Final Exam Study Guide
Final Exam Study Guide 350
Popular in Risk Management & Insurance
verified elite notetaker
Popular in Finance
This 13 page Study Guide was uploaded by Brian Blowe on Monday February 9, 2015. The Study Guide belongs to 350 at Washington State University taught by Dr. McNamara in Fall. Since its upload, it has received 76 views. For similar materials see Risk Management & Insurance in Finance at Washington State University.
Reviews for Final Exam Study Guide
Eugh...this class is soo hard! I'm so glad that you'll be posting notes for this class
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/09/15
Finance 350 Final Exam Study Guide Chapter 21 Homeowners Section II Section II is the same for all of the coverage s of the ISO HO forms providing 2 coverage s Coverage EPersonal Liability Insurance Coverage FMedical Payments to others Coverage E Personal Liability When a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by the insured negngnce Provides up to 100000 per occurrence Insurer will pay when insured is legally liable and loss isn t excluded Occurrence accident including repeated exposure to substantially the same general harm conditions which results in damage during the period Can be sudden accident or gradual series of incidents Coverage E only Exclusions Contractual Liability lnsured agrees to assume legal liability of another party by a contract Property Owned by the Insured Property damage to property owned by the insured Property in Care of the Insured Damage to property that insured has care custody or control of Workers Compensation No coverage for injury to person who is eligible to receive bene ts under workers compensation Bodily injury to insured Coverage F Medical Payments to Others Pays Reasonable medical expenses of another person who is accidentally injured while on an insured location by activities of the insured or animal owned or in care of the insured Provides up to 1000 per person and is not based on proof of liability Intended to encourage the insured to get medical attention for someone injured by their negligence or on their location Higher Coverage E amp F limits can be purchased on request 0 Coverage F only Exclusions Injury to a resident employee off an insured location Ex Someone employed by the insured as a cook and is injured in a car accident on her way home injuries aren t covered Workers Compensation Doesn t apply to someone eligible to receive bene ts under workers compensation Reguar Residents at the Home Doesn t cover injury to a person who regularly resides on any part of the insured s location Both Coverage E and Coverage F Exclusions 0 Motor Vehicle Liability Legal liability arising out of motor vehicles isn t covered if involved vehicle is Registered for use on public roadsproperty Used in organized race contest Rented to others Used for any business purposes Liability arising out of cars trucks motorcycles etc isn t covered can only be covered by purchasing auto insurance policy Watercraft Liability Excluded if boat is used on organized raceexcept sail boats rented to others used to carry people or cargo for a fee or for a business purpose Certain watercrafts are exceptions to this exclusion based off of if their length and horsepower is under some number ISO is working on a new quotPersonal Watercraftquot form 0 Aircraft Liability 0 Intentional Injury Ex Softball player internationally hits umpire with a bat and is clear that she intended to injure the umpire 0 Business Liability Liability arising out of a business activity of the insured where they engage fulltime parttime or occasionally 0 Professional Liability Ex Physicians and dentists are not covered for malpractice claims under the homeowners policy M Communicable Disease Exclusion Abuse amp Druos Section II Additional Coverage39s Claim Expenses Insurer pays the court costs attorney fees reasonable expenses incurred by the insured to assist the investigation and defense of a claim 0 First Aid Expenses Insurer pays any rst aid expenses incurred by the insured for bodily injury Ex Ambulance ride for an injured guest of the insured Limited Coverage 1000 per occurrence for damage to another persons prooertv except ntentiona acts by children 13 or older vandalism Property covered by section I Property owned by insured Vehices aircraft water craft Business liability for property damage 0 Loss Assessment Ex You have to pay part of an assessment claim for your Home owners association the homeowners policy would pay your loss assessment up to 1000 Endorsements to Homeowners Policy 0 In ation Guard Many homeowners are underinsured because in ation has increased the replacement cost of their home This is designed for use with the ISO homeowner forms and provides for an annual pro rata increase in the limits under Coverage s A B C D to compensate for the in ation Earthquake Can be added to cover earthquakes