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Chapter 19 - Insurance
Chapter 19
Insurance
I. Key Terms
Add-on coverage (p. 452) Medicare (p. 454)
Adhesion contracts (p. 456) No-fault insurance (p. 451)
Annuity (p. 447) Ocean marine insurance (p.449)
Beneficiary (p. 444) Ordinary life insurance (p. 446)
Binder (p. 456) Peril (p. 442)
Bodily injury liability insurance (p. 451) Personal injury protection
Coinsurance (p. 448) (PIP) (p. 451)
Collision insurance (p. 452) Policy (p. 444)
Comprehensive coverage (p. 452) Premium (p. 444)
Deductible (p. 448) Property damage liability
Descriptive-threshold (p. 452) insurance (p. 452)
Double indemnity (p. 447) Renter’s insurance (p. 449)
Duty to defend (p. 444) Risk (p. 442)
Duty to investigate (p. 444) Straight lift insurance (p. 446)
Duty to pay (p. 444) Subrogation (p. 444)
Dwelling insurance (p. 450) Substitute transportation
Fault-based insurance (p. 451) insurance (p. 453)
Homeowner’s policy (p. 449) Term insurance (p. 447)
Indemnify (p. 444) Threshold (p. 451)
Inland marine insurance(p. 449) Threshold guideline (p. 452)
Insurable interest (p. 444) Time-based threshold (p. 452)
Insurance (p. 442) Towing and labor insurance (p. 453)
Insured (p. 444) Umbrella insurance (p. 455)
Insurer (p. 444) Underinsured motorist
Liability insurance (p. 453) insurance (p. 452)
Life insurance (p. 446) Uninsured-motorist
Limited-payment life insurance (p. 447) insurance (p. 452)
Medicaid (p. 454) Universal life insurance (p. 446)
Medical payments insurance (p. 452) Whole life insurance (p. 446)
II. Learning Objectives
1. Define and explain the purpose of insurance.
2. Identify the contractual elements of an insurance agreement.
3. Make clear the importance of insurable interest.
4. Differentiate among the different types of life insurance.
5. Explain how insurable interest differs with life insurance and property insurance.
6. Explain the coinsurance clause in most property insurance policies.
7. Describe coverage given by fire, marine, homeowner’s, renter’s, and flood insurance.
8. Differentiate among the principal kinds of automobile insurance.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
9. Describe the benefits included in health insurance policies.
10. List the steps in applying for, obtaining, and maintaining an insurance policy.
III. Major Concepts
19-1 Risk Assessment and Peril Management
Insurance is a transfer of the risk of economic loss from the insured to the insurer.
Insurance policies require the elements of a contract: offer, acceptance, mutual assent,
capable parties, consideration, and legality. To be insured, one must have an insurable in-
terest in the subject matter of the policy. The parties to an insurance contract include the
insurer, the insured, and the beneficiary.
19-2 Types of Insurance
It is possible to obtain insurance for a variety of risks. Life insurance provides funds to a
beneficiary on the death of the insured. A beneficiary must have an insurable interest
when the policy is issued but need not have that interest when the insured dies. The
principal types of life insurance are straight life, limited-payment life, term, and
endowment insurance. Principal types of property insurance include fire, marine,
homeowner’s, flood, and automobile insurance. In the case of property insurance, the
insured must have an insurable interest when the loss occurs. Health insurance helps pay
for such things as physician care, prescription drugs, inpatient and outpatient hospital
care, surgery, dental and vision care, and long-term care for the elderly.
19-3 The Insurance Policy
The first step in obtaining an insurance policy is to fill in an application. A binder
provides temporary insurance coverage between the time the application is made and the
time the policy becomes effective. Premiums are the consideration or payment an insured
gives the insurer for its acceptance of risk. A lapse occurs when the insured stops paying
premiums.
19-4 Cancellation of Insurance by Insurer
Under certain conditions, the insurer is given a legal right to cancel an insurance policy.
