Unit B
Personal Law
Essential Standard 4.00
Understand financial, credit, and insurance law
BB30 Business Law 4.02
Summer 2013
4.02 Understand Types and Aspects of Insurance
A. Insurance Defined
Premiums
1. What are premiums?
2. What type of insurance types have them?
Insurable Interest-Financial Responsibility
1. What determines whether there is an insurable interest?
Risk- What is risk and how does it affect
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Insurance Defined-Continued
Exclusions
1. What does exclusion mean?
2. How does exclusion apply to insurance?
3. Why do insurance companies put exclusions in their policies?
Claims
1. What is a claim in regards to insurance?
2. How does a policy holder enter a claim?
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Insurance Defined (Continued)
Deductibles
1. What are deductibles?
2. What is the purpose of a deductible for the policy holder?
Insured
1. What or who is the insured
2. Is the insured always the policy holder or not?
Insurer
1. Who is an insurer?
2. Is the insurer a business/corporation or an individual?
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Summer 2013
Automobile Insurance
(http://www.ncdoi.com/_Publications/Consumer%20Guide%20to%20Automobile%20Insurance_CAU1.pdf)
a. Personal Auto Policy (PAP)
a. Why have a PAP?
b. What does it protect you from?
b. Liability Coveragea. What are the two types?
b. What does it protect you from?
c. Property Damage Coverage
a. What does it protect you from?
b. What is an example of this type of coverage?
d. Collision Coverage
a. What does it protect you from?
b. What is an example of this type of coverage?
e. Comprehensive Coverage-Other than Collision
a. What does it protect you from?
b. What is an example of this type of coverage?
c. How is this different
collision?
BB30from
Business
Law 4.02
Summer 2013
Automobile Coverage (Continued)
f. Medical Payment Coverage(Med Pay)
1. What is medical Payment Coverage?
2. Whom does this coverage pay for in the case of a covered accident?
g. Uninsured Motorist Coverage
1. What is uninsured motorist coverage?
2. What are two types of losses that this type of coverage will cover?
g. Underinsured Motorist Coverage
1. What is underinsured motorist coverage?
2. Is this coverage mandatory in North Carolina?
g. Miscellaneous Coverage-Towing, Rental Vehicle, Custom Coverage
1. Are these types of coverage mandatory for automobile insurance?
2. What does towing coverage provide?
3. What does rental coverage provide?
4. What does custom insurance provide?
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Summer 2013
Motorcycle Insurance
Liability, Collision, Uninsured/Underinsured and Towing Coverage is identical
to a regular automobile policy. It is important to have a special coverage for a
customized motorcycle. Traditional motorcycle coverage will only cover the
“stock value” not any customizations are added equipment.
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Summer 2013
Boat Insurance
Pleasure boat policies or endorsements often state that coverage includes
"the boat and all permanently attached equipment". The policy may then
list items that are not permanently attached, but are covered as either part
of the boat's value, or as a separate limit of insurance. Items that may or
may not be considered "permanently attached" under a policy include:
• Anchors
• Batteries
• Bilge pumps
• Boat furniture
• Boat and motor covers
• Cook stoves
• Deck chairs
• Depth finders
• Detachable canopies
• Emergency signaling devices
• Fire extinguishers
• Fittings
• Fuel tanks
• Horns
• Life preservers
• Lights
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Summer 2013
Property Insurance
a. Homeowners Insurance
Designed to protect the physical assets owned, leased, rented or used by
individuals and families.
b. Coverage for Property
1. There are (4) basic coverage types within a homeowners policy.
2. Coverage A is for dwelling - located on the residence premises including any
attached structures.
3. Coverage B is for other structures - such as a detached garage, workshop,
swimming pools, fences and gazebos.
4. Coverage C is Personal Property - anything other than real property (land or
anything attached to it). Basically clothing, furniture, televisions. Exceptions: Special
items such as money, jewelry, firearms, silverware and other high value metals have
loss value limits.
5. Coverage D is for loss of use - Provides money for you and your family to live
elsewhere when you cannot live in your home because of a covered loss.
BB30 Business Law 4.02
Summer 2013
Homeowner’s Exclusions
a. Earth Movement
Includes earthquakes, landslides, mudslides etc.
b. Water Damage
Damage to the home from flooding (requires a separate flood insurance
policy if the home is in a flood zone)
c. Power Failure
If a utility interruption takes place that is not at the insured’s home, coverage
is not provided.
d. Neglect
If the insured fails to use reasonable means to protect the insured property
from damage, the loss would not be covered.
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Summer 2013
Additional Types of Property Coverage
Renters Insurance
Offers the same protection as a homeowners policy. Roommates each must
have their own renters insurance policy.
Fire Insurance
Coverage for losses to insured property resulting from fire or lightening, as well
as any resulting smoke or water damage.
.
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Health Insurance
Traditional Health Insurance (Major Medical Coverage)
• Contains basic coverage if a catastrophic loss occurs.
• To prevent the insured from financial ruin from a long term illness or injury.
• Characterized by very high deductibles as high as $10,000 and low premiums.
Annual Deductible
• A portion of a covered loss not paid by the insurer during the insured’s
annual 12 month policy period.
• Deductible amount resets each policy year period.
Major Exclusions for Coverage
• Provision in an insurance policy eliminating coverage for certain risks or
otherwise limiting the scope of coverage.
• Certain causes and conditions listed in the policy that are not covered.
Maternity coverage, major elective surgeries are some examples.
