RMI 3011 Quiz 2

Coinsurance Calculation

(did/should)*loss = Amount Paid

principle of utmost good faith

A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

What is estoppel?

A legal prohibition which stops a person from making a particular statement of claim because of something he has said or done before

Deductible

A provision by which a specified amount is subtracted from the total loss payment otherwise would be payable.

Endorsements and Riders

A written provision that adds to, deletes from, or modifies the provisions of the original contract or policy

5 Things a contract is in the insurance world

Aleatory Unilateral Personal Conditional Adhesion

Coinsurance Did =

Amount of Insurance Carried

Coinsurance Should =

Amount of insurance required

Named Perils

Covered perils are specifically named in the policy

Coinsurance: (Did and Should) Example: - Insured Purchased $600,000 policy on building - Building is currently Valued at $1,000,000 - Insured Suffers $100,000 Loss How much does insurance pay?

Did = $600,000 Should = $800,000 (.8 x $1,000,000) Loss = $100,000 (did/should)*loss = Amount Paid (600,000/800,000) x 100,000 = $75,000 paid

shared (residual) market

High risk drivers who have difficulty obtaining auto insurance in the voluntary market can obtain insurance

What is coinsurance?

Percentage of costs the insurance company and insured each pay (usually 80/20)

What is a conditional contract?

Performance is dependent on an uncertain event or condition

Other insured

Persons who are insured under the Named Insured's policy even though they are not specifically named in the policy

reinsurance facility (or pool)

Pool for placing high-risk automobile drivers that arranges for an insurer to accept all applicants for insurance. Underwriting losses are shared by all auto insurers in the state.

What is an Insurance interest?

You must own the item you lost

unsatisfied judgment funds

a state fund for compensating auto accident victims who have exhausted all other means of recovery

purpose of coinsurance

achieve equity in rating

Additional Insured

added by endorsement

No-fault auto insurance

after an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault

Open Perils

all perils are covered except for those that are specifically excluded

Implied Authority

an agent's authority to do things not specifically authorized in order to carry out express authority

Joint Underwriting Association (JUA)

auto insurers in the state participate in providing coverage to high-risk drivers through a common pool

Uninsured motorists coverage

automobile insurance designed to meet the needs of "innocent" victims of accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists

contribution by equal shares

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

pro rata liability

each insurer's share of the loss is based on the proportion that its insurance bears to the total amount of insurance on the property

Miscellaneous provisions

include cancellation, subrogation, requirements if a loss occurs assignment of the policy and other insurance provisions

Insurance is a Contract of ____________________

indemnity

Specialty insurers

insurers that specialize in insuring motorists with poor driving records

choice no-fault plan

motorists can elect to be covered under the state's no-fault law and pay lower premiums

add-on plan

pays benefits to an accident victim without regard to fault, and the injured person has the right to sue the negligent driver who caused the accident

What is a unilateral contract?

promise for an act

Maryland Automobile Insurance Fund

provides insurance to high-risk drivers who have been canceled or refused insurance by private insurers

Low-cost auto insurance

provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance

Conditions

provisions in the policy that qualify or place limitations on the insurer's promise to perform

Actual Cash Value

replacement cost minus depreciation

compulsory insurance law

requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered

"no pay, no play" laws

restrict uninsured motorists from suing negligent drivers for noneconomic damages, such as compensation for pain and suffering

financial responsibility law

state legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident

Declarations

statements that provide information about the particular property or activity to be insured

Excluded perils

the contract may exclude certain perils, or causes of loss

What is a Contract of Adhesion?

the insured must accept the entire contract with all of its terms and conditions

Named Insured

the person or persons named in the declarations section of the policy

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

What is a waiver?

the voluntary relinquishment of a known legal right

Exceptions to Indemnity

valued policy, valued policy laws, replacement cost insurance, life insurance

Arguments against no-fault laws include:

-Defects of the negligence system are exaggerated -Claims of savings from no-fault are exaggerated -Court delays are confined to a few large cities -Safe drivers may be penalized by no-fault -No-fault provides no payment for pain and suffering -The present tort liability system needs only to be reformed

Arguments in support of no-fault laws include:

-Difficulty in determining fault. -Inequity in claim payments. -High transactions costs and attorney fees. -Fraudulent and inflated claims. -Delay in payments.

Purpose of deductibles

-To eliminate small claims -To reduce premiums -To reduce moral hazard and attitudinal hazard

Reasons for Subrogation

-prevents insured from collecting twice (once from insurer, once from responsible party) - holds the negligent party responsible for the loss - reduces insurance claims costs and therefore rates

5 requirements of insurance contract

1) Offer and Acceptance (Applicant makes an offer) 2) Exchange of Consideration (Insured pays premiums/ Abides by terms) 3) Competent Parties (Can't make deal with 6 year old) 4) Legal Purpose (Can't insure cocaine) 5) Legal Form (Written document not required)

Personal Auto policy Covers What?

Anything with 4 wheels Owned or leased for at least 6 consecutive months

When is insurable interest required for life insurance to be paid out?

At the time of application

When is an insurable interest required for property/casualty to be paid out?

At the time of the loss

Example of material misrepresentation

Broken TV is a new Samsung instead of old crappy tv

Definitions

Clearly define key words or phrases in an insurance contract

Coinsurance Should Equation =

Coinsurance % x Insurable Value

What is subrogation? (Example)

If you hit a car, and the owner of the car files claim with their particular insurance carrier, the ability to sue you gets transferred to the insurance company

Example of concealment

Not telling insurance company that tv stand was loose before it fell

3 Factors of utmost good faith

Representations Concealments Warranties

Additional insured are also known as ___________________

Riders

Apparent Authority

The authority an agent is believed by third parties to have because of the behavior of the principal.

Express Authority

The authority granted to an agent by means of the agent's written contract.

What is Law of Agency?

The law that governs the relationship between a principal and his or her agent.

optional no-fault benefits

The right to sue varies across states with no-fault or add-on plans -All states permit a lawsuit in the event of a serious injury No-fault laws cover only bodily injury -Except in Michigan -Motorists are allowed to sue the negligent driver for property damage

What is indemnity?

Try to put you in the same position financially after loss as you enjoyed before the loss

What is an aleatory contract?

Unequal value is exchanged b/w parties to contract(premium vs coverage)