landslides volcanic eruption and earth movement A deductible must be satis ed and is 5 if the limit that applies to wither dwelling or personal property which ever is greater 0 Personal Property Replacement Cost Claims are paid on the basis of replacement cost with no deduction for depreciation With out this endorsement losses are assessed on an actual cash value basis with depreciation Scheduled Personal Prooertv The insurer agrees to pay the stated amount for a scheduled item if total loss occurs Scheduled items are valuable possessions of the insured not covered by homeowners policy and is kept on a list 0 Personal lniurv Means legal liability arising out of Fase arrest Maicious prosecution Wrongfu Eviction Ora or Written Slandering something Ex If you have someone arrested who is later found innocent you may be liable for damages These losses are not covered by a HO policy but would by this endorsement Watercraft Covers watercraft that are otherwise excluded under the homeowners policy 0 Business Pursuits Many people operate a business out of their homes this endorsement broadens coverage for both business property and legal liability arising out a home based business Suggestions for Homeowners insurance shopping 0 Consider rating factors including location possible construction loss control age deductible etc 0 Carry adequate coverage At least 80 of the replacement cost 0 Add necessary endorsements perils limits 0 Shop around and take advantage of discounts Consider a higher deductible like 510 instead ofjust 250 0 Improve your credit record 0 Consider Purchasing a Personal Umbrella policy which provides an additional 1 million 10 million of liability insurance after the original policy is exhausted Personal Umbrella Policy 0 Provides protection against a catastrophic lawsuit orjudgment Characteristics 0 Excess liability insurance provides excess insurance when underlying insurance limits are exhausted Broad Coverage Fills most gaps of the underlying policy Selfinsured retention or deductible applies only to losses covered by the umbrella policy but not by any underlying contract Typically is 250 Reasonable Cost Average annual premium for a family is less than 350 Exclusions o lntentionaActs expected or intentional injuries unless acting in self defense 0 Certain Personal Injuries lncluding libel and slander that the insured knows to be false criminal acts and acts committed against employees like discrimination 0 Business Liability Excludes liability stemming from business activities of the insured 0 Professional Services Liability arising out failure to render professional services 0 Directors and Of cers Excludes acts or omissions of an insured who is acting as an officer or member of a board of directors Buying an Umbrella Policy 0 Required underlying policy limits to buy an umbrella policy 0 Wise to purchase the umbrella from the same insurer providing underlying coverage s to avoid disputes over Who pays legal defense costs etc Chapter 22 Auto Insurance Disability is the most underinsured personal risk and auto insurance is the most misunderstood personal coverage Confusion develops as property losses can be paid under three different coverages collision otherthancollision and property liability Medical expenses can be paid under three different coverages medical payments uninsured motorists and bodily injury liability We39 examine lSO39s 2005 Personal Auto Policy PAP This version replaces the lSO39s 1998 PAP The PAP replaced the earlier quotFamily Auto Policyquot FAP The Personal Auto Policy PAP Like the HO3 the PAP is a multipleline package policy It is designed for private passenger autos and pickups not used for business purposes A Business Auto Policy BAP is available for business autos States mandate minimum liability coverage and a lender may mandate physical damage insurance Other auto coverages are oonnaL Covered autos include vehicles listed in the declarations newly acquired vehicles trailers owned by the insured and temporary substitute autos Outline of the PAP The PAP consists of a declarations page a de nitions page endorsements and six parts Part A Liability Coverage Part B Medical Payments Coverage Part C Uninsured Motorists Coverage Part D Coverage for Damage to your Auto Part E Duties After an Accident or Loss Part F General Provisions Part A Liabilitv Coverade Liabiity is the most important PAP coverage and the only state mandated PAP coverage The insurer agrees to pay for bodily injuries and property damage for which the insured is legally responsible The insurer also covers legal defense costs and reasonable expenses Liabiity coverage is usually quoted with split limits Ex 5010025 The rst two limits are for bodily injury liability perperson and per occurrence The last number is the property damage liability Note add 3900039 to the limits So 5010025 means 5000010000025000 A single limit Ex 250 