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Quote of the Day “If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss, And lose, and start again at your beginnings And never breathe a word about your loss....” Rudyard Kipling, English novelist and poet, In the poem “If” (ends “you’ll be a man, my son.”)

Insurance Contract  An insurance policy must meet all the common law requirements for a contract.  Offer and Acceptance The purchase of a policy makes an offer by delivering an application and a premium to the insurer. It can be accepted by oral notice, by written notice, or by delivery of the policy. It also has a fourth option-a written binder, which is a temporary acceptance.

Insurable Interest  An insurance contract is not valid unless the owner has an insurable interest in the subject matter of the policy. This means you must have some financial stake in the subject of the insurance policy. The insurable interest must exist at the time of loss, and cannot be for more than the amount of loss.

Insurers’ Rights  Insurers have the right to void a policy if, during the application process, the insured makes a material misstatement or conceals a material fact.  Insurers have the right to void a policy if the insured violates a warranty.

Co-Payments  Deductibles Deductible provision that requires the insured to pay a certain amount of the claim herself.  Co-insurance Co-insurance means that the insured must pay some percentage of the entire loss.  Pro Rata Provisions A pro rata clause prevents an insured from collecting more than the actual damage suffered.

Taking on Rights and Duties  Subrogation If an insurance company pays a claim, it is subrogated to the rights of the insured, meaning that the company acquires whatever rights the insured has against any third parties.  Suretyship In suretyship, the insurance company succeeds to the obligations of the insured.

Bad Faith by the Insurer  Insurance policies often contain a covenant of good faith and fair dealing, which may be violated by: Fraud Refusing to Pay a Valid Claim Wrongfully Refusing to Accept a Settlement Offer

Property Insurance  Property insurance (also known as casualty insurance) typically does not cover: Earthquakes and floods (unless a special rider is added) Friendly fire (fire that stays where it is supposed to be) Employee theft or embezzlement Merchandise lost or damaged in transportation

Life Insurance  Term Insurance – simple, cheap; covers a particular time period  Whole Life Insurance (straight life) – more expensive, but forces policyholder to save; part of premium goes into a savings, giving the policy cash value.  Universal Life – a hybrid of term and whole life; premiums may be adjusted some.

Life Insurance (cont’d)  Annuities are the reverse of life insurance-they make payments until death whereas life insurance pays after death.  Accidental Death – policy may have a double indemnity clause, doubling the value of the policy if the death is accidental.

Health Insurance  In a pay for service plan, the insurer pays for almost any treatment ordered by almost any doctor.  In managed care plans, patient and doctor choice is limited, in order to limit costs.

Disability Insurance  Disability insurance replaces the insured’s income if he becomes unable to work because of illness or injury.

Liability Insurance  The purpose of liability insurance is to reimburse the insured for any liability she incurs by (accidentally) harming someone else.  Liability insurance covers: Injuries sustained on the insured’s property Injuries to another’s property caused by the insured Professional malpractice Product liability

Automobile Insurance  Collision – pays to repair or replace a car damaged in an accident.  Comprehensive – covers fire, theft and vandalism.  Liability – covers harm to other people or other property (usually required).  Uninsured Motorist – covers the insured and all passengers who are injured by another driver who does not have insurance.

“Life is risky. Insurance provides a financial buffer against risk. But purchasing insurance without understanding its law creates its own risk.” “Life is risky. Insurance provides a financial buffer against risk. But purchasing insurance without understanding its law creates its own risk.”