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)