Grounds permitting cancellation include breach of warranty, concealment of material
facts, and misrepresentation on an application. Under the estoppel rule, an insurer is not
allowed to deny certain statements, activities, or waivers.
IV. Outline
I. Risk Assessment and Peril Management (19-1)
A. Introduction
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
1. Insurance involves contracts made by agents to help people protect their lives, their
health, their income, their savings, and their property against negligence, intentional
torts, and criminal activity.
2. All insurance agreements are binding contracts, requiring the application of contract
law.
B. Risks and Perils: A Double-Sided Mirror
1. Insurance is built upon two conflicting sets of risks and perils.
2. Risks are threats to those items (life, health, property, income, savings, investments,
reputations, and so on) that a party wants to protect.
3. Perils are the dangers that a party might pose to others and against which that party
must shield itself.
4. Insurance is the transfer of the risk of economic loss, for a fee, from the insured to the
insurer.
C. The Insurance Contract: Parties, Elements, Interest
1. An insurance policy is a contract that follows the standard rules of regular contract
law.
2. There are supplemental issues of contract law that are peculiar to insurance contracts.
3. Insurance policies, like other contracts, require the four elements of a contract: mutual
assent, capacity, consideration, and legality.
4. The court will interpret any ambiguous terms in the insurance contract strictly against
the insurer.
5. The insurer accepts the risk of loss in return for a premium (the consideration paid for
a policy) and agrees to indemnify, or compensate, the insured against the loss
specified in the contract.
6. A third party, to whom payment of compensation is sometimes provided by the
contract, is called the beneficiary.
D. Insurable Interest and the Duties of the Parties
1. A person applying for insurance must have an insurable interest in the subject matter
of the policy to be insured.
2. An insurable interest is the financial interest that a policyholder has in the person or
property that is insured.
3. For life insurance, the insurable interest must exist at the time the insurance is
purchased.
4. For property insurance, the insurable interest must exist at the time of loss.
5. The insured has an initial duty to inform the insured of everything the insurer asks so that the
insurer can enter the policy agreement with full knowledge of the insured’s situation.
6. The insured has the duty to
a. (1) pay the premiums on time and in the fashion prescribed by the insurer;
b. (2) tell the insurance company about any claims in a timely and judicious manner;
and
c. (3) work together with the insurer when the time comes for an inquiry.
7. The insurer has a duty to investigate the claim, to pay as agreed, and to defend the
client in a case disputed by a third party.
8. Insurance companies have the right to step into the shoes of the party they
compensate and sue any party whom the compensated party could have sued.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
9. This substitution of one person in place of another relative to a lawful claim is known
as subrogation.
I. Types of Insurance (19-2)
A. Life Insurance
1. Life insurance is an insurance contract that provides monetary compensation for
losses suffered by another’s death.
2. Anyone has an insurable interest in the life of another if a financial loss will occur if
the insured dies.
3. A life insurance policy will remain valid even if the insurable interest terminates.
4. If an individual takes out insurance on himself or herself, it is not necessary for the
beneficiary to have an insurable interest in the insured’s life.
5. Straight life insurance is also known as ordinary life insurance or whole life
insurance.
a. Straight life insurance requires the payment of premiums throughout the life of
the insured and pays the beneficiary the face value of the policy upon the
insured’s death.
b. Straight life insurance contains an investment feature known as the cash surrender
value.
c. Straight life insurance contains a loan value.
d. Universal life insurance, a form of straight life insurance, allows the policy owner
flexibility in choosing and changing terms of the policy.
6. Limited-payment life insurance provides that the payment of premiums will stop after
a stated length of time.
a. Premiums are higher than those for straight life insurance.
b. The amount of the policy will be paid to the beneficiary upon the death of the
insured, whether the death occurs during the payment period or after.
c. The cash-surrender value grown faster than that of straight life insurance.
