Ch. 50 Insurance Flashcards
How do individuals and businesses typically protect their personal and financial interests?
Obtaining insurance
What is insurance?
- A contract in which the insurance co (the insurer)
- promises to pay or otherwise compensate another (either the insured or the beneficiary)
- for a particular loss
Insurance may provide for compensation in the event of what?
1) Injury or death of insured
2) Damaged to insured’s property
3) Other types of losses (e.g. from lawsuits)
True or false.
Insurance is an arrangement for transferring and allocating risk.
True
What is an insurance contract called in insurance jargon?
Policy
What is the consideration paid to the insurer called?
Premium
What is the insurance co. sometimes called in insurance jargon?
Underwriter
What are the parties to an insurance policy called?
- Insurer (insurance company)
- Insured (person covered by its provisions)
Insurance contracts are usually obtained through whom?
- Agent (who normally works for the insurance company)
- Broker (who is ordinarily an independent contractor)
What is the difference b/w an agent and a broker?
- Agent = agent of insurance co
- Broker = agent of applicant
How is insurance typically classified?
- According to the nature of the risk involved (e.g. fire insurance, casualty insurance, life insurance, title insurance, etc)
A person must have what in something in order to insure it?
Insurable interest
Is there an enforceable contract without an insurable interest?
NO (a transaction to purchase insurance coverage would have to be treated as a wager)
What type of insurance covers expenses, losses, and suffering incurred by the insured b/c of accidents causing physical injury or any consequent disability (sometimes includes a specific payment to heirs of insured if death results)?
Accident insurance
What type of insurance covers all losses that the insured may incur except those that are specially excluded (e.g. any losses due to war, pollution, earthquakes, and floods)?
All-Risk insurance
What type of insurance may cover damage to automobiles resulting from vandalism?
Automobile insurance
What does casualty insurance protect against?
Protects against losses incurred by the insured as a result of being held liable for personal injuries or property damage sustained by others
What type of insurance provides life insurance for a specified term with no cash surrender value (usually is renewable)?
Term Life insurance
What type of insurance protects against liability imposed on the insured as a result of injuries to the person or property of another?
Liability insurance
What type of insurance covers the death of the policyholder?
Life insurance
Do close family relationships give a person an insurable interest in the life of another?
YES
Key-person insurance is insurance obtained by an organization on the life of whom?
A person who is important to that organization
For property insurance, does the insurable interest need to exist when the policy is purchased?
- NO
- Must exist at time the loss occurs though
An insurance contract is governed by the general principles of what type of law?
Contract law (although insurance industry is heavily regulated by each state)
Can misstatements or misrepresentations in an application for insurance void a policy?
YES
Is the applicant normally insured if they hire a broker to obtain insurance and the broker fails to procure a policy?
NO
A binder provides temporary coverage until a formal policy is accepted or denied. What is a binder?
- Insurance agent writes a memo called a binder indicating that a policy is pending and stating its essential terms
If a statute requires that any limitations regarding coverage be stated in the contract, will a court allow an insurer (insurance co) to avoid liability for a claim through reliance on an unexpressed restriction?
No
True or false.
Statutes commonly require that a policy for life or health insurance include an incontestability clause.
True
What does an incontestability clause provide?
Provides that after the policy has been in force for a specified length of time (i.e. two or three years), the insurer cannot contest statements made in the application
To encourage owners to insure their property for an amount as close to full value as possible, fire insurance policies generally include what sort of clause?
Coinsurance clause
What does a coinsurance clause provide?
- Provides that if owner insures the property up to a specified percentage (usually 80 percent) of its value
- he will recover any loss up to the face amount of the policy
Coinsurance applies only in instances of partial loss. The amount of the recovery is calculated by using what formula?
Loss
* (Amount of insurance coverage / (coinsurance % * property value))
= Amount of recovery
Ordinarily under an antilapse provision, the insured has a grace period of how many days within which to pay an overdue premium?
30 or 31 days
If the insured fails to pay a premium altogether, what are three alternatives to cancellation?
1) Insurer may be required to extend the insurance for a period of time
2) Insurer may issue a policy with less coverage to reflect the amount of the payments made
3) Insurer may pay to the insured the policy’s cash surrender value
Define cash surrender value
Amount of the insurer has agreed to pay on the policy’s cancellation before the insured’s death
When there is ambiguity in an insurance policy, the provision generally is interpreted against whom?
Against insurance company
Disputes over insurance often focus on applications of what?
Exclusions in the policy
Both parties to an insurance contract have a implied duty to do what?
Act in good faith
Good faith requires the insured to reveal what?
Everything necessary for insurer to evaluate the risk
Once an insurance policy is issued, what are the three basic duties under the contract for the insured?
1) Pay the premiums as stated in the contract
2) Notify insurer w/i reasonable time if an event occurs that gives rise to a claim
3) Cooperate with the insurer during any investigation or litigation
What are the three duties of the insurer?
1) Duty to investigate
2) Duty to defend
3) Duty to pay
What are the five basic types of life insurance?
1) Whole life
2) Limited PMT life
3) Term insurance
4) Endowment insurance
5) Universal life
What are the four general types of insurance coverage?
1) Life insurance
2) Fire and homeowners’ insurance
3) Automobile insurance
4) Business liability insurance
May an insurer adjust the premium payments and/or benefits of a policy due to discovery of misstatement of age?
Yes
Can the termination of a life insurance policy take place if the terms of the policy expire?
YES
What are the two basic types of insurance policies for a home?
1) Standard fire insurance policies
2) Homeowners’ policies
Under standard fire insurance policies, is a friendly fire covered?
NO
Most standard fire insurance policies have an occupancy clause that require what?
That premises be occupied at time of the loss
What are the two basic types of homeowners’ coverage?
1) Property coverage
2) Liability coverage
What does property coverage include?
Includes garage, house, and other private buildings on policyholder’s lot
What are some perils insured under property coverage?
- Fire, lightning, wind, hail
- Vandalism, theft (of personal property)
Does standard homeowners’ insurance typically cover flood damage?
No
Homeowners’ insurance. What is liability coverage for?
For personal liability in the event that someone is injured on the insured’s property
What are the two basic kinds of automobile insurance?
1) Liability insurance
2) Collision and comprehensive insurance
