1. INSURANCE CHAPTER 49

2. Introduction
Insurance is a contractual arrangement for transferring and allocating risk.
Risk.
Prediction concerning potential loss based on known and unknown factors.
Risk Management.
Involves the transfer of certain risks from the individual to the insurance company by a contractual agreement.

3. Insurance Terminology and Concepts
The Concept of Risk Pooling.
Based on spreading the risk of loss, large number of people obtaining insurance, reduces the premium .
Classification of Insurance.
Insurable Interest.

4. Insurance Terminology
Policy (Insurance contract).
Premium is the consideration to be paid to the insurer.
Underwriter (usually an insurance company).
Broker v. Agent.

5. Classification of Insurance
Insurance is classified according to the nature of the risk involved.
See Exhibit 49-1 in textbook for Insurance Classifications.

6. Insurable Interest
A person can insure anything in which he or she has an insurable interest.
Types of insurable interest:
Life.
Key-Person Life Insurance.
Property.

7. Insurance Classifications
Floater: Usually attaches to homeowners or business policies.
Computers
Goods transferred by employees
Car insurance…both can be double coverage

8. Life Insurance Anyone who has an insurable interest.
Must have a reasonable expectation of benefit from the continued life of another.
Insurable interest must exist at the time the policy is obtained.
Policy remains valid, even after interest no longer exists (divorce).
Key-person insurance -- insurance obtained by an organization on the life of a person important to that organization. 6

9. Insurance Interest What if Bob’s story was true?
Bob’s best friend George had a sister, Becky, that was a real dare devil. She loved to skydive, mountain bike, scuba dive and any other dangerous sport.
Bob figured she was living on borrowed living on borrowed time. He called June, a casual friend, also an insurance agent. He told her Becky was a cousin and he was going to pay her way through college as a loan. He wanted to take out a $50,000 life insurance policy on Becky incase something happened to her before she would be able to pay him back the money.
Six months later, Becky was killed in a skydiving accident. Will the insurance company have to honor the policy?
What if Bob’s story was true?

10. Property Insurance Anyone who has an insurable interest.
A person who derives a pecuniary (money) benefit from the preservation and continued existence of the property.
Insurable interest must exist when the loss occurs. 7

11. The Insurance Contract
Governed by the general principles of contract law, and regulated by the state.
Application is an offer, which insurance company can either reject or accept.
Acceptance sometimes conditional.
Need consideration.
Parties need capacity.

12. The Insurance Contract
Application For Insurance.
Effective Date.
Provisions and Clauses.
Interpreting Provisions of an Insurance Contract.
Cancellation.
Basic Duties and Rights.
Defenses Against Payment.

13. Application For Insurance
Filled in application attached to the policy and made a part of the contract.
Misstatements or misrepresentation can void a policy, specially if company can show it would not have issued policy if it had known the facts.

14. Effective Date Broker is agent for the applicant.
Agent is agent for the insurance company. He can issue a binder, if some consideration is paid, which will immediately bind the insurance company, depending on certain conditions being met.
Parties may agree contract will not be effective until policy is issued and delivered or sent to applicant.
Parties may agree policy will be binding, not be effective, until first premium paid, or physical exam passed.

15. Provisions and Clauses
Provisions Mandated by Statute.
Incontestability Clauses.
Coinsurance Clauses.
Appraisal and Arbitration Clauses.
Multiple Insurance Coverage.
Antilapse Clauses. 12

16. Provisions Mandated by Statute
Provisions which are mandated by statute to be included in the insurance policy will be deemed to be in the insurance policy -- whether they are in the policy or not. 13

17. Coinsurance Clauses
If owner insures her property for at least 80% of its value, owner will be able to recover up to the face value of the policy.
If owner insures for less than 80%, owner will be responsible for a proportionate share of the loss.
Amount of insurance recovery
Coinsurance percentage = percentage
(80%) x Property value

18. Acts of God
Earthquakes
Floods
Hurricanes
Lightning
Tornados
READ YOUR POLICY…

19. Appraisal and Arbitration Clauses
If insurer and insured cannot agree on value of property, an appraisal can be demanded.
Contract may also provide for arbitration. 16

20. Multiple Insurance Coverage
If insured has multiple insurance policies and the amount of coverage exceeds the loss, the insured can collect from each insurer only the company’s proportionate share of the liability, relative to the total amount of insurance. 17

21. Anti-lapse Clauses
Policy does not lapse automatically upon nonpayment of premium.
Insured has a grace period of thirty or thirty-one days within which to pay the overdue premium.
The insurer may be required to extend the insurance for a period of time.
Insurer may issue a policy with less coverage to reflect the amount of the payments made.
The insurer may pay the insured the cash surrender value of the policy.

22. Good Faith Obligations
Insured must act in good faith.
Insurer has duty to investigate to determine the facts.
Third party claims: Insurer is obligated to make reasonable efforts to settle the claim, and policy provides that in this situation insured must cooperate. 21

23. Get the bond!
If you are having a new roof put on your house. One of roofer’s employee’s falls off the roof and breaks his back.
You and your homeowner policy could be held liable.
To prevent this, get a bond from the roofer. No body no contract.

24. Interpreting Provisions of an Insurance Contract
Courts interpret ambiguity against the insurance company.
Uncertainty as to whether policy actually exists is resolved against the insurance company.
Insurer must adequately notify insured of any change in policy under an existing policy. 19

25. Cancellation
Insured can cancel policy at any time, and the insurer can cancel according to terms of policy.
Insurer must give written notice of cancellation. 20

26. Defenses Against Payment
Insurance company can raise any of the defenses that would be valid in any ordinary action or contract:
Fraud, misrepresentation.
Not if information given was optional.
Not incorrect statement of age.
Concurrent causation doctrine. 22

27. Types of Insurance Life Insurance. Fire and Homeowner’s Insurance.
Automobile Insurance.
Business Liability Insurance. 23

28. Life Insurance Types of Life Insurance: Whole life.
Limited-Payment Life.
Term Insurance.
Endowment Insurance.
Universal Life. 24

29. Life Insurance Features of rights and liabilities: Liability.
Adjustment Due to Misstatement of Age.
Assignment./vested interest
Creditors’ Rights.
Termination.

30. Fire and Homeowner’s Insurance
Standard Fire Insurance Policies:
Liability.
Proof of Loss.
Occupancy Clause.
Homeowner’s Insurance:
Assignment Property Coverage.
Liability Coverage.

31. Automobile Insurance Liability Insurance.(Required)
Collision and Comprehensive Insurance.
Other Automobile Insurance.
Uninsured Motorist.
Accidental Death Benefits.
Medical Payment Coverage.
No-Fault Insurance.\each collects from own insurance

32. Business Liability Insurance
General Liability.
Product Liability.
Professional Malpractice.(some states require)
Worker’s Compensation.(required)
Umbrella Policy..usually starts at one million