basic parts of an insurance contract (2)
Post on 10-Apr-2015
1.431 Views
Preview:
TRANSCRIPT
Basic Parts of an Insurance Contract
DeclarationsDefinitionsInsuring agreementExclusionsConditionsMiscellaneous Provisions
Declarations
• Information about the property or activity insured.
• Used for underwriting and rating purposes and for identification of property or activity to be insured.
• To be found on the first page of the policy.
Definitions
• To define clearly the meaning of key words or phrases so that coverage under the policy can be determined easily.
Insuring Agreement
• Summarizes main promises of the insurer and conditions under which losses are paid.
• Two basic forms of agreements in property and liability insurance:– Named perils policy.– All risks policy or open perils policy or risk of
direct loss to property– Burden of proof
Exclusions
• Excluded perils• Excluded losses• Excluded property• Excluded locations• Reasons for exclusions
– Some perils considered uninsurable;– Presence of extraordinary hazards;– Coverage provided by other contracts;– Moral hazard problems;– Coverage not needed by typical insured.
Conditions• Are provisions in the policy that qualify or place limitation on the insurer’s promise to
perform.• Fraud• Notice of loss• Proof of loss• Preservation of property• Cancellation• Assignment• Protection of mortagees
– Separate insurance– Assignment– Loss payable clause– Mortgage Clause
• Obligations of mortagaee– To notify the insurer about change in occupancy, ownership or moral hazard.– To pay premium in case of default.– To render proof of loss in case owner doesn’t– To surrender its claims if insurer pays for the loss.
Miscellaneous Provisions
• Endorsements and Riders– Endorsement to have precedence over contract– But cannot circumvent the legislation.
• Deductibles– Straight Deductible– Aggregate or calendar year deductible– Disappearing deductible P= (L-D) X (1+R)– Where
• P is payment by insurer• L is loss• D is deductible• R is recapture factor
– Franchise deductible– Elimination (waiting) period
Coinsurance• Straight deductible expressed as a percentage in case of health
insurance.• Property to be insured for a stated percentage of its insurable value.• Amount of Recovery = Amount of insurance carried X loss
Amount of insurance required
• Purpose is to achieve equity in rating.• Important points
– Amount paid should never exceed the loss.– Maximum amount paid for any loss should not be more than the
face amount of insurance.• Problems
– Inflation– Fluctuation in property values– In case of small loss
Other Insurance Provisions
• Primary and Excess Insurance
• Prorata Insurance
• Contribution by equal shares
top related