Insurance And Procedure

Chapter Two: Insurance Contract

By: Marya Sholevar

Chapter Two: Insurance Contract

By: Marya Sholevar

Insurance

Life insurance:

Can provide a financial payment to your family and loved ones upon your death.

Health insurance help you:

-pay for services that your regular health care plan does not cover

-supplement your income if you suffer a major illness or severe injury

-pay for your medical expenses if you become ill while on vacation.

Insrance

Property and Casualty Insurance:

Property insurance can provide coverage for loss or damage to:

• your home or personal possessions

• your car

• your business.

Casualty insurance can provide coverage against legal liability for losses caused by:

• injury to other people

• damage to the property of others.

The Basics Parts of an Insurance Contract

1.Declarations

2.Definitions

3.Insuring Agreement

4.Exclusions

5.Conditions

6.Deductibles

7.Miscellaneous Provisions

8.Insured

9.Rider And Endorsement

The Basics Parts of an Insurance Contract

Declarations:

Statements about the property or life to be insured.

Definitions:

Section of the policy in which the insurer explains the meaning of key words or phases in the contract.

Insuring Agreement:

Part of the insurance contract that states the major promises of the insurer.Two basic forms are named peril coverage and all-risks coverage

The Basics Parts of an Insurance Contract

Exclusions:

Listing of perils, losses, and property that are not covered under the insurance contract.

Conditions:

Provisions that qualify or place limitations on the insurer’s promise to perform.

Deductibles

Amount of your claim that you agree to pay before the insurer pays the rest.

The Basics Parts of an Insurance Contract

Miscellaneous Provisions:

General provisions common to insurance contracts that address the relationship between the insurer and the insured, and the responsibilities of the insurer toward third parties.

Insured:

Person(s) protected by the insurance policy.

Rider And Endorsement:

Clause or term added to your insurance policy to provide protection, for an additional cost, for risks not covered in a basic policy.

Why Exclusions?

Some perils considered unisurable Presence of extraordinary hazards Coverage provided by other contract Moral hazard problems Coverage not needed by typical insureds

Purposes of Deductibles

Reduce the number of small claims Reduce premiums reduce moral and attitudinal (morale) hazard

Deductibles In Health Insurance And Property Insurance

Deductibles In Health Insurance :Calendar-year DeductibleCorridor DeductibleElimination Period

Deductibles In Property Insurance :Straight DeductibleAggregate Deductible

DEFINITION OF “INSURED”

An insurance contract must identify the person or

parties who are insured under the policyNamed insuredFirst named insuredOther insuredsAdditional insureds

COINSURANCE

Coinsurance is a contractual provision that often

appears in property insurance contracts.

Nature of Coinsurance:

A coinsurance clause in a property insurance contract encourages the insured to insure the property to a stated percentage of its insurable value.The insurable value of the property is the actual cash value, replacement cost, or some other value described in the valuation clause of the policy.

COINSURANCE

A coinsurance formula is used to determine the

amount paid for a covered loss. The coinsurance for-

mula is as follows:

(Amount of insurance carried/Amount of insurance required) * Loss = Amount of recovery

Notice

When applying the coinsurance formula, two additional points should be kept in mind.

First, the amount paid can never exceed the amount of the actual loss even though the coinsurance formula produces such a result.

Second, the maximum amount paid for any loss is limited to

the face amount of insurance.

Purpose of Coinsurance

The fundamental purpose of coinsurance is to achieve equity in rating . Most property insurance losses are partial rather than total losses. But if everyone insures only for the partial loss rather than for the total loss, the premium rate for each $100 of insurance would be higher.

If the coinsurance requirement is met, the insured receives a rate discount.

In property insurance, a coinsurance rate of 80 percent is typically used. However, the premium rate decreases as the coinsurance percentage increases.

Coinsurance Problems

Inflation can result in a serious coinsurance penalty if the amount of insurance is not periodically increased for inflation.

The insured may incur a coinsurance penalty if property values fluctuate widely during the policy period.

Solution: Agreed value coverage: insurer agrees in advance

that the amount of insurance carried meets the coinsurance requirement.

Reporting form: property values are periodically reported to the insurer.

COINSURANCE IN HEALTHINSURANCE

Coinsurance clause in health insurance contracts, requires the insured to pay a specified percentage of covered medical expenses in excess of the deductible .A typical plan requires the insured to pay 20, 25, or 30 percent of covered expenses in excess of the deductible up to a maximum annual limit.

The purposes of coinsurance in health insurance are

(1) to reduce premiums and (2) to prevent overutilization of policy benefits .

OTHER-INSURANCE PROVISIONS

Other-insurance provisions typically are present in property and casualty insurance and health insurance contracts. These provisions apply when more than one contract covers the same loss. The purpose of these provisions is to prevent profiting from insurance and violation of the principle of indemnity .

Some Important other-insurance provisions

The pro rata liability clause Contribution by equal shares Primary and excess insurance

Some Important other-insurance provisions

Pro rata liability applies when two or more policies of the same type cover the same insurable interest in the property.

Contribution by equal shares often appears in liability insurance contracts. Each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid.

Some Important other-insurance provisions

Primary and excess insurance

The primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted.

Auto insurance and the coordination-of-benefits provision in group health insurance are example of primary and excess coverage.

Some rules of coordination-of-benefits provision: Coverage as an employee is usually primary to

coverage as a dependent . the birthday rule applies to dependentsv in families

where the parents are married or are not separated.