Insurance

Question 1

What is the insurable interest requirement meant to do?

Answer 1

it is meant to distinguish insurance from gambling and to discourage murder, arson, etc.

Question 2

What is the insurable interest requirement for property? For someone else’s life? When must they exist

Answer 2

Property: when the loss of property will cause a direct pecuniary (relating to money) loss to the insured. It must exist at time of loss, but doesn’t have to up front.

Someone else’s life: only required if beneficiary is the purchaser of the policy. Must be a pecuniary interest in the life of the insured (ex. family member, debtor-creditor relationship, partner). It must exist when policy is taken out, and doesn’t have to exist upon the later point of death.

Question 3

What are general principles to remember when it comes to an insurance contract…

• Rules of interpretation
• Application form
• Law required provisions
• Duties

Answer 3

• Rules of interpretation: for ambiguity the insurer will be favored.
• Application is part of the contract, and if it is lied on the coverage can be voided
• If state law requires something then the contract is interpreted as if it is in there, even if its not
• Duties: Good faith is owed by each and the insured has the duty to disclose any information material to the insurer’s assessment of risk. The insurer is obligate to investigate claims and settle reasonably or face damages.

Question 4

Who would win if an insurance agent promised that the contract covered something, but in the contract itself it said it didn’t cover that thing? Would the insured or insurer win?

Answer 4

The insurer would win. The person is deemed as having read the contract. This is called constructively knowing.

Question 5

Who is responsible to prove the truthfulness of claims?

Answer 5

The insurer.

Question 6

When is an insurance policy effective?

Answer 6

If there is no immediate binder of coverage, then it is when the company issues it.

Question 7

How is a policy modified? What is it regulated by?

Answer 7

It is modified through riders, and regulated by state law.

Question 8

What is the statutory anti-lapse provision?

Answer 8

Most states require a 30 day grace period for the insured to pay a premium before losing continuous coverage.

Question 9

What are the burdens of proof for the insured? Insurer?

Answer 9

Insured: 1) fact of loss, 2) occurrence while policy was in force, 3) the type of loss is generally covered by the policy.

Insurer: 1) Applicability of language forming an exception to coverage 2) some states require proof of casual connection between the exceptions and the loss.

Question 10

What are time limitations for insurance?

Answer 10

-Insured are obligated to notify the insurance company within a certain period of time about the loss. Then a little more to file an itemized listing.

Question 11

What is subrogation?

Answer 11

It means that once the insurer pays the insured it steps into the legal shoe of the insured regarding potential legal claims for recovery against 3rd parties.

ex: if pay insured for loss of car to thief, then insurer can go after thief.

Question 12

What is the significance of hostile and friendly fire in insurance claims?

Answer 12

Hostile is covered, but friendly usually is not. Friendly=started by insured on purpose ie fireplace.

Question 13

What is a pro-ration clause?

Answer 13

It is when more than one policy covers the same type of loss, and it means the various policies cover the loss proportional to their respective policy limits.

Question 14

What can you purchase to have things covered that usually aren’t under a certain policy?

Answer 14

a rider

Question 15

What happens if the policy for fire insurance is worth less than the home? Ex. FMV is $200 and policy is $140.

Answer 15

This means that the insurance company will only cover up to the policy amount. If it is a partial loss then they would partially cover it under the “co-insurance clause…

(Policy Dollar Amount) / (FMV * co-insurance %) or

140 / (200*80%) = 7/8

Question 16

What does homeowners insurance over?

Answer 16

accidents that occur on the premises

negligent injuries caused by the insured off the premises

Usually doesn’t cover auto/boat accidents and personal injuries to household members since other policies cover this.

Question 17

What does basic auto insurance cover?

Answer 17

Only covers liability to 3rd parties and only up to limits and only for things caused by insureds fault.

Question 18

Does your basic insurance cover you if you are driving someone else’s car?

Answer 18

Yes it does if you have a “drive other car” coverage

Question 19

Does your basic insurance cover someone else driving your car?