7. Term insurance is issued for a particular period, usually ten or twenty years.
a. Term insurance is the least expensive kind of insurance and offers insurance
protection alone.
b. Term insurance can be renewable at the end of each period by paying the
increased premium.
c. Convertible term insurance policies can be converted to straight life policies
without a new medical examination.
d. A modified form of term insurance is decreasing term insurance in which the
premium stays constant, but the amount of protection decreases over the years.
8. An annuity is guaranteed retirement income.
a. It is purchased by paying either a lump-sum premium or by making periodic
payments to an insurer.
b. The insured may choose either to receive an income for a fixed number of years
with a beneficiary receiving whatever is left when the insured dies, or to receive
payments as long as the insured lives and upon death lose whatever is left of the
annuity.
9. Many insurance policies contain clauses that exempt the insurance company from
liability in certain situations.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
a. Examples include riding in an airplane, violating the law, or working in certain
dangerous occupations.
b. Most policies provide that beneficiaries can recover for a death caused by suicide
if the suicide occurs more than two years after the policy was taken out.
c. Life insurance policies usually include an exemption from liability in times of
war.
10. Life insurance policies have many optional provisions that may be purchased by the
insured.
a. Double indemnity provides that if the insured dies within a certain amount of time
from an accident (no more than 90 days), the insurer will pay double the amount
of the policy.
b. The waiver of premium option excuses the insured from paying premiums if he or
she becomes disabled with some companies automatically including it with others
offering it as an extra-cost option.
c. A guaranteed insurability option allows the insured to pay an extra premium
initially in exchange for a guaranteed option to buy more insurance at certain
specified times later with no questions asked.
B. Property Insurance
1. Property insurance can be purchased to protect both real and personal property.
2. Property insurance can be less expensive by the use of a deductible which is an
amount of any loss that is to be paid by the insured.
3. Coinsurance is an insurance policy provision under which the insurer and the insured
share costs, after the deductible is met, according to a specific formula.
4. Most property and inland marine policies have a coinsurance clause, which limits the
insurance company’s liability for a loss if the property is not insured for its full
replacement value.
5. A fire insurance policy is a contract in which the fire insurance company promises to
pay the insured if some real or personal property is damaged or destroyed by fire.
a. The insurer’s liability under a fire policy usually covers losses other than those
directly attributed to fire.
b. A fire insurance policy is effective on delivery to the insured, even before the
premium is paid.
6. Marine insurance is one of the oldest types of insurance coverage.
a. An ocean marine policy covers ships at sea.
b. Inland marine insurance covers goods that are moved by land carriers.
c. Inland marine insurance also covers certain other items as well as goods in the
possession of bailees.
d. A floater policy is one that insures property that cannot be covered by specific
insurance because the property is constantly changing in either value or location.
7. A homeowner’s policy gives protection for losses related to home ownership but
generally does not cover losses due to flooding.
8. Renter’s insurance protects tenants against certain losses.
9. Flood insurance covers damage caused by heavy rains, melting snow, inadequate
drainage systems, failed protective devices and tropical storms and hurricanes.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
a. Most flood insurance is backed by the National Flood Insurance Program
established by Congress in response to the high cost of taxpayer-funded disaster
relief.
b. Following hurricane Katrina, disputes involved whether wind or water damage
was involved.
10. Dwelling insurance provides insurance protection for property, such as rental
property, that the insured does not possess and use on a regular basis.
11. Automobile insurance provides for indemnity against losses resulting from fire, theft,
or collision with another vehicle and damage arising out of injury by motor vehicles
to the person or property of another.
a. The law in determining fault in automobile accidents differs from state to state.
b. The risk of bodily injury or death to pedestrians and occupants of other cars
arising from the negligent operation of the insured’s motor vehicle, along with
attorney costs for defense, is covered by bodily injury liability insurance.
c. Fault-based insurance means that liability in an automobile accident will be
measured by the degree of fault that can be assigned to each driver based on
negligence principles, and the level of fault forms the basis for the insurance
company’s payment.
d. No-fault insurance, required in some states, places limitations on the insured’s
ability to sue other drivers, but allows drivers to collect damages and medical
expenses from their own insurance carriers regardless of who is at fault in an
accident.
