Chapter 19
Insurance Law
19-1 Insurance Fundamentals
19-2 Property and Casualty
Insurance
19-3 Life and Social Insurance
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 1
19-1 Insurance Fundamentals
Why Have Insurance
 Contractual agreement that protects against
loss (loss may be death, property damage
from earthquake or injury)
 When one party pays to compensate for
harm that party is said to indemnify or
make good.
 The party who agrees to indemnify or make
good is the insurer
 The party covered or protected is the
insured
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 2
WHY HAVE INSURANCE?
 Beneficiary-the recipient of the amount to be paid by
the insurer
 Policy –written contract of insurance
 Face Value-the stated maximum amount that could be
paid if the harm a person is insured against occurs
 Premium-the consideration or payment for a contract
of insurance
 Risk-the potential for loss arising from injury to or
death of a person for damage or destruction of
property from a perilm
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 3
What is the purpose of
insurance?
• To protect against loss or
damage
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Chapter 19
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Slide 4
COMMON TYPES OF INSURANCE
 Life insurance
 Term insurance
 Whole life insurance
 Endowment life insurance
 Fire insurance-for loss or damage due to a
fire(and smoke as well)
 Can be increased to cover losses due to perils such
as rain, hail ,earthquakes and windstorm
Continued on the next slide
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 5
COMMON TYPES OF INSURANCE
 Casualty Insurance-coverage for a variety of
situations in which the intentional negligent or accidental
acts of other or mere chance may result in loss.
 Insurance against criminal activity- identifiable criminal
behavior such a embezzlement , burglary, fraud , theft
robbery and larceny.
 Automobile insurance
 Liability insurance
 Disability, accident, or health insurance
 Social Insurance
Continued on the next slide
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 6
COMMON TYPES OF INSURANCE
 Marine insurance-loss of damage to vessels, cargo,
and other property exposed to the perils of the sea (perhaps
the oldest type of insurance dating back to ancient times)
 Inland marine insurance-covers personal property
only white was being transported anywhere but on the
ocean-today it covers the property wherever it is located
whether in transport or not
 Fidelity and surety bonding insurance-coverage
against finical loss cause by dishonesty-embezzlement or
failure of one person to perform a legal olbigation to another
such as constructing a building as promised. Often know as
surety bonds.
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 7
Name the seven major types of
insurance.
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Life
Fire
Casualty
Social
Marine
Inland Marine
Fidelity and Surety Bonding
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 8
WHAT IS AN INSURABLE INTEREST?
 A person with contractual capacity can acquire insurance if
he or she would suffer loss if the insured property is damage
or destroyed or if the insured person is injured or dies
 Insurable interests in property-any person that would
suffer a direct and measurable monetary loss if property were
damage or destroyed has an insurable interest in that
property (a person may not insure property, then sell it, and expect to be
paid if the property is later damage or destroyed)
 Insurable interests in life-a person has an insurable
interest in her or his life-everyone how meets the insurance
company’s requirements and is legally competent may
acquire a life insurance policy-creditors may insure their
debtors, business many insure their partners or key
employees and husband and wives may insure one another.
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 9
What is an insurable interest?
• The reasonable potential to sustain
loss if the insured property is damage
or destroyed or if the insured person is
injured or dies
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 10
19-2 Property and Casualty Insurance
 Property insurance-The general type of insurance
intended to indemnify for harm to the insured
personal or real property brought about by perils
such as fire, theft and windstorm
 Casualty Insurance- the type of insurance that
indemnifies for losses resulting from accident,
chance or negligence (worker’s compensation,
disability insurance, and health insurance)
 Some overlap between the two
 Exclusions-exceptions in a policy- (losses due to
war, terrorism invasion, rebellion, nuclear disaster,
deprecation and pollutions
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 11
PROPERTY AND CASUALTY INSURANCE
 Fire insurance-type of insurance that covers the direct loss
to property resulting from fire, lightning strike, or removal
from premises endangered by fire
 Standard fire policy-basic coverage specified by law
 Endorsements to the standard fire policy-Riders to add
coverage
 Proving a loss should be indemnified-3 steps
1. Show that there was an actual fire-glow or flame
2. Fire has to be hostile-(fire started by accident, negligence or a
deliberate act uncontrolled by the insured or friendly fire (a fire
in its intended place that become uncontrollable
3. The hostile fire has be to the nature foreseeable cause of the
loss
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Chapter 19
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Slide 12
 Coinsurance - a clause in a fire insurance policy
that requires the insured to maintain coverage
equal to a certain percentage of the total current
balance of the insured property
 Inland marine insurance-loss to most personal
property white it is being transported across land
or inland waterways
 Liability insurance-a type of casualty insurance
that indemnifies against personal injury or
property damage claims for which the insured is
legally responsible (major part of most
automobile insurance policies)
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 13
AUTOMOBILE INSURANCE
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Liability coverage
Medical payments coverage
Collision and comprehensive coverage
Uninsured and underinsured coverage
No-fault insurance
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 14
19-3 LIFE INSURANCE
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Exemptions
Incontestability clause
Grace period
Additional coverages
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 15
SOCIAL INSURANCE
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Retirement insurance
Survivor’s insurance
Disability insurance
Health insurance
 Medicare
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 16
PREVENT LEGAL DIFFICULTIES
 Be honest in answering all questions on insurance
applications. A false representation or warranty or
concealing a material fact may allow the insurance
company to void the policy rather than pay for the loss.
 Carefully read the insurance contract to be familiar with
all its terms. Pay special attention to stated exclusions
and conditions.
 Select your potential insurers with caution as to their
financial reserves and their reputation for good service
in case of loss.
Continued on the next slide
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Chapter 19
© South-Western, a part of Cengage Learning
Slide 17
PREVENT LEGAL DIFFICULTIES
 Be aware of the expiration dates, cancellation terms,
and renewal provisions of your policies. Move
quickly to acquire other coverage if a policy lapses
or is terminated.
 One of the most frequently incurred and potentially
disastrous liabilities results from a lawsuit based on
bodily injury and property damage in an automobile
accident. To protect yourself, carry adequate
automobile liability coverage.
Continued on the next slide
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 18
PREVENT LEGAL DIFFICULTIES
 If you are sued as a result of an accident and you
have complied with the policy requirements, your
insurer is required to defend you. Thus, if you are
involved in an accident, no matter how trivial it may
seem to you, report it to your insurer immediately.
 If you are self-employed, report your income fully so
as to be eligible for the maximum amount of social
security benefits.
Law for Business and Personal Use
Chapter 19
© South-Western, a part of Cengage Learning
Slide 19