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Chapter 50 Insurance
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Learning Objectives Describe an insurance contract and define insurable interest List and describe the various types of life, health, and disability insurance Identify the risks covered by a standard fire insurance policy and a homeowners’ policy Describe automobile insurance and explain no-fault insurance List and describe special forms of business insurance
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Insurance A means for persons and businesses to protect themselves against risk of loss Insured: Party who pays a premium to insurance company for insurance coverage Insurer: Insurance company that underwrites insurance coverage Policy: Insurance contract Premium: Money paid to insurance company
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Insurable Interest Requirement that a person who purchases insurance have a personal interest in the insured item or person Person who has close family relationship or economic benefit from the continued life of another has insurable interest Person can insure own life and name a beneficiary
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Insurance Policy Governed by law of contracts
Prepared on standardized forms Some state statutes mandate specific language Statutes concern coverage for certain losses Modification is done by executing an insurance endorsement Insurance policy can be cancelled at any time
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Duties of Insured and Insurer
Pay premiums stipulated by policy Notify insurer after occurrence of insured event Cooperate with insurer in investigating claims Duties of insurer Duty to defend insured against lawsuits Duty to pay legitimate claims up to policy limits
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Deductible Clause and Exclusions from Coverage Clause
Provides that insurance proceeds are payable only after the insured has paid a certain amount of the damage or loss Exclusions from coverage clause Stipulates the risks that are not covered by the insurance policy
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Case 50.1: Exclusion from Insurance Coverage
Iroquois on the Beach, Inc. v. General Star Indemnity Company 550 F.3d 585, Web 2008 U.S. App. Lexis (2008) United States Court of Appeals for the Sixth Circuit Issue Did the exclusion from coverage apply?
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Coinsurance and Incontestability Clause
Coinsurance clause Requires the insured to pay a percentage of an insured loss Incontestability clause Prevents insurers from contesting statements made by insureds in applications for insurance after the passage of a stipulated number of years
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Life Insurance A form of insurance where the insurer is obligated to pay a specific sum of money upon the death of the insured
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Exhibit 50.1 - Life Insurance
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Types of Life Insurance
Description Whole life Provides coverage during the entire life of the insured. Premiums paid during the life of the insured or until a certain age. Element of savings. Limited-Payment Premiums paid for a fixed number of years. Coverage is provided during the entire life of the insured. Term Insurance is issued for a limited period of time. Premiums are payable and coverage effective during this term. Universal life Combines features of both term and whole life insurance. Endorsement and Annuity Contracts Forms of retirement and life insurance contracts.
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Suicide Clause Provides that if an insured commits suicide before a stipulated date, the insurance company does not have to pay the life insurance proceeds If the insured commits suicide after the specified date, the insurance company must pay the life insurance proceeds to beneficiary Suicide clause is valid is two years
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Health and Disability Insurance
Type Description Health Insurance that covers the cost of medical treatment, surgery, and hospital care Dental Insurance that covers the costs of dental care Disability Insurance that provides monthly income to an insured who is disabled and cannot work (Benefits are based on the degree of disability)
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Fire and Homeowners’ Insurance
Type Description Standard fire insurance policy Protects personal property against losses resulting from fire, lightning, smoke, water damage, etc. Homeowners’ policy Coverage for risks covered by standard fire insurance policy and personal liability insurance Personal liability coverage Insurance for insured and members of his or her family Personal articles floater Coverage of specific valuable items, usually excluded from standard fire and homeowners’ policies Renters’ insurance Covers loss and damage to renters’ possessions and provides personal liability coverage
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Title Insurance Ensures that owners of real property have clear title to the property Protects against defects in titles and liens or encumbrances that are undisclosed on title insurance policy New owner or mortgagee must purchase new title insurance policy
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Automobile, Vehicle, and Vessel Insurance
Type Description Collision insurance Covers the insured’s vehicle against risk of loss or damage when struck by another vehicle Comprehensive insurance Covers the insured’s vehicle against risk of loss or damage from causes other than collision, such as fire, theft, etc. Automobile liability insurance Covers damage and loss that insured causes to third parties. It includes bodily injury and property damage Medical payment coverage Covers medical expenses incurred by owner and passengers who are injured in automobile accident Uninsured motorist coverage Coverage to drivers and passengers of a vehicle who are injured by an uninsured motorist No-fault insurance Driver’s insurance company pays for any injuries or death the driver suffers in an accident
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Marine Insurance Insures against loss or damage to the vessel and its cargo caused by perils on water Covers property damage to vessel or its cargo and liability insurance Covers risk of loss of goods during shipment Inland marine insurance Ocean marine insurance
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Business Insurance Type Description Business interruption insurance
Reimburses business owners for loss of income caused when fire or other peril interrupts their business Workers’ compensation insurance Compensation to employees injured on the job Key-person life insurance Covers the lives of owners and other important persons who work for the business Directors’ and officers’ liability insurance Protects directors and officers from liability for decisions and actions taken on behalf of the corporation Professional malpractice insurance Purchased by professionals–such as attorneys, physicians–to cover injuries resulting from negligence Product liability insurance Manufacturers and sellers of products can insure against liability caused by sale of defective products
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Umbrella Insurance Provides coverage in excess of basic policy limits of other insurance policies Pays only if basic policy limits on other insurance policies have been exceeded Issued only if minimum amount of basic coverage on other policies has been purchased by insured
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Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
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