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CHAPTER 38
TYPES OF INSURANCE
Answers to Learning Objectives
1. Life insurance is a contract by which the insurer agrees to pay a specified sum or sums of money to
a beneficiary upon the death of the insured. Insurers normally limit coverage if death is from suicide
or war activity.
Lesson Outline
1. Life insurance is a contract by which the insurer pays a specified sum or sums of money to a
beneficiary upon the death of the insured.
2. The most important types of life insurance:
a. Term life insurance⎯provides protection for a stipulated number of years. The policy may
provide for a level amount of protection during the life of the policy or for a periodic, usually
monthly, decrease in the face of the policy as the need decreases.
b. Endowment insurance⎯premiums are paid for a limited period, and if the insured is still living
at the end of that period, the face amount is paid to the insured.
c. Whole life insurance⎯the insured agrees to pay the premium until age 100 or death.
3. Life insurance companies may limit the risks they assume. The most common restrictions are:
a. Suicide
b. Death from war activity
10. Property insurance is a contract whereby the insurer, in return for a premium, agrees to reimburse
the insured for loss or damage to specified property that is caused by the hazard covered.
11. Fire insurance covers damage to property caused by what are known as hostile fires.
12. The type of fire insurance policy indicates the nature of the risk assumed. Fire insurance policies
may be open, valued, specific, blanket, or floating.
13. Both personal and real property must be described with reasonable accuracy.
14. Under the principle of coinsurance, the insured assumes a portion of the risk.
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a. Fire insurance⎯much of the law of fire insurance discussed previously applies to automobile
19. Public liability insurance covers loss for damage to the property and the life of other people:
a. Bodily injury insurance⎯covers the risk of bodily injury to the insured’s passengers,
pedestrians, or the occupants of another car.
b. Property damage insurance⎯covers any loss to another person’s property for which the insured
is held liable, up to the face of the policy.
(p. 457) The court stated suicide is the intentional taking of one’s own life by his or her own hands.
Despite her unquestionable desire to die, Fister’s death was clearly the result of a homicide.
One’s desire to die, but failure to accomplish the act, does not mean that another person’s
successful completion of the act is considered suicide. Fister ex rel. Estate of Fister v. Allstate
Life Ins. Co., 783 A.2d 194 (Md.)
(p. 458) The court pointed out that Michael and Joan could have agreed that any entitlement to the
proceeds of the insurance policy was limited to the amount of unpaid support. Since they did
not, Joan was entitled to one-half the life insurance proceeds. Thomas v. Stone, 711 N.W.2d 199
(N.D.)
Answers to Questions
(Page 468)
1. In level-term contracts, the face amount remains the same during the entire term of the policy. In
decreasing-term insurance the length of time the proceeds are collected or the face amount
decreases over the life of the policy.
2. A rider requiring the insurer to make a greater payment, customarily twice the ordinary amount
when death is caused by accidental means, is called a double indemnity rider.
hostile fire.
6. Property and its location must be described accurately in order to identify the property and to
inform the insurer of the nature of the risk involved.
7. An 80 percent coinsurance clause in an insurance policy means that the company will not pay the
full amount of a partial loss unless insurance is carried for at least 80 percent of the value of the
property.
8. An auto theft policy covers the wrongful deprivation of the car without claim of right as well as
pilferage of any parts of the car and damage to the car by theft or attempted theft.
Answers to Case Problems
(Page 468)
1. Yes. The court held that the wording of the policy was clear and unambiguous that as a named
insured Shirley was excluded from liability coverage. The court further said that Alfa had the right
to exclude named insureds from liability coverage. Alfa Ins. Corp. v. Hasselle, 74 So.3d 371
(Miss. Ct. App.)
Annuity Co., 541 F.3d 713 (7th Cir.)
4. No. The court stated that Adrabi’s injuries did not arise from the ownership, maintenance or use of
an uninsured vehicle. The auto did not cause his injuries; the actions of his assailants did. Allstate
Ins. Co. v. Adrabi, 78 So.3d 7 (Fla. Dist. Ct. App.)
5. No. The court said that he did not deliver property for a fee because the delivery was free, with no
fee or charge imposed for that service. If there is any question about the interpretation of a contract
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it will be construed against the party who wrote the contract. Prudential Property and Cas. Ins. Co.
v. Sartno, 903 A.2d 1170 (Pa.)