(a) Even in no-fault states, a victim must sue if he or she wants to be compensated
for actual property damage to the automobile itself or to items in the car.
(b) Some states alter the no-fault formula by adding a threshold meaning that
when damages go beyond the threshold, which is defined by a set dollar
amount, by injury-description, or by time, the victim can file a negligence
based lawsuit.
e. Some jurisdictions allow add-on coverage permitting a driver to buy optional
add-on coverage allowing the receipt of payments without the necessity of
determining fault.
f. Some no-fault jurisdictions set threshold guidelines that must be met by everyone
regardless of the nature of their insurance policy.
g. Uninsured-motorist insurance provides protection against the risk of being injured
by an uninsured motorist but does not provide for property damage.
h. Underinsured-motorist insurance provides protection against the risk of being
injured by an underinsured motorist.
i. Medical payment insurance pays for medical (and sometimes funeral) expenses
resulting from bodily injuries to anyone occupying the policyholder’s car at the
time of an accident.
j. Property damage liability insurance provides protection when other people bring
claims or lawsuits against the insured for damaging property such as a car, fence,
or tree.
k. Collision insurance provides coverage for any loss arising from damage to the
insured’s automobile caused by accidental collision with another object or with
any part of the roadbed.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
l. Comprehensive coverage provides protection against loss when the insured’s car
is damaged or destroyed by certain perils including fire, hail, and theft.
m. Substitute transportation insurance reimburses up to specified limits for car rental
or transportation costs while the insured’s car is undergoing covered repairs.
n. Towing and labor insurance reimburses up to specified limits for towing and labor
charges whether or not an accident is involved.
C. Liability Insurance
1. Liability insurance provides protection for perils that a party might pose to others.
2. Often liability insurance is attached to another larger, more comprehensive insurance
contract.
3. Most of the time liability coverage focuses on negligence rather than intentional torts
although businesses sometimes carry liability policies covering intentional torts.
D. Health Insurance
1. Health insurance policies often include items such a physician care, prescription
drugs, inpatient and outpatient hospital care, surgery, dental and vision care, and
long-term care for the elderly.
2. Major medical coverage pays for expenses beyond those covered by a basic plan.
3. Health maintenance organizations (HMOs) contract with doctors and other health
care professionals to provide health care services for their members.
4. A preferred provider organization (PPO) is a group of health care providers, such as
doctors or hospitals, providing care for groups of employees at reduced rates.
5. Medicare and Medicaid are governmental programs.
a. At this time, people 65 and over who are covered by Social Security are eligible
for Medicare.
b. The age for eligibility began increasing in 2003.
c. Many people buy medigap insurance to cover what is not covered by Medicare.
d. Medicaid is a health care plan for low-income people.
6. Disability insurance pays benefits when a person cannot work because of a disability.
7. Long-term care insurance helps pay for care in adult day care, assisted-living
facilities, and nursing homes.
8. A variety of state and federal laws help make it easier for people with preexisting
health conditions to obtain and keep health insurance.
9. HIPAA sets national standards for all health plans.
E. The Affordable Care Act
1. The Affordable Care Act (ACA) was designed to make sure that all Americans have
health insurance.
2. The ACA created the Patient’s Bill of Rights designed to shield people from errant
practices of insurers and to provide many cost-free preventative services.
3. The ACA authorized the development of the health insurance marketplace
4. Subsidies to purchase health insurance are available to some people.
5. In 2013 the act introduced a pilot project labeled “bundling” under which health care
providers will be paid per health care incident instead of by service rendered.
6. In 2013, the ACA instituted a funding program that will flow to state Medicaid plans
to provide preventive care services.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
7. Starting in 2014, insurance providers are no longer permitted to discriminate based on
preexisting conditions or gender.
8. Starting in 2014, the law began to prohibit insurance companies from eliminating
coverage for people who are enrolled in clinical trials for cancer treatments or
treatments for other serious illnesses.
