Types of Insurance
• Private Insurance
– Life and Health
– Property and Liability
• Government Insurance
– Social Insurance
– Other Government Insurance
Private Insurance
• Life and Health Insurance
– Life insurance pays death benefits to beneficiaries
when the insured dies
– The benefit pay for funeral expenses, uninsured
medical bills, estate taxes and other expenses.
– The death proceeds can also provide periodic
income payments to the deceased beneficiary.
– Health insurance covers medical expenses
because of sickness or injury
– Disability plans pay income benefits
• Property and Liability
– Property insurance indemnifies property owners
against the loss or damage of real or personal
property caused by various peril such as fire, lightning,
wind storm or tornado
– Liability insurance covers the insured’s legal liability
arising out of property damage or bodily injury to
others
– Casualty insurance refers to insurance that covers
whatever is not covered by fire, marine, and life
insurance
– Causality lines include auto, liability, burglary and
theft, workers compensation and health insurance
Private insurance coverages can be
grouped into two major categories
• Personal Lines: refer to coverage that insure
the real estate and personal property of
individuals and families or provide them with
protection against legal liability
• Commercial Lines: refer to property and
causality coverage for business firms, non
profit organizations and government agencies
Property and Casualty Insurance
Coverages
Government Insurance
• Numerous government insurance programs
are in operation in present time. Government
insurance can be divided into social insurance
programs and other government insurance
programs.
Social Insurance Programs
• Social insurance programs are government
insurance
programs
with
certain
characteristics that distinguish them from
other government insurance plans.
– Financed entirely or in large part by contributions from
employers and/or employees
– Benefits are heavily weighted in favor of low-income groups
– Eligibility and benefits are prescribed by statute
– Examples:
• Social Security, Unemployment, Workers Comp
Other Government Insurance
Programs
– Found at both the federal and state level
– Examples:
• Federal flood insurance, state health insurance pools
Social Benefits of Insurance
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Indemnification for Loss
Reduction of Worry and Fear
Source of Investment Funds
Loss Prevention
Enhancement of Credit
Indemnification for Loss
• Indemnification permits individuals and
families to be restored to their formal financial
position after a loss occurs.
• Individual can maintain their financial security
• The indemnification function contributes
greatly to family and business stability and
therefore is one of the most important social
and economic benefits of insurance.
Reduction of Worry and Fear
• The second benefit of insurance is that worry
and fear are reduced. This is true both before
and after the loss.
• If family heads have adequate life insurance,
they are less likely to worry about financial
security of their dependent
• Worry and fear are also reduced after a loss
occurs, because the insured know that they
have insurance that will pay for the loss.
Source of Investment Funds
• The insurance industry is an important source
of fund for capital investment and
accumulation. Premiums are collected in
advance of the loss and fund not needed to
pay immediate losses and expenses can be
loan to business firm.
• These funds are invested in various
investment avenues
Loss prevention
• Insurance companies are actively involved in
various loss prevention programs and also
employ a wide variety of los prevention
personnel, including safety engineers and
specialist in fire prevention occupational
safety and health and products liability
Enhancement of Credit
• A final benefit is that insurance enhances a
persons credit. Insurance makes a borrower a
better credit risk because it guarantees the
value of borrowers collateral or give greater
assurance that the loan will be repaid
Cost of insurance to Society
• Although the insurance industry provides
enormous social and economic benefit to the
society, the social cost of insurance must also
be recognized. The major social cost of
insurance include the following.
• Cost of doing business
• Fraudulent Claims
• Inflated claims
Cost of doing business
Insurers consume resources in providing
insurance to society such as land , labor,
capital and business enterprise
An expense loading is the amount needed to
pay all expenses, including commissions,
general administrative expenses, state
premium taxes, acquisition expenses, and
an allowance for contingencies and profit
Fraudulent Claims
• Second cost of Insurance comes from the
submission of fraudulent claims. Examples of
Fraudulent claims include
• Auto accidents are faked or stages to collect
benefit
• Dishonest claimants fake slip and fall accidents
• False health insurance claims are submitted
to collect benefits
Inflated claims
• Another cost of insurance relates to the
submission of inflated or padded claims.
• Although the loss is not intentionally caused
by the insured, the amount of claim may
exceed the actual financial loss.
• inflated claims results in higher premiums to
all insureds, thus reducing disposable income
and consumption of other goods and services