or 500 may also be used The named insured and anyone using the named insured39s vehicle with permission or reasonable belief of permission are covered Other insurance with regard to an owned auto liability losses are settled on a prorata basis For nonowned autos insurance on the car is primary insurance on the driver is excess Excusions lntentiona injurydamage Property in the insured39s care Bodily injury to an employee Vehice used as a quotpublic or livery conveyancequot quottaxi exclusionquot but carpools are exempt Business vehicles Vehices with fewer than four weeks quotNo reasonable belief of permissionquot Racing vehicles Part B Medical Payments Coverage This small medical expense bene t usually 1000 to 10000 per person covers the named insured and passengers and insured39s when they are pedestrians Medical bene ts and funeral expenses are paid without regard to fault up to three years after an accident Other insurance If other auto medical payments insurance applies to an owned vehicle the insurer pays its pro rata share of the loss based on the proportion that its limits bear to the total applicable limits However medical payments coverage is excess with respect to a non owned vehicle Excusions Motorized vehicle with fewer than four wheels Pubic or livery conveyance Using the vehicle as a residence njury occurring during course of employment Vehice furnished or made available for the named insured39s or family members regular use The other insurance rules and exclusions closely track those found in the liability coverage of the PAP Part A Part C Uninsured Motorists Uninsured motorists coverage protects against drivers who don39t have liability coverage It pays compensatory damages lost wages medical bills pain and suffering etc In some states it also covers damage to property Limits similar to Part A liability are often purchased with bene ts only payable under Part C if warranted Uninsured motorists applies only if the other driver is legally liable and in 3 situations 1 Hitandrun drivers 2 Uninsured drivers 3 If the other driver39s insurance company is insolvent Uninsured Motorists exclusions are similar to the liability A and medical payments B exclusions An important additional exclusion is quotsettling the claim without your insurer39s consentquot This exclusion protects the insurer39s subrogation rights Interference may jeopardize the insured39s right to recovery Subrogationgt The right for an insurer to pursue a third party that caused an insurance loss to the insured Arbitration process similar to appraisal clause under the HO policy is used to settle payment disputes As with Part A and B other insurance is primary and excess with respect to nonowned autos and prorated for owned autos Under this provision each party selects an arbitrator The two arbitrators select a third one A decision by 23 of the arbitrators is binding on all parties However the decision is binding only if the damages awarded do not exceed the state39s minimum nancial responsibility law limits Part D Damage to Your Auto Two optional coverages are provided under Part D Collision loss and quototherthancollisionquot loss formerly called quotcomprehensivequot Collision Lossgtdefined as the upset of your covered auto or non owned auto or its impact with another vehicle or object You lose control of your car on an icy street and it overturns Your car hits another car a telephone pole a tree or a building Your car is parked and you nd the rear fender dented when you return Colision claims are paid without regard to fault If another party is responsible you can collect from himher or from your own insurer If you collect from your own insurer you must give up your subrogation rights to your insurer who will then attempt to collect from the negligent party who caused the accident Other ThanCollision Lossgt allrisk coverage for other physical damage to the vehicle Note that contact with a bird or animal is not a quotcollisionquot Missiles or falling objects Fire Theft or larceny Also theft of equipment stereo tires wheel covers airbag Exposion or earthquake Windstorms hail water or ood Malicious mischief or vandalism Contact with a bird or animal Glass breakage Coverage D also applies to nonowned Ex borrowed autos and temporary substitute autos if you have purchased the coverage remember it39s elective if the car is owned free and clear The other insurance rule is similar to previous sections pro rata on owned vehicles and excess on nonowned vehicles Coverage D is often written with a 250 deductible however you can increase the deductible to reduce the premium Different deductibles may be purchased for collision losses and otherthancollision losses While the HO policy is generous in loss settlement The greater of ACV or the coinsurance settlement using replacement costquot The PAP is not generous The liability of the insurer is the lesser of 1 The