9. Starting in 2014, the law provided tax penalties for those without insurance.
F. Umbrella Insurance
1. Most insurance contracts have built-in ceilings to the coverage provided under the
policy.
2. An individual or a business can buy an umbrella policy that will grant coverage
beyond the limits of the standard policy provided by the insurer in exchange for
higher premium payments.
3. Most insurers will only issue an umbrella policy as a backup to existing coverage.
II. The Insurance Policy (19-3)
A. Introduction
1. In most states, insurance policies come in standard forms drafted by state insurance
commissioners.
2. Insurance policies are adhesion contracts meaning they are drawn up by one party and
offered on a take-it-or-leave-it basis.
B. Application
1. The first step in obtaining an insurance policy is to fill in an application.
2. The application is an offer made by the applicant to the insurance company.
C. Binders
1. A binder will provide temporary insurance coverage until the policy is formally
accepted.
2. The binder will include all of the usual terms that would be included in the actual
policy to be issued.
D. Premiums
1. An insurance contract differs from most other contracts in that it requires the payment
of premiums.
2. The amount of the premium is determined by the nature and character of the risk and
by how likely the risk is to occur.
E. Lapse
1. When the insured stops paying premiums, an insurance contract is said to lapse.
2. Most states allow for a grace period in which the insured may make payments to keep
life and health insurance policies in force.
3. Automobile and property loss policies usually have no grace period.
III. Cancellation of Insurance Policies (19-4)
A. Introduction
1. Under certain conditions, the insurer is given a legal right to forfeit, or cancel, an
insurance policy.
2. Among the grounds permitting a forfeiture are a breach of warranty, and a
concealment or misrepresentation of a material fact by the insured.
B. Warranties
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
1. A warranty is an insured’s promise to abide by restrictions, especially those written
into a policy, that are intended to be conditions precedent to the existence of
coverage.
2. By statute in many states, an insurance company has the burden of proof in
establishing that a warranty has been breached.
C. Concealment
1. Fraudulent concealment is any intentional withholding of a fact that would be of
material importance to the insurer’s decision to issue a policy.
2. The insured need only give answers to questions asked but may not conceal facts that
would be material in acceptance of a risk.
D. Misrepresentation
1. If an insured party gives false answers to questions in an insurance application that
materially affect the risk undertaken by the insurer, the contract is voidable by the
insurer.
2. A representation is material if the facts represented influence the insurer’s decision to
issue the policy or the rate of premium to charge.
3. There is disagreement as to the effects of an innocent misrepresentation.
E. Estoppel
1. Under the principle of estoppels, an insurer may not deny acts, statements, or
promises that are relevant and material to the validity of an insurance contract.
2. When the insurance company gives up one of its rights, the company has made a
waiver.
3. A waiver can be implied from the conduct of the insurer such as when an insurance
company cashes the check of a lapsed policy.
V. Background Information
A. Cross-Cultural Notes
1. Some societies have viewed children as a form of life insurance because children are
expected to care for their parents in old age.
2. The European Commission provides a method by which citizens of countries within
the European Union traveling there may have health insurance at
http://ec.europa.eu/social/main.jsp?catId=559.
3. Some of Japan’s largest and most successful financial institutions are life insurance
companies. One of the reasons for the success of these companies is that they manage
a large percentage of the nation’s pension funds. This arrangement results from laws
that allow insurers to group funds from life insurance policies with pension funds,
creating a bigger pool of assets. Banks, in contrast, must keep the two types of funds
separate.
B. State Variations
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
1. Most states now require motorists to have some type of insurance coverage. Some of
the states with statutes requiring automobile insurance are Alabama, California,
Florida, Illinois, New Jersey, Arkansas, Louisiana, Rhode Island, Massachusetts,
Michigan, and Pennsylvania.
2. States have varying requirements regarding insurance. The National Association of
Insurance Commissioners, at http://www.naic.org/state_web_map.htm, has
information regarding ongoing insurance initiatives.
