Chapter 23
Insuring Your Future
Lesson 1: Insurance and How It Works
Lesson 2: Property and Casualty Insurance
Coverage
Lesson 3: Life and Social Insurance Coverage
Lesson 23-1
Discuss the common types of
insurance
Identify when an insurable interest is
present
What is Insurance?
Insurance – a contractual arrangement that
protects against loss.
ӂ One party, usually the insurance company,
agrees to pay money to help offset a
specified type of loss that might occur to
another party.
ӂ The loss may be the death of a person,
property damage from acts of God, or
injury resulting from exposure to risks.
What is Insurance?
Indemnify – Make good the loss to the
suffering party.
Insurer – The party who agrees to
indemnify.
Insured – The party covered or protected.
Beneficiary – the recipient of the amount
to be paid.
What is Insurance?
Risk – The possible loss arising from
injury to or death of a person or from
damage to property from a specified peril.
Premium – The consideration for a
contract of insurance.
Seven Major Types of Insurance
1.
2.
3.
4.
5.
6.
Life Insurance
Fire Insurance
Casualty Insurance
Social Insurance
Marine Insurance
Inland Marine
Insurance
7. Fidelity and Surety
Bonding Insurance
Life Insurance
Life insurance is insurance that pays the
beneficiary a set amount upon the death of a
specified person.
3 Common Types
Term
Whole Life Insurance
Endowment
Life Insurance
Term – written for a certain number of years –
usually one, five, or ten years.
If the insured dies within the policy term, the
beneficiary receives the face value of the policy.
If the term ends before the insured dies, the
contract ends with no further obligation on the
insured or the insurer
Term Insurance is a relatively inexpensive type of
life insurance.
Life Insurance
Whole Life Insurance – Sometimes called
ordinary or straight life insurance
Provides for the payment of premiums for as long
as the insured lives or until age 100.
If the insured dies, the face value less any
outstanding loans against it is paid to the
beneficiary.
Life Insurance
Endowment Life Insurance – required the insurer to
pay the beneficiary the policy’s face amount if the
insured dies within the period of coverage – usually
20 years or until the insured reaches retirement age.
If the insured lives to the end of the coverage period,
the owner of the policy is paid the face value
Premiums for endowment policies are high, but is
attractive for those who need a large lump sum
available at a set point in time.
Fire Insurance
Insurance that indemnifies for loss or
damage due to fire and usually smoke
as well.
The typical fire insurance policy
coverage may be increased to cover
losses due to perils such as rain, hail,
earthquake, and windstorm.
Casualty Insurance
Provides coverage for a variety of
specific situations in which the
intentional, negligent, or accidental acts
of others or mere chance may result in
loss.
Burglary, Robbery, Theft, and Larceny
Automobile
Liability – negligence or torts commited
Social Insurance
Under the provisions of the Social
Security Act and related acts, millions of
Americans insure themselves against
unemployment, disability, poverty, and
medical expense problems.
Marine Insurance – indemnifies for los
of or damage to vessels, cargo, and other
property exposed to the perils of the sea.
It is perhaps the oldest type of insurance,
dating back to ancient times.
Inland Marine Insurance – Covers
personal property against loss or damage
caused by various perils where the
property is located. The property is also
covered while it is begin transported by
any means other than on the oceans.
Fidelity and Surety Bonding Insurance
provides coverage against financial loss
caused by dishonesty. Such dishonest
acts include embezzlement or failure of
one person to perform a legal obligation
to another, such as constructing a building
as promised. Contracts of fidelity
insurance are often known as surety
bonds.
Insurance is intended to be a personal
contract between the insurer and the
insured.
A person with contractual capacity can
acquire insurance if he or she would
suffer loss if the insured property is
damaged or destroyed or if the insured
person is injured or dies. This potential to
sustain loss is referred to as an insurable
interest.
Think About Legal Concepts
Page 346
1. A
2. False
3. False
4. D
5. False
6. True
Lesson 23-3
Identify common provisions in life
insurance contracts
Explain the types of social insurance
Life Insurance
Life Insurance is a contractual
arrangement under which an insurer
promises to pay an agreed upon amount
of money to a named party upon the death
of a particular person.
Social Insurance
Social Insurance idemnifies persons, at
least partially, from the harsh financial
consequences of unemployment,
disability, death, or forced retirement.
Life Insurance
Incontestability clause – prohibits the
insurer from refusing to perform due to
misrepresentation or fraud after the policy
has been in effect for a specified period of
time – usually one or two years.
Indemnity Coverage – required the
insurer to pay twice the face amount of
the policy if the death of the insured is
accidental.
Life Insurance
Disability Coverage – provides for
protection against the effects of total
permanent disability.
Social Insurance
Types of Social Insurance
Retirement Insurance
Survivor’s Insurance
Disability Insurance
Health Insurance
Think About Legal Concepts
Page 355
1. B
2. False
3. Incontestability
4. False
5. D