ACV Kelly Blue Book adjusted 2 The amount necessary to repair or replace the vehicle If the repair cost exceeds the ACV the vehicle may be quottotaledquot and the ACV less the deductible is paid Valuation disputes are subject to an appraisal clause as under the HO Part D provides for loss of use in the form of transportation expenses Up to 20 per day is available subject to a 600 aggregate limit There39s a 48hour waiting period for theft 24 hours for other losses Towing and labor at the accident or breakdown location may be added by endorsement An alternative is auto club membership Ex AAA Excusion The physical damage exclusions are similar to the exclusions for PAP Parts A B and C However some additional exclusion is noteworthygt The policy excludes mechanical breakdown losses and wear and tear Also excluded are losses to sound equipment not permanently installed Custom furnishings and equipment aren39t covered Some insurers include a quotdiminution in valuequot provision making it clear the insurer is not responsible for loss of resale value after an accident Sometimes car purchasers are quotupside downquot on a car loan they owe more than the car is worth quotGap insurancequot can be purchased to pay the difference between the amount owed and the loss settlement Part E Duties after a Loss Some actions are common sense some are required by law others are required by law others are required by the PAP Determine if there are injuries requiring medical care If there are injuries or property damage call the police A police report and a camera may protect your interests at a later date Exchange information with the other driver name insurer etc and contact your agent Do not admit fault that39s up to the legal system Cooperate with your insurer in the claims process Part F General Provisions Coverage applies in the US its territories and in Canada but not in Mexico The termination provisions spell out the insurer and insured39s rights with respect to cancellation nonrenewal and automatic termination Chapter 23 Auto Insurance and Society Financial Responsibility laws does not require proof of nancial responsibility until after the driver his rst accident or until after conviction for certain offenses like dui Circumstances o After accident involving bodily injury or property damage over a certain amount o Upon failure to pay nal judgement resulting from a auto accident Following conviction for certain offenses such as dui Defects o There is no guarantee that all the accident victims will be paid 0 Accident victims may not be fully indemni ed for their victims Compulsory Insurance Laws requires motorist to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered Defects o Always a population that chooses to drive without insurance no correlation with compulsory laws o According to property causality insurers mandatory auto insurance does not reduce the number of uninsured driver o Many state have computer reporting systems to track uninsured drivers motorist Unsatis ed judgement Fundsis a state fund for compensating auto accident victims who have exhausted all other mean of recovery Characteristics 0 Accident victim must obtain judgement against the negligent motorist and show it cant be collected 0 Max amount paid by the fund is limited t the state compulsory insurance law 0 Negligent driver is not relieved of legal responsibility when the fund makes a payment to the accident victim Uninsured Motorist Coveragethe injured persons insurance company agrees to pay all bodily injuries property in some states caused by uninsured driver Advantages o Motorist have some protection against uninsured driver 0 Claim settlement is faster and more ef cient that a tort liability lawsuit Defects 0 Accident victim may not be fully compensated for his loss 0 The injured person must establish that the uninsured motorist is legally liable for the accident 0 Property damage not covered in many states unless you have collision coverage quotNO pay no playquot laws Prohibits uninsured motorist form suing negligent drivers for noneconomic damages such as pain and suffering Nofault Auto Insurance after an auto accident involving a body injury each party collects form his own insurer regardless of fault 0 Monetary threshold injured motorist would not be permitted to sue but collect from insurer o Verbal threshold a suit for damages is allowed only in serious cases like death dis gurement ect 4 Types of NoFault Plans Pure nofault accident victims could not sue at all regardless of the amount of claim and no payments would be made for pain and suffering Modi ed nofault plan injured person has the right to sue a negligent driver only if the claim exceeds the dollar or verbal threshold Addon plan Pays bene ts to an accident victim without regard to fault and the injured person still has the right to sue the negligent driver who caused the accident Choice nofault