C. Quotations
1. Fraud includes the pretense of knowledge when knowledge there is none.
— Benjamin N. Cardozo (1870–1938), American jurist
2. Let us not despair but act. Let us not seek the Republican answer or the Democratic
answer but the right answer. Let us not seek to fix the blame for the past - let us accept
our own responsibility for the future.
— John F. Kennedy. Speech at Loyola College Alumni Banquet, Baltimore, Maryland,
18 February, 1958, "Loyola College Alumni Banquet, Baltimore, Maryland, 18 February
1958" folder, Senate Files, box 899, John F. Kennedy Presidential Library. Available at
http://www.jfklibrary.org/Research/Research-Aids/Ready-Reference/JFK-Quotations.asp
x.
VI. Terms
1. The term assurance was used for all forms of insurance in the sixteenth century.
2. Although the word policy in an insurance context might seem to be related to the
general definition of policy as “a plan of action,” the two words actually have
different origins. The insurance policy evolved from Latin, Greek, and Italian words
for demonstration, whereas the policy of planning comes from a Latin word for
administration.
VII. Related Cases
1. A widow who was seeking to recover proceeds of a life insurance policy covering her
husband brought action against an insurer. The appellate court affirmed the trial
court’s grant of summary judgment to the insurer. By proving suicidal intent, the
insurance company was able to apply a policy provision that excluded coverage if the
insured died “by suicide while sane or insane.” According to the appellate court,
proof submitted that the insured acted as a result of irresistible intent did not negate
suicidal intent. Mirza v. Maccabee’s Life and Annuity, 466 N.W.2d 340 (Mich. Ct.
App. 1991).
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
2. After Dewar completed an application for automobile insurance, he submitted a check
to cover the premium for the first two months, for which he was issued a binder. The
agent for Statewide Insurance Corporation assured him his insurance became in effect
“immediately.” Dewar’s check bounced, but before the insurance company could
terminate the binder, Dewar was involved in an accident. The Arizona Supreme Court
ruled that Dewar was covered for the damages because of the agent’s representation
that the policy was in effect immediately, and because the policy’s termination does
not take effect until after the insured has received notice. Statewide Ins. Corp. v.
Dewar, 694 P.2d 1167 (Ariz. 1984).
3. Durham took out homeowner’s insurance on his house. He later built a workshop
addition to his house and used it as a business. The homeowner’s insurance had a
clause that excluded such structures, but the agent, who had seen the workshop
addition, never mentioned the clause to Durham. The structure was badly damaged by
a fire, and Durham sued to have the insurance cover the loss. The appellate court
reversed the trial court’s summary judgment ruling in favor of the insurer recognizing
that the issue of whether the agent’s conduct waived the provision at issue was a
matter for trial. Durham v. Cox, 310 S.E.2d 371 (N.C. Ct. App. 1984).
4. In Medical Protective Co. v. Bubenik, 594 F.3d 1047 (8th Cir. 2010). Where a dentist
asserted his Fifth Amendment privilege in a malpractice action, the insurer could
deny coverage due to breach of the policy's cooperation clause because, inter alia, the
dentist's noncooperation substantially prejudiced the insurer's ability to defend the
claims, and waiver and estoppel did not apply. - See more at:
http://www.lexisnexis.com/legalnewsroom/insurance/b/insurancelaw/archive/2011/02
/01/ten-most-significant-insurance-decisions-of-2010-case-summaries-and-core-searc
h-terms-from-lexis-com.aspx#sthash.wcfBj63O.dpuf
5. In Dawood v. J.P. Morgan Chase Bank, No. 15–1242, 2015 WL 5637548 (6th Cir.
2015), the Sixth Circuit U.S. Court of Appeals ruled that through a settlement with an
insurer, the insured waived any claim to additional insurance proceeds and that the
bank that held the mortgage was entitled to the funds.
VIII. Teaching Tips and Additional Resources
1. Discuss issues involving credit insurance which provides assistance in the event of a
creditor cannot pay a loan because of, for example, illness. A webpage on credit
insurance is available from the Federal Trade Commission at
http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt118.shtm.
