Chapter 19 Insurance Law

1. Chapter 19Insurance Law 19-1 Insurance Fundamentals 19-2 Property and Casualty Insurance 19-3 Life and Social Insurance Chapter 19

2. 19.1 Insurance fundamentals Chapter 19

3. WHY HAVE INSURANCE? • What is Insurance? • Contractual agreement that protects against loss • An insurance company agrees to pay money to help offset a specified type of loss that MIGHT occur to another party • This payment is usually set at a minimum • Not used for frequent, smaller occurrences • Insurance is only one part of an effective risk-management program • Analysis of events that could occur • Self-insure – use emergency funds Chapter 19

4. WHY HAVE INSURANCE? • When one party pays to compensate for harm that party is said to indemnify or make whole the loss to the suffering party • The party who agrees to indemnify or make good is the insurer • The party covered or protected is the insured • Beneficiary-the recipient of the amount to be paid by the insurer Chapter 19

5. WHY HAVE INSURANCE? • How does insurance work? • Insurance premiums from the insured are pooled together • This pool of money creates the funds for which to pay any of those insured to cover a loss Chapter 19

6. WHY HAVE INSURANCE? • Policy –written contract of insurance • Face Value-the stated maximum amount that could be paid if the harm a person is insured against occurs • Premium-the consideration or payment for a contract of insurance • Risk-the potential for loss arising from injury to or death of a person for damage or destruction of property from a peril Chapter 19

7. COMMON TYPES OF INSURANCE • Property Insurance • Casualty insurance – coverage for a variety of specific situations in which the intentional, negligent, or accidental acts of others or mere chance may result in loss Chapter 19

8. COMMON TYPES OF INSURANCE • Casualty insurance • Insurance against criminal activity – embezzlement, larceny, mysterious disappearing • Auto insurance • Liability insurance – protected against tort claims • Accident Health insurance • Worker’s compensation insurance • Carried by employers as required by law Chapter 19

9. COMMON TYPES OF INSURANCE • Life insurance • Term insurance • 1, 5, 10 years – death within term, face value of policy goes to beneficiary • No obligation to insured or insurer if term expires • Whole life insurance (Straight Life) • Pay premiums throughout life, a portion of premiums go into savings that can be withdrawn at low interest rates • At death, face value goes to beneficiary • Endowment life insurance • Coverage period of 20 years or until retirement age • Pay premiums but receive face value at end of term REGARDLESS of death Chapter 19

10. COMMON TYPES OF INSURANCE • Health Insurance • Purchased to cover insured and possibly family • Used to cover ongoing health care expenses, unexpected illnesses or injuries that are expensive • Disability Insurance • Purchased during working years • Pays benefits if the insured becomes disabled under the terms of the policy • Stop paying benefits after a certain number of years or until age 65 Chapter 19

11. COMMON TYPES OF INSURANCE • Social Insurance • Social Security Act • Taxpayer-paid premiums to cover unemployment, disability, poverty, medical problems • Fidelity and Surety Bonding Insurance • Covers businesses against financial loss caused by dishonesty (embezzlement) • Insures against the failure of one person to perform a legal obligation to another Chapter 19

12. COMMON TYPES OF INSURANCE • Marine insurance • loss of damage to vessels, cargo, and other property exposed to the perils of the sea • perhaps the oldest type of insurance dating back to ancient times • Inland marine insurance • covers personal property only while it was being transported anywhere but on the ocean • today it covers the property wherever it is located whether in transport or not Chapter 19

13. WHAT IS AN INSURABLE INTEREST? • A person with contractual capacity can acquire insurance if he or she would suffer loss if the insured property is damage or destroyed or if insured person is injured or dies • Insurable interests in property • A person may not insure property, then sell it, and expect to be paid if the property is later damage or destroyed • Insurable interests in life • Beneficiaries seeking to take out a policy on another person’s life must demonstrate that they would suffer direct financial loss if insured died • Has to show an insurable interest at the time the policy is taken out Chapter 19

14. 19.2 Property and casualty insurance Chapter 19

15. Property and Casualty Insurance • Some overlap between the two • Exclusions - exceptions in a policy that must be expressly stated • Losses due to flood, earthquake, war, terrorism invasion, rebellion, nuclear disaster, deprecation and pollutions Chapter 19

16. PROPERTY INSURANCE • Fire insurance-type of insurance that covers the direct loss to property resulting from fire, lightning strike, or removal from premises endangered by fire • Standard fire policy-basic coverage specified by law • Endorsements to the standard fire policy-Riders to add coverage • Proving a loss should be indemnified-3 steps • Show that there was an actual fire-glow or flame • Fire has to be hostile-(fire started by accident, negligence or a deliberate act uncontrolled by the insured or friendly fire (a fire in its intended place that become uncontrollable • The hostile fire has be to the nature foreseeable cause of the loss Chapter 19

17. PROPERTY INSURANCE • Coinsurance - a clause in property insurance that requires the insured to maintain coverage equal to a certain percentage of the total current balance of the insured property Chapter 19