Answer 19

Yes if you have a “omnibus” or “other driver” clauses and the driver has your permission.

Question 20

What are common exclusions to basic insurance?

Answer 20

• Claims covered by workers compensation
• Intentional torts
• Admissions against interest (saying things like “it was all my fault” instead of reporting facts and saying to work through insurance company).

Question 21

Under basic auto insurance what are the insured’s and insurer’s duties in the case of a claim?

Answer 21

Insured: prompt notice and co-operation with the defense

Insurer: defend the insured even if it thinks the claim is merit-less.

Question 22

What is covered by collision & upset insurance? What is required for it to become active?

Answer 22

Insureds property . An actual collision must occur.

Question 23

What is excluded by collision & upset insurance/

Answer 23

intentional collision, illegal use of car when accident occurred, depreciation.

Question 24

Does Collision and upset insurance usually come with the basic auto insurance?

Answer 24

No it usually costs more in premiums to add.

Question 25

What does uninsured motorist insurance cover?

Answer 25

It insures you if someone uninsured hits you (not if you hit them).

Question 26

What is under-insured motorist coverage?

Answer 26

This means you insurance kicks in to compensate for injuries if the other persons insurance doesn’t cut it

Question 27

What is no-fault insurance?

Answer 27

This is insurance that kicks in regardless of fault up to the policy limits. Usually the insurer cant sue the other party, but the insured can.

Question 28

What is comprehensive auto insurance?

Answer 28

Covers property damage to the insured’s car caused by anything other than collision or upset (theft, fire, etc)

Question 29

If an accident is the insureds fault how does this effect damages to the insured? To the other person in the accident?

Answer 29

Inured: this does not stop coverage under his own collision, comprehensive, or no-fault coverage

Other: The insured had to be negligent for the insurance company to have to pay to this person.

Question 30

Is the basic amount required by law sufficient for most accidents?

Answer 30

No! Get more. So much more. It is scary to not get more. Like “What lies below” scary!

Question 31

Is life insurance a contract of indemnity?

Answer 31

No. When a death occurs the face amount of the policy will be paid out regardless of the extent of real pecuniary loss suffered by the beneficiary.

Question 32

What is the difference between term and whole life insurance?

Answer 32

Term: cheaper, premiums start small and grow, no savings feature.

Whole: Costly, savings included, cash surrender value (disappears at death, and goes to face amount), premiums start higher but stay the same over policy.

Question 33

How long does an insured have to change the beneficiary on a life insurance policy?

Answer 33

Any time before death.

Question 34

How long does a insurance company have to prove an insured lied on an application? What is this called?

Answer 34

usually 2 years.

This is called “incontestability clause”

Question 35

What happens when someone lies about their age on an insurance application?

Answer 35

Then coverage will be pro-rated based on how much the premiums paid would have purchased under the actual age.

Question 36

What reasons are given (5) for why health insurance is becoming too expensive?

Answer 36

1) government intervention (social taxes, pre-existing conditions, bankruptcy laws, requiring hospital treatment to those who cant pay)
2) Increased medical malpractice liability exposure causing fees to be raised for services
3) Increased product liability exposure for drug companies causing prices to be raised on drugs
4) Poor investment management by insurance companies
5) Corporate greed

Question 37

What are the three ways medical services will be rationed in a socialized medical system?

Answer 37

1) long lines
2) Coverage for some things but not others
3) Means testing= those with more pay for the poor

Question 38

What are the consequences to the poor and middle class for accepting socialized medicine?

Answer 38

-laziness and trading liberty for perceived security and economic stagnation.

Question 39

What is the purpose of insurance?

Answer 39

To allow people to shift naturally-occurring risk by contract among a pool of people.

Question 40

What is the difference between gambling and insurance?

Answer 40

Insurance is for naturally-occurring risk not artificially created.

Question 41

What is an insurable interest?

Answer 41

close family or pecuniary interest in the person or thing being insured