Insurance

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CHAPTER 50
Insurance
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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 youll be a man, my
  son.)

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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.

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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.

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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.

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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.

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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.

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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

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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

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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.

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Life Insurance (contd)

• 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.

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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.

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Disability Insurance

• Disability insurance replaces the insureds
  income if he becomes unable to work because of
  illness or injury.

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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 insureds property
• Injuries to anothers property caused by the
  insured
• Professional malpractice
• Product liability

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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.

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