Insurance 2007 Prentice Hall Business Law sixth edition

Insurance © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 1

Insurance A means for persons and businesses to protect themselves against risk of loss. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 2

Insurance • Insurance is defined as a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. • It is a means of transferring and distributing risk of loss. • The risk of loss is pooled. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 3

Terms • Insured – the party who pays a premium to a particular insurance company for insurance coverage. • Insurer – the insurance company that underwrites the insurance coverage. • Policy – the insurance contract. • Premium – the money paid to the insurance company. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 4

Insurable Interest • Anyone who would suffer a monetary loss from the destruction of real or personal property has insurable interest. – Person who has close family relationship or economic benefit from the continued life of another has insurable interest. – Can insure own life © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 5

Insurance Policy • Governed by contract law • Most prepared on standardized forms Coverage in place when policy issued Insured may cancel policy at any time • Insurer may cancel for nonpayment © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 6

Performance of Insurance Contracts Insured’s Duties Insurer’s Duties • Duty to pay premiums • Duty to defend • Duty to notify insurer • Duty to pay insurance proceeds • Duty to cooperate © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 7

Duties of Insured • The insured owes the insurer the duties of: – Paying premiums stipulated – Notifying insurer of occurrence of insured event in timely fashion – Cooperation during investigation © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 8

Duties of Insurer • An insurance company owes a duty to defend an insured against a lawsuit. • This includes: – Providing for and paying for a lawyer – Court costs Insurer owes duty to pay legitimate claims up to policy limit. – If insurer wrongfully refuses, they are liable for damages. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 9

Deductible Clause • Clause in insurance policy that provides that insurance proceeds are payable only after the insured has paid a specified amount of the damage or losses. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 10

Coinsurance Clause • A clause in an insurance policy that requires the insured to pay a percentage of an insured loss. • Also called a co-pay clause. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 11

Misrepresentations and Concealment • Insurer may avoid liability on policy if it was issued based upon: – Material misrepresentations by insured, or – Applicant concealed material information. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 12

Subrogation • If an insurance company pays a claim to an insured for liability or property damage caused by a third party, the insurer succeeds to the right of the insured to recover from the third party. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 13

Life Insurance A form of insurance where the insurer is obligated to pay a specific sum of money upon the death of the insured. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 14

Kinds of Life Insurance Description Whole life Provides coverage during the entire life of the insured. Premiums are paid during the life of the insured or until a certain age. Limited. Payment Premiums are paid for a fixed number of years. Coverage is provided during the entire life of the insured. Term Insurance is issued for a limited period of time. Premiums are payable and coverage effective during this term. Universal life Combines features of both term and whole life insurance. Endorsement and Annuity Contracts Forms of retirement and life insurance contracts. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 15

Double Indemnity Clause • Clause that stipulates that the insurer will pay double the amount of the policy if death is caused by accident. – A small additional premium is charged for this protection. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 16

Parties to a Life Insurance Contract 1. The insurance company issues the policy. 2. The owner of the policy is the person who contracts with the insurance company and pays the premiums. 3. The insured is the person whose life is insured. 4. The beneficiary is the person who is to receive the insurance proceeds when the insured dies. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 17

Suicide Clause • A clause in a life insurance contract that provides that if an insured commits suicide before a stipulated date, the insurance company does not have to pay the life insurance proceeds. • Usually two years. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 18

Health and Disability Insurance Health Insurance Disability Insurance • Purchased to • Insurance help cover that the costs of provides a medical monthly treatment, income to surgery, or an insured hospital who is care. disabled and cannot work. Dental Insurance • Insurance that covers the cost of dental care. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 19

Fire and Homeowners Insurance Standard Fire Insurance Policy Homeowners Policy Renters Insurance © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 20

Standard Fire Insurance Policy • Protects real and personal property against loss resulting from fire, lightning, smoke, water damage, and related perils. • Most policies exclude coverage for losses caused by enemy attack, civil war, revolution, landslides, and floods. • Most policies provide replacement cost insurance. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 21

Homeowners’ Policy • A comprehensive insurance policy that includes coverage for the risks covered by a standard fire insurance policy as well as personal liability insurance. • Includes coverage for: – The dwelling Personal property – Protection for losses caused by theft © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 22

Personal Liability Coverage • Insurer must pay property damage, personal injuries, and medical expenses to persons injured on the insured’s property and to persons injured by the insured or members of the insured’s immediate family away from the insured’s property. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 23

Renters Insurance • Covers loss and damage to renter’s possessions and provides personal liability coverage. • Insures against the same perils as a homeowners policy. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 24

Other Types of Insurance Professional Malpractice Insurance Title Insurance Credit Insurance Group Insurance © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Marine Insurance 19 - 25

Title Insurance • Insurance that owners of real property purchase to insure that they have clear title to the property. • Protects against defects in title and liens and encumbrances that are undisclosed on title insurance policy. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 26

Collision Comprehensive Automobile Insurance Liability Medical Payment No-Fault © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Uninsured Motorist 19 - 27

Auto Insurance • Collision insurance insures auto against risk of loss. – Pays damages if car is hit by another vehicle. • Comprehensive insurance covers auto from loss or damages other than from collision. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 28

Auto Insurance (continued) • Liability insurance covers damages to third parties. • Medical payment coverage policy covers medicals for authorized drivers and passengers. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 29

Auto Insurance (continued) • Uninsured motorists coverage provides coverage for driver and passengers injured by hit-andrun or uninsured motorist. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 30

No-Fault Automobile Insurance • Driver’s insurance company pays claims from driver’s car. – Medical expenses – Lost wages – Sometimes pain and suffering • Doesn’t consider who was at fault. • Assures coverage is available. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 31

Marine Insurance • Insures against loss or damage of vessel or cargo • Comprehensive • Shippers purchase to cover risk of loss of goods © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 32

Business Insurance • Business Interruption Insurance • Workers’ Compensation Insurance • Key Person Life Insurance • Fidelity Insurance • Directors’ and Officers’ Liability Insurance • Product Malpractice Insurance • Product Liability Insurance © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 19 - 33