Interest, Subrogation, and Claims

Question 1

Basic claims process

Answer 1

1. ) Filing a claim
2. ) Acknowledgement
3. ) Investigation
4. ) Evaluation
5. ) Adjustment

Question 2

Insurable interest

Answer 2

Direct financial interest in protecting something or someone.

• Only parties with insurable interest can insure a property or person
• You cannot insure a house you do not own or have some financial interest in.
• You ca only insure someone’s life if that person’s death would cause you economic hardship.

Question 3

Lender interest

Answer 3

A lender’s financial stake in an insured item.

• Protects a lender who loans money to a buyer
• Allows insurers to compensate a lender if a property, in which the lender has a financial interest, is damaged.

Question 4

Concept of subrogation

Answer 4

The transfer of rights that allows the insurer to recover its losses after it has indemnified a policy holder.

How it works: when a policyholder is indemnified for a loss, she may no longer collect payment for that loss from anyone else. She has transferred this right to the insurer.

Subrogation step-by-step

1. ) Ed damages Sue’s property.
2. ) Sue is indemnified for the loss by her insurer.
3. ) Sue’s insurer can now demand payment from Ed to recover the funds it paid to Sue.
4. ) Sue may NOT demand payment from Ed.

• Ex.:
  1. ) Sarah injuries Beth in a car accident.
  2. ) Beth’s insurer pays Beth $25,000 for the damages.
  3. ) By accepting the payment, Beth transfers her right to collect $25,000 to the insurer.
  4. ) The insurer “steps into Beth’s shoes” and sues Sarah for $25,000.

Question 5

First party claim

Answer 5

A claim filed by the policyholder against his or her own insurance policy

• Must be paid by policyholder’s own insurer
• Ex.: You insure your home with ABC Insurance against hail. A hailstorm damages your roof. Your claim on ABC for the damage is a first party claim.

Question 6

Third party claim

Answer 6

A claim filed against an insurance policy by anyone other than the person named on that policy.
-Ex.: Jake runs a red light and crashes into Kelly’s car; Kelly can file a third party claim with Jake’s insurer to recover the damages that Jake caused to her and her car.

Question 7

Filing a claim

Answer 7

Claims-filing facts:

• Filing a claim does not grant immediate indemnification
• When insured parties file a claim, it means they believe they are owed payment by an insurer.

Question 8

Acknowledgement

Answer 8

After receiving a claim, an insurer must:

• acknowledge receipt of a claim.
• begin investigating all pertinent facts and issues surrounding the claim.

Question 9

Insurance adjuster

Answer 9

represents the insurer; responsible for evaluating the circumstances of a claim.

Question 10

Investigation

Answer 10

Investigation includes:

• Finding the proximate cause of the loss
• Examining all damages
• Noting all circumstances surrounding the loss
• Taking witness statements and reviewing police reports, when necessary.
• Determining liability, when relevant to the claim.
• Deciding whether the claim is valid or not.

Question 11

Evaluation

Answer 11

If the claim is valid, the Adjuster evaluates it, which includes:

• considering policy limits and deductibles
• calculating lender interest
• determining the value of the loss
• applying all financial provisions of the policy

Question 12

Adjustment

Answer 12

The final disposition of a claim:

• If a claim is accepted, the insurer must pay promptly after notifying that the claim will be paid.
• If claim is denied, the insurer must explicitly state its reasons for denial.

Question 13

First party claim

Answer 13

made by the policyholder on her own policy

Question 14

Third party claim

Answer 14

made by anyone other than the policyholder

Question 15

The claims process

Answer 15

1. ) The claimant contacts the insurer and files a claim.
2. ) The insurer acknowledges the claim and requests all items necessary to prove the loss.
3. ) The adjuster investigates the claim and determines whether it is valid.
4. ) If valid, the adjuster evaluates the claim.
   5) The insurer accepts or rejects the claim.

Question 16

Lender interest provisions:

Answer 16

• Allow the lender to be listed as a payee on the policy.
• Ensure that the lender is notified if the policy is canceled, reduced or expires.
• Provide compensation for the lender in the event of an act or an omission by insured party.
• Permit the lender to pay policy premiums to maintain coverage, if the insured fails to do so.

Question 17

Limits on lender interest provisions:

Answer 17

• Lender may only collect up to its financial interest in a property.
• Lender may never change or

Question 18

Limits on lender interest provisions:

Answer 18

• Lender may only collect up to its financial interest in a property.
• Lender may never change or cancel an insurance policy.

Question 19

Limits to subrogation

Answer 19

• Subrogation only applies up to the amount that the insurer pays.
• The policyholder still has the right to demand payment from the guilty party for any damages that exceed the indemnity.
• Ex.: If Beth suffered a $25,000 loss, but her insurer only paid her $20,000, she would still be allowed to demand $5,000 from the guilty party.

Question 20

Waiver of subrogation

Answer 20

• included in certain types of policies and contracts
• takes away the insurer’s right to recover its losses after paying a claim
• Usually involves a higher premium

Question 21

Insurable interest

Answer 21

Direct financial interest in protecting a unit

Question 22

Lender interest

Answer 22

The lender’s financial stake in an insured item

Question 23

Lender interest provisions

Answer 23

Protect lender interest by allowing the lender certain rights in the policy

Question 24

Subrogation

Answer 24

The transfer of rights that allows the insurer to recover its losses after it has indemnified the policyholder.