurance is only one part of an effective risk-management program Analysis of events that could occur Self-insure – use emergency funds

Law for Business and Personal Use © South-Western, a part of Cengage Learning WHY HAVE INSURANCE? When one party pays to compensate for harm that party is said to indemnify or make whole the loss to the suffering party The party who agrees to indemnify or make good is the insurer The party covered or protected is the insured Beneficiary-the recipient of the amount to be paid by the insurer Slide 4 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 5 Chapter 19 WHY HAVE INSURANCE? How does insurance work? Insurance premiums from the insured are pooled together This pool of money creates the funds for which to pay any of those insured to cover a loss

Law for Business and Personal Use © South-Western, a part of Cengage Learning WHY HAVE INSURANCE? Policy –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 or payment for a contract of insurance Risk-the potential for loss arising from injury to or death of a person for damage or destruction of property from a peril Slide 6 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 7 Chapter 19 COMMON TYPES OF INSURANCE Property Insurance 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

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 8 Chapter 19 COMMON TYPES OF INSURANCE Casualty insurance Insurance against criminal activity – embezzlement, larceny, mysterious disappearing Auto insurance Liability insurance – protected against tort claims Accident Health insurance Worker’s compensation insurance Carried by employers as required by law

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 9 Chapter 19 COMMON TYPES OF INSURANCE Life insurance Term insurance 1, 5, 10 years – death within term, face value of policy goes to beneficiary No obligation to insured or insurer if term expires Whole life insurance (Straight Life) Pay premiums throughout life, a portion of premiums go into savings that can be withdrawn at low interest rates At death, face value goes to beneficiary Endowment life insurance Coverage period of 20 years or until retirement age Pay premiums but receive face value at end of term REGARDLESS of death

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 10 Chapter 19 COMMON TYPES OF INSURANCE Health Insurance Purchased to cover insured and possibly family Used to cover ongoing health care expenses, unexpected illnesses or injuries that are expensive Disability Insurance Purchased during working years Pays benefits if the insured becomes disabled under the terms of the policy Stop paying benefits after a certain number of years or until age 65

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 11 Chapter 19 COMMON TYPES OF INSURANCE Social Insurance Social Security Act Taxpayer-paid premiums to cover unemployment, disability, poverty, medical problems Fidelity and Surety Bonding Insurance Covers businesses against financial loss caused by dishonesty (embezzlement) Insures against the failure of one person to perform a legal obligation to another

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 12 Chapter 19 COMMON TYPES OF INSURANCE Marine insurance loss of damage to vessels, cargo, and other property exposed to the perils of the sea perhaps the oldest type of insurance dating back to ancient times Inland marine insurance covers personal property only while it was being transported anywhere but on the ocean today it covers the property wherever it is located whether in transport or not

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 13 Chapter 19 WHAT IS AN INSURABLE INTEREST? A person with contractual capacity can acquire insurance if he or she would suffer loss if the insured property is damage or destroyed or if insured person is injured or dies Insurable interests in property A person may not insure property, then sell it, and expect to be paid if the property is later damage or destroyed Insurable interests in life Beneficiaries seeking to take out a policy on another person’s life must demonstrate that they would suffer direct financial loss if insured died Has to show an insurable interest at the time the policy is taken out

Law for Business and Personal Use © South-Western, a part of Cengage Learning 19.2 PROPERTY AND CASUALTY INSURANCE Slide 14 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 15 Chapter 19 Property and Casualty Insurance Some overlap between the two Exclusions - exceptions in a policy that must be expressly stated Losses due to flood, earthquake, war, terrorism invasion, rebellion, nuclear disaster, deprecation and pollutions

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 16 Chapter 19 PROPERTY INSURANCE Fire insurance-type of insurance that covers the direct loss to property resulting from fire, lightning strike, or removal from premises endangered by fire Standard fire policy-basic coverage specified by law Endorsements to the standard fire policy-Riders to add coverage Proving a loss should be indemnified-3 steps 1.Show that there was an actual fire-glow or flame 2.Fire has to be hostile-(fire started by accident, negligence or a deliberate act uncontrolled by the insured or friendly fire (a fire in its intended place that become uncontrollable 3.The hostile fire has be to the nature foreseeable cause of the loss

Law for Business and Personal Use © South-Western, a part of Cengage Learning Coinsurance - a clause in property insurance that requires the insured to maintain coverage equal to a certain percentage of the total current balance of the insured property Slide 17 Chapter 19 PROPERTY INSURANCE

Law for Business and Personal Use © South-Western, a part of Cengage Learning Inland marine insurance-loss to most personal property while it is being transported across land or inland waterways The transportation mode is not covered Personal property floater – protection “floats” with the property Insurance of single pieces of personal property Slide 18 Chapter 19 PROPERTY INSURANCE

Law for Business and Personal Use © South-Western, a part of Cengage Learning Liability insurance - a type of casualty insurance that indemnifies against personal injury or property damage claims for which the insured is legally responsible Accidental is covered, not intentional Persons engaged in providing personal services Malpractice insurance – job-specific type of liability coverage Slide 19 Chapter 19 PROPERTY INSURANCE