plan either motorist can choose to be covered under the states nofault law and pay lower premiums or they can retain the right to sure under the tort liability system and pay higher premiums Provided bene ts typically provide medical expenses loss of earnings essential services funeral expenses and survivors loss bene ts INSURANCE FOR HIGH RISK DRIVERS Highrisk lnsurers covers driver with multiple accidents or with dui s Does not create adverse selection 0 Assigned risk plan Advantages 0 Has at least one source for obtaining liability insurance Disadvantages 0 Insurance plans have incurred substantial underwriting losses 0 High premiums may cause many high risk drivers to be uninsured 0 People with clean risk with no driving convictions are arbitrarily placed in the plan loint Underwriting Association is an organization of auto insurers operating in the state in which high risk business is placed in a common pool and each company pay its pro rata share of pool loses and expanses Reinsurance Facility The insurers company must accept all applicants for insurance COST OF AUTO INSURANCE Rating Factors 0 Territory Base rate for liability insurance is determined by where auto is used and garaged 0 Age gender and martial status age has a huge factor females have lower rates then males gap is closing being married lower rates less accidents than single people 0 Type and use of vehicle pleasure 3mi work 315mi work 15mi business custom farm garaged on farm Discounts Good student discount 0 Driving record People with good record low rates People with bad recordhigh rates 0 Insurance score is a creditbased score that proponents claim is highly predictive of future claim cost 0 SHOPPING FOR AUTO INSURANCE 0 Carry adequate liability coverage 0 Carry higher deductibles Drop collision coverage on older cars Shop around for coverage Take advantage of discounts Improve your driving record Maintain good credit OOOOO FINAL THOUGHTS ON INSURANCE AND RISK MANAGEMENT Insure for the large loss Don t risk a lot for a little Don t risk more than you can afford Remember to use loss control Insure against possible loss of earnings Property losses have an upper bound liability losses do notplan accordingly OOOOOO Chapter 8 Regulation of Insurance Reasons for insurance regulation 0 Maintain insurer solvency importance 0 Individual can be exposed to great nancial insecurity if insurer fails and claims are not paid 0 When insolvent certain social and economical cost are incurred o Premiums are paid in advanced but period of protection extend into the future 0 Protection of consumer Contracts are very technical with legal documents and complex clauses and provision without regulation insurers could draft restrictive and basically worthless 0 Ensure reasonable rates purchase the right amount of coverage so rate are neither excessive nor low so solvency of insurer in jeopardized 0 Make insurance available Make it available to all people LONGTERM DEBATES THROUGH GOVRNMENT 0 Paul v Virginia 1868 an agent representing NY companies was ned for selling insurance in VA without a license He agued that VA didn t have the authority to require a license The Supreme Court disagreed affirming that states regulate insurance 0 Southeastern Underwriters assoc case 1994 Supreme court ruled a rating bureau was guilty of price xing and other violations of the Sherman Antirust act Ruling suggests the federal Gov should regulate insurance o MaCarrenFerguson Act 1945 Congress af rmed states as the primarily regulators of insurance Federal law applies only to the extent state law does not apply Law remains today An important legislative act impacting insurance companies was passed in 1999 The Financial Modernization Act GrahamLeachBliley repealed depression era laws separating investments banking and insurance operations 0 This happened after the Citibank and Travelers merger in 1998 Methods of Regulating Insurers 0 Legislative Acts The laws regulates 1 Formation of insurance companies 2 Licensing of agents and brokers 3 Financial requirements for maintaining solvency 4 Insurance rates 5 Sales and claim practices 6 Taxation 7 Rehabilitation or liquidation of insurers 0 Federal Trade Commission has authority to regulate mail order insures in states where the insurer is not licensed o NAIC has drafted model laws in various areas and has recommended adoption of these proposals by state legislators Although the have no legal authority most states have accepted most or all 0 Courts decisions Make decision concerning the constitutionality of state law insurance interpretation of policy clauses and provisions and the legality of administrative action by state insurance departments 0 State Insurance Departments An insurance commissioner who is elected or appointed by the governor has responsibility to administer state insurance laws
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'