2. Discuss the importance of a good credit score. Information regarding credit scores
including requirements when insurance is denied due to a bad credit score is available
from the Federal Trade Commission at
http://www.consumer.ftc.gov/articles/0152-credit-scores. A video on obtaining credit
reports is available at http://www.consumer.ftc.gov/media/video-0077-credit-scores.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or
distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
3. Information regarding careers in the insurance industry can be found on the web site
of the U.S. Department of Labor, Bureau of Labor Statistics at
http://www.bls.gov/ooh/business-and-financial/claims-adjusters-appraisers-examiners
-and-investigators.htm.
4. States have departments that regulate insurance such as the California Department of
Insurance whose web site is at http://www.insurance.ca.gov/.
5. Information on health insurance for children is available from a site sponsored by the
U.S. Department of Health and Human Services at http://www.insurekidsnow.gov/.
6. Information on new federal government mandated health care insurance reforms is
available at http://www.healthcare.gov/.
7. The governmental web site for Medicare with comprehensive information regarding
the program is at http://www.medicare.gov/default.aspx.
8. The National Association of Insurance Commissioners has information available
regarding insurance matters at http://www.naic.org/.
9. Information about various types of insurance fraud is available from the FBI’s
website at https://www.fbi.gov/stats-services/publications/insurance-fraud.
10. The website for Lloyd’s, a recognized and historic leader in the insurance industry, is
available at http://www.lloyds.com/.
11. Ask students to investigate the availability of insurance to cover accidents at events.
Several web sites address the availability of such insurance.
12. There are some people who do not believe they need insurance because they say they
never get sick and never have to go to the doctor. They feel that they can save the
money they do not spend on insurance to pay for emergencies. Ask students to debate
the merits and the faults of this argument.
13. Discuss with students the types of risks that exist in your community for which
insurance can be obtained. Ask students to classify these examples on the board
according to the types of policies that will cover the risks.
14. Name some examples of relationships between people and ask students to determine
whether or not an insurable interest exists. Suggest relationships that may be open to
interpretation, such as that between a parent and an estranged child, that of a divorced
couple. Have students discuss why the law requires the beneficiary to have an
insurable interest in the insured’s life.
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distribution without the prior written consent of McGraw-Hill Education.
Chapter 19 - Insurance
15. Ask students if it would be better if life insurance policies did not name beneficiaries
until after the death of the insured. Discuss the potential advantages and problems of
such a practice.
16. Briefly discuss with the class the idea of insurance companies offering insurance to
cover business failures. Encourage students to think about the implications for both
the insurance companies and the insured. What are the potential advantages and risks
for each party?
17. Renters can purchase insurance to cover their personal property and their liability to
others for personal injuries. Such policies do not cover rented dwellings themselves
which are covered by landlords’ insurance policies.
18. Discuss the increased rates that automobile insurers charge young drivers. Ask
students why they think younger drivers are charged higher rates. Then discuss ways
in which students can lower rates. For example, insurance companies offer discounts
for students with good grades, students who are designated drivers, or who take driver
education courses.
19. Ask for a group of volunteers to research and bring to class information about
no-fault insurance, which is used in a number of states. After reporting the
information to the class, lead the students in a discussion of the advantages and
disadvantages of no-fault insurance.
20. Explain to students that insurance companies calculate the amount of a premium
based on the extent of the risk. This risk is determined by the principle of large
numbers, which states that if a large number of people or businesses are exposed to
the same risk, a predictable number of losses will occur. The insurance company
calculates these figures and determines the appropriate amount of the premium.
Because insurance companies are private businesses, they are motivated by profit.
Premiums are set high enough to cover expected losses and still earn a profit for the
insurance company.
21. Fraud schemes might involve individuals stripping their own cars of radios, seats,
hoods, and other parts and then abandoning the cars only to “find” them later after
reporting them stolen. Insurance companies then would reimburse the owners for the
allegedly stolen parts.
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