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Health Insurance
Possible lengthy waiting periods
• Time that elapses after the insured’s policy is active, before specific exclusions
will be covered. (Ex. Maternity coverage)
Group Insurance Coverage
• Coverage provided by a group which is normally the insured’s employer or
other inclusive group.
• Coverage rates are based on the group’s “experience rating” so that each
group pays according to it’s actual claim experience
• Almost sixty percent of Americans have group health insurance
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Managed Health Care
1) HMO
• Health Maintenance Organization-group managed health insurance where will
need to receive most or all of your health care from a provider.
• HMOs require that you select a primary care physician (PCP) who is
responsible for managing and coordinating all of your health care
2) PPO
Preferred Provider Organization (PPO) is a health plan that has contracts with a
network of "preferred" providers from which you can choose. You do not need to
select a PCP and you do not need referrals to see other providers in the
network.
3)HMO-(POS)
The POS plan is like a combination of the HMO and PPO plans. You are
required to designate an in-network physician to be your primary health care
provider. You may go out-of-network if you choose, but in doing so, you will have
to pay most of the cost yourself
Individual Insurance Coverage
Available from most of the same insurer’s that provide group coverage at much
higher rates. Less than nine percent of Americans purchase individual health
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insurance.
Supplemental Health Insurance Coverage
a. Cancer Insurance Coverage
Cancer insurance pays benefits only if you're diagnosed with cancer
-- not for other illnesses -- and it doesn't cover all your treatment costs.
b. Dental Insurance Coverage
• Available in group and individual plans.
• May have restrictions on certain services, such as orthodontic
work. Many Dental plans also have a maximum benefit of around
$1,000 to $2,000 per year.
• May restrict coverage of pre-existing conditions
c. Long Term Medical Coverage
Provides for the daily custodial care as well as the long-term nursing
care that an individual may need outside of the hospital.
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Health Insurance (Continued)
d. Vision Insurance Coverage
Optometrists and ophthalmologists in a provider network offer eye
exams, eyewear and other services covered by the vision insurance plan at no
charge or at discounted fees compared with doctors outside the network.
Government Insurance Coverage
Medicare(Federal)
• Part of the federal Social Security program. Covers most individuals
that are age 65 or older.
• Can also pay benefits to qualified disabled individuals under age 65
• Covers individuals under age 65 who need long term kidney dialysis
treatment or kidney transplants
Medicaid (Federal/State)
Provides health insurance coverage to low income groups. Coverage
varies by each state.
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Medigap (Supplemental Coverage of 20%)
Medicare supplement (Medigap) insurance, sold by private companies, can help pay
some of the health care costs that original Medicare doesn't cover, like copayments,
coinsurance, and deductibles.
Disability Insurance Coverage
Disability income insurance provides monthly benefits to a disabled wage earner to
reimburse the wage earner’s income during a period of total or partial disability.
Ex. - AFLAC
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Summer 2013
Life Insurance-Types (How Much Do You Need?)
Term Insurance
• Provides coverage for a specific period.
• If the insured dies during the policy term, death benefit paid to beneficiary.
• Lower premium than whole life, universal life policies for higher coverage.
Increasing Term Insurance
Because mortality rates increase with age, the
likelihood of dying does too. Therefore the term insurance premiums also
increase
Decreasing Term Insurance
In the early years of a decreasing term policy, the
death benefit will be the face amount of the policy when purchased.
As years pass, the death benefit will decline.
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Life Insurance (continued)
Level Term Insurance
Fixed annual premium for a fixed number of years.
Permanent Life Insurance
a) Whole Life Insurance-provides lifetime protection, accrues a
cash value and has premiums that remain unchanged during the
insured’s lifetime.
b) Universal Life Insurance-Similar to whole life insurance, but
it has flexible premiums that can be increased or decreased
based on the insured’s needs.
c) Variable Life Insurance-similar to universal life insurance
but the insured can control where the policy cash value is
invested with any capital gains tax liability.
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Summer 2013
Life Insurance (Continued)
Life Insurance Optional Rider Coverage
Riders are attachments to existing policies for additional coverage for
family members (spouses/dependent children).
Guaranteed Insurability
Usually added free to most term life insurance policies and means the
policy can be altered without the need to reapply and prove your
insurability.
Accidental Death and Dismemberment
In the event of an accidental death, this insurance will pay benefits in
addition to any life insurance but only up to a set amount.
Dismemberment - Fractional amounts of the policy will be paid out if the
insured loses a bodily appendage or sight because of an accident.
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Life Insurance (Continued)
Beneficiaries
Recipient of the proceeds of the policy when the named insured dies.
Contingent Beneficiary
Contingent (or secondary) beneficiary is entitled to the policy proceeds if
the primary beneficiary has predeceased the insured.
Collecting Death Benefits
Apply for the proceeds simply by filling out the insurance company's claim
form and submitting it to the company along with a certified copy of the
death certificate.
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Summer 2013
Life Insurance (Continued)
Cost factors
Needs Approach - Determine the total financial requirements of
the insured’s surviving dependent family.
How much will it take for the insured’s family to live
Human Life Value Approach - Objective is to determine the total
amount of income that will be lost when the primary earner dies.
How much is a person worth
Statistical Basis for Life Insurance
Mortality tables provide probabilities based on deaths per 1,000 living
that are expected to die in a given year. (Ex: A 17 year old male has a
life expectancy of 58.94 years or age 75.94)
Morbidity tables show the rate of disease, illness or sickness among
groups of people according to age or other factors such as gender or
occupation.
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Summer 2013
Insurance Fraud
Automobile Repair
Billing of Medical Services
Automobile Accidents
Property Claims Adjusting
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Summer 2013