Law for Business and Personal Use © South-Western, a part of Cengage Learning Renters Insurance Renters insurance protects individuals who live in a house, mobile home, condominium, or apartment that is owned by another person Renters insurance protects individuals who live in a house, mobile home, condominium, or apartment that is owned by another person Protects against theft, loss of personal property, loss of use Protects against theft, loss of personal property, loss of use Similar to homeowners insurance except that it does not cover the physical building Similar to homeowners insurance except that it does not cover the physical building Slide 20 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning Property and Renters Insurance Take Inventory Take Inventory To ensure that you are compensated for any belongings you lose in a loss you should inventory all of your personal belongings To ensure that you are compensated for any belongings you lose in a loss you should inventory all of your personal belongings Keep receipts for major items Keep receipts for major items Keep documentation in a place other than your home Keep documentation in a place other than your home Slide 21 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 22 Chapter 19 AUTOMOBILE INSURANCE Liability Coverage Most common type Covers insured if accused of negligent maintenance, ownership, or use of the vehicle Covers bodily injury and death to third parties Covers property damage to third parties Omnibus clause – covers all members in the household and any person given permission to drive vehicle

Law for Business and Personal Use © South-Western, a part of Cengage Learning Automobile Insurance Medical Payments Coverage Covers reasonable medical claims of occupants that are injured in an auto accident Covers insured when in an accident in another’s car Also covers insured when, as a pedestrian, a vehicle strikes them Slide 23 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning Automobile Insurance Collision Coverage Optional Protects against direct and accidental damage to the vehicle caused by: Colliding with another object Overturning the car Pays only the actual cash value of the damages less any deductible Each loss, the insured pays up to the amount of the deductible Slide 24 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning Automobile Insurance Comprehensive Insurance Indemnifies against all damages except those caused by collision or upset Slide 25 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning Automobile Insurance Uninsured Coverage Uninsured motorists coverage – allows insured to collect damages from insurance coverage if the person who caused them harm is liable for the accident AND uninsured Underinsured Coverage Covers insured if negligent driver has insurance but not sufficient for the damages Slide 26 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning Automobile Insurance No-fault insurance Parties to an auto accident be indemnified for bodily injury by their own insurance company regardless of who is at fault Limits court trials Slide 27 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning 19-3 LIFE, HEALTH, AND SOCIAL INSURANCE Slide 28 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 29 Chapter 19 LIFE INSURANCE Insurer promises to pay an agreed-upon amount to a named party upon the death of a particular person Main purpose to make up for lost income the insured would have provided The insurer agrees to pay to a named beneficiary or to the insured’s estate the face amount stated in the policy

Law for Business and Personal Use © South-Western, a part of Cengage Learning LIFE INSURANCE Exemptions – excuse the insurer from the obligation to pay the death benefit Death caused by the crash of a private airplane, an act of terrorism, or during military service The insurer is liable for the return of the premiums paid instead of face value Underwriting – the insurance company examines the prospective insured Determine if they will offer the coverage and for how much Slide 30 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning LIFE INSURANCE Incontestability Clause Prohibits the insurer from refusing to perform due to misrepresentation or fraud after the policy has been in effect for a specified period of time Usually 1-2 years Age will never void the policy Does not cover suicide before the specified length of time Slide 31 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning LIFE INSURANCE Grace Period Time granted to insured to pay an overdue premium to keep the policy in force Slide 32 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning HEALTH INSURANCE Hospital Insurance Covers expenses incurred while in the hospital after any applicable deductible and coinsurance payments are met Physician fees, tests, surgical procedures Major Medical Insurance Pays for a wide variety of medical care for illnesses Prescription drug coverage High deductibles, coinsurance, and high max- benefit limits Slide 33 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning HEALTH INSURANCE Coinsurance After the initial required deductible is met, a fixed portion of additional covered services also has to be paid by the insured Encourages conservation of medical care Slide 34 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning HEALTH INSURANCE Pre-existing conditions Illnesses the insured is or should be aware of, or is being treated for before the policy starts State mandated minimum coverage requirements Slide 35 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage Learning HEALTH INSURANCE Health reform legislation (ObamaCare) 2010 Can’t discriminate against dependent children under 19 with pre-existing conditions Dependent children can stay on parent’s health plan until ??? Penalties for employers with 50 or more employees who do not provide health insurance Prohibition on pre-existing conditions for adults Slide 36 Chapter 19

Law for Business and Personal Use © South-Western, a part of Cengage LearningSlide 37 Chapter 19 SOCIAL INSURANCE Retirement insurance Eligible persons can begin receiving at retirement age Not enough to make ends meat only on these checks Survivor’s insurance Meant for widow or widowers who a) are over 60 and had been married for 10 years b) widow or widower caring for 16 yrs or younger or disabled child c) dependent children under 18, dependent parents over 62

Law for Business and Personal Use © South-Western, a part of Cengage Learning SOCIAL INSURANCE Social security disability insurance “prevents the eligible person from being able to do “any substantial work” for at least one year” Government Health Insurance For those 65 and older Medicare Medicaid Slide 38 Chapter 19