Principles of Insurance Chapter 2 Case Study
Principles of Insurance Chapter 2 Case Study INS 3103
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This 2 page Class Notes was uploaded by Miranda Houston on Saturday January 30, 2016. The Class Notes belongs to INS 3103 at Mississippi State University taught by Seth Pounds in Fall 2015. Since its upload, it has received 117 views. For similar materials see Principles of Insurance in Business at Mississippi State University.
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Date Created: 01/30/16
Chapter 2 page 35-36 Case Application: There are numerous definitions of insurance. Based on the definition of insurance stated in the text, indicate whether each of the following guarantees is considered insurance. a. A new television is guaranteed by the manufacturer against defects for 90 days. b. A new set of radial tires is guaranteed by the manufacturer against road defects for 50,000 miles. c. A builder of new homes gives a 10-year guarantee against structural defects in the home: no pooling of losses, not insurance d. A cosigner of a note agrees to pay the loan balance if the original debtor defaults on the payments: no pooling of losses, risk transfer, not insurance e. A large group of homeowners agrees to pay for losses to homes that are damaged or destroyed by fire during the year: transfer from homeowners to insurance company, pooling of losses, fire loss = fortuitous, homeowner would be indemnified in the incident of fire Application Questions: 1. Compare the risks of (i) fire with (ii) war in terms of how well they meet the requirements of an ideally insurable risk: Exhibit 2.1 2. a. Private insurers provide social and economic benefits to society. Explain the following benefits of insurance to society. i. Indemnification for loss: that insured is being restored either partially or wholly after a loss occurs, allows the insured to keep economic security, and lessens their chance of applying for welfare ii. Enhancement of credit: cannot buy a house without insurance unless you can pay for the whole thing, the bank won’t give you a loan unless the home is insured for the entire amount. Life insurance assists someone in getting a loan from the bank, because the bank will get paid if the insured dies iii. Source of funds for capital investment: the premiums the insurance companies collect is loaned out and that is source for investment funds for the market b. Explain the major costs of insurance to society: cost of doing business, fraudulent/inflated claims. Insurancefraud.org 3. Buildings in flood zones are difficult to insure by private insurers because the ideal requirements of an insurable risk are difficult to meet. a. Identify the ideal requirements of an insurable risk: Law of Large Numbers, accidental and unintentional loss, determinable and measurable loss, no catastrophic loss, calculable chance of loss, economically feasible premium b. Which of the requirements of an insurable risk are not met by the flood peril? No catastrophic loss, calculable chance of loss, economically feasible premium 4. Private insurance provides numerous coverages that can be used to meet specific loss situations. For each of the following situations, identify a private insurance coverage that would provide the desired protection. a. Emily, age 28, is a single parent with two dependent children. She wants to make certain that funds are available for her children’s education if she dies before her youngest child finished college: Life Insurance b. Danielle, age 16, recently obtained her driver’s license. Her parents want to make certain they are protected if Danielle negligently injures another motorist while driving a family car: Auto Liability Coverage, umbrella policy c. Jacob, age 30, is married with two dependents. He wants his income to continue if he becomes totally disabled and unable to work: Disability Insurance d. Tyler, age 35, recently purchased a house for $200,000 that is located in an area where tornados frequently occur. He wants to make certain that funds are available if the house is damaged or destroyed by a tornado: Homeowners Policy and to make sure that is a covered peril e. Nathan, age 40, owns an upscale furniture store. Nathan wants to be protected if a customer is injured while shopping in the store and sues him for the bodily injury: Commercial Insurance, because it is a business f. Someone who wants to be protected if they are involved in an automobile accident with someone who doesn’t have automobile insurance: Uninsured/Underinsured Motorist Coverage
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