18. PROPERTY INSURANCE • Inland marine insurance-loss to most personal property while it is being transported across land or inland waterways • The transportation mode is not covered • Personal property floater – protection “floats” with the property • Insurance of single pieces of personal property Chapter 19

19. PROPERTY INSURANCE • Liability insurance - a type of casualty insurance that indemnifies against personal injury or property damage claims for which the insured is legally responsible • Accidental is covered, not intentional • Persons engaged in providing personal services • Malpractice insurance – job-specific type of liability coverage Chapter 19

20. Renters Insurance • Renters insurance protects individuals who live in a house, mobile home, condominium, or apartment that is owned by another person • Protects against theft, loss of personal property, loss of use • Similar to homeowners insurance except that it does not cover the physical building Chapter 19

21. Property and Renters Insurance • Take Inventory • To ensure that you are compensated for any belongings you lose in a loss you should inventory all of your personal belongings • Keep receipts for major items • Keep documentation in a place other than your home Chapter 19

22. AUTOMOBILE INSURANCE • Liability Coverage • Most common type • Covers insured if accused of negligent maintenance, ownership, or use of the vehicle • Covers bodily injury and death to third parties • Covers property damage to third parties • Omnibus clause – covers all members in the household and any person given permission to drive vehicle Chapter 19

23. Automobile Insurance • Medical Payments Coverage • Covers reasonable medical claims of occupants that are injured in an auto accident • Covers insured when in an accident in another’s car • Also covers insured when, as a pedestrian, a vehicle strikes them Chapter 19

24. Automobile Insurance • Collision Coverage • Optional • Protects against direct and accidental damage to the vehicle caused by: • Colliding with another object • Overturning the car • Pays only the actual cash value of the damages less any deductible • Each loss, the insured pays up to the amount of the deductible Chapter 19

25. Automobile Insurance • Comprehensive Insurance • Indemnifies against all damages except those caused by collision or upset Chapter 19

26. Automobile Insurance • Uninsured Coverage • Uninsured motorists coverage – allows insured to collect damages from insurance coverage if the person who caused them harm is liable for the accident AND uninsured • Underinsured Coverage • Covers insured if negligent driver has insurance but not sufficient for the damages Chapter 19

27. Automobile Insurance • No-fault insurance • Parties to an auto accident be indemnified for bodily injury by their own insurance company regardless of who is at fault • Limits court trials Chapter 19

28. 19-3 Life, health, and social insurance Chapter 19

29. LIFE INSURANCE • Insurer promises to pay an agreed-upon amount to a named party upon the death of a particular person • Main purpose to make up for lost income the insured would have provided • The insurer agrees to pay to a named beneficiary or to the insured’s estate the face amount stated in the policy Chapter 19

30. LIFE INSURANCE • Exemptions – excuse the insurer from the obligation to pay the death benefit • Death caused by the crash of a private airplane, an act of terrorism, or during military service • The insurer is liable for the return of the premiums paid instead of face value • Underwriting – the insurance company examines the prospective insured • Determine if they will offer the coverage and for how much Chapter 19

31. LIFE INSURANCE • Incontestability Clause • Prohibits the insurer from refusing to perform due to misrepresentation or fraud after the policy has been in effect for a specified period of time • Usually 1-2 years • Age will never void the policy • Does not cover suicide before the specified length of time Chapter 19

32. LIFE INSURANCE • Grace Period • Time granted to insured to pay an overdue premium to keep the policy in force Chapter 19

33. HEALTH INSURANCE • Hospital Insurance • Covers expenses incurred while in the hospital after any applicable deductible and coinsurance payments are met • Physician fees, tests, surgical procedures • Major Medical Insurance • Pays for a wide variety of medical care for illnesses • Prescription drug coverage • High deductibles, coinsurance, and high max-benefit limits Chapter 19

34. HEALTH INSURANCE • Coinsurance • After the initial required deductible is met, a fixed portion of additional covered services also has to be paid by the insured • Encourages conservation of medical care Chapter 19

35. HEALTH INSURANCE • Pre-existing conditions • Illnesses the insured is or should be aware of, or is being treated for before the policy starts • State mandated minimum coverage requirements Chapter 19

36. HEALTH INSURANCE • Health reform legislation (ObamaCare) • 2010 • Can’t discriminate against dependent children under 19 with pre-existing conditions • Dependent children can stay on parent’s health plan until 26 • 2014??? • Penalties for employers with 50 or more employees who do not provide health insurance • Prohibition on pre-existing conditions for adults Chapter 19

37. SOCIAL INSURANCE • Retirement insurance • Eligible persons can begin receiving at retirement age • Not enough to make ends meat only on these checks • Survivor’s insurance • Meant for widow or widowers who a) are over 60 and had been married for 10 years b) widow or widower caring for 16 yrs or younger or disabled child c) dependent children under 18, dependent parents over 62 Chapter 19

38. SOCIAL INSURANCE • Social security disability insurance • “prevents the eligible person from being able to do “any substantial work” for at least one year” • Government Health Insurance • For those 65 and older • Medicare • Medicaid Chapter 19