Insurance Law CHAPTER 19

Insurance Fundamentals

• Insurance – A contractual arrangement

that protects against loss

• Indemnify – One party pays to

compensate for the loss

• Insurer – The party who agrees to

indemnify (GEICO, State Farm)

• Insured – The party covered or protected

by the insurer (YOU)

• Beneficiary – The recipient of the amount

to be paid• Policy – The written contract of insurance• Face Value – The stated maximum amount that

could be paid if the harm (loss) a person is injured against happens. The insured can not collect more than the actual amount of harm (loss), even if the face value is higher than the amount of the harm (loss).

Insurance Fundamentals

Insurance Fundamentals

• Premium – The consideration for the

contract of insurance

• Risk – The potential for loss arising from injury to/or death of a person or damage or destruction of property from a specific peril

Common Types of Insurance

• Life Insurance: Insurance that pays the beneficiary a set amount upon the death of a specific person.

• Term Insurance: Term insurance is written for a certain number of years. If the insured dies, the beneficiary receives the face value of the policy. If the term ends before the insured dies, the contract ends with no obligations on the insured or the insurer.

Common Types of Insurance

• Whole Life Insurance: This insurance required the insured to pay premiums for as long as the insured lives or to the age of 100. A portion of eth premium goes into a savings account from which the insured can borrow against. Upon the death of the insured, the beneficiary receives the face value minus any outstanding loans against the account.

Common Types of Insurance

• Endowment Life Insurance: This insurance normally covers the insured for a specific period of time, usually 20 years. The policy requires the insurer to pay the beneficiary the face value of the policy if the insured dies within the coverage period. If the insured lives to the end of the coverage period, the owned of the policy is paid or endowed with the face value of the policy

Common Types of Insurance

• Fire Insurance: Insurance that indemnifies for loss or damage due to fire or smoke.

Common Types of Insurance

• Casualty Insurance: Provides coverage for a variety of specific situations in which the intentional, negligent, or accidental acts of others or mere chance may result in a loss. Some examples of casualty insurance are automobile insurance, liability insurance, or disability, accident, or health insurance

Common Types of Insurance

• Social Insurance: Insurance protecting the insured against unemployment, disability, poverty, and medical expense problems.

Common Types of Insurance

• Marine Insurance - Insurance for loss of or damage to vessels, cargo, and other property exposed to the sea.

• Fidelity and Surely Bonding Insurance - Insurance that provides coverage against financial loss due to dishonesty, such as embezzlement or failure of one person to perform a legal obligation to another.

Common Types of Insurance

• Insurable Interest: A person with contractual capacity can acquire insurance if he/she would suffer loss if the insured property is damaged or destroyed of if the insured person is injured or dies.

Property and Casualty Insurance

• Property Insurance: The general type of insurance intended to indemnify from harm to the insured’s personal property or real property brought about by perils such as fire, theft, and windstorm.

• Casualty Insurance: The type of insurance that indemnifies for losses resulting from accident, negligence or chance.

Property and Casualty Insurance

• Exclusions: Exceptions to the coverage of the policy. These exclusions must be expressly stated in the policy.

• Fire Insurance: Insurance that covers the direct loss to property resulting from fire, lighting strikes, or removal from premises endangered by fire.

Property and Casualty Insurance

• Endorsements: (Also known as riders). Attachments to the policy to provide for special and individual needs

• Coinsurance: A clause in a fire insurance policy that requires the insured to maintain coverage equal to a certain percentage of the total current value of the insured property. This clause would cause the amount of coverage to increase as the property value increases.

Property and Casualty Insurance

• Liability Insurance: A type of casualty insurance that indemnifies against personal injury or property damage claims for which the insured is legally responsible for.

Automobile Insurance

• Omnibus Clause: This clause in an automobile insurance policy extends coverage to all members of the named insured’s household and to any persons not in the household who is given permission to drive the insured’s vehicle.

• Collision Insurance: Protects against direct and accidental damage to the vehicle caused by colliding with another object, such as a tree or bridge embankment and overturning (upset). Collision only pays the actual value of the vehicle or its damaged parts less any deductible.

Automobile Insurance

• Comprehensive Insurance: Covers damage to the insured’s own vehicle other than from collision or upset.

• No-Fault Insurance: Requires that parties to an automobile accident be indemnified by their own insurance company regardless of who is at fault.

Life Insurance

• Grace Period: By law, most life insurance contracts provide for a period of time during which an overdue premium can be paid to keep the policy in force.

• Double Indemnity: This provision requires the insurer to pay twice the face value of the policy if the death of the insured is accidental, for an extra premium