FINAL EXAM REVIEW

FINAL EXAM REVIEW - Insurance Insurances- contractual...

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Insurance Insurances- contractual arrangement for transferring and allocating risk. Risk o Prediction concerning potential loss based on known and unknown factors. Risk Management o Involves the transfer of certain risks from the individual to the insurance company by a contractual agreement. Concept of Risk Pooling o Insurance companies spread the risk among large # of people, to make premiums small in comparison with the coverage offered. o Insurance companies correlate data over a period of time to estimate fairly accurately the total amount they will have to pay if they insure a particular group, as well as the rates they will have to charge each member of the group so they can make profit. Insurable Interest o A person can insure anything in which he or she has an insurable interest. Types of Insurable interest o Life o Key-Person Life Insurance o Property Life Insurance o Anyone who has insurable interest Must have a reasonable expectation of benefit from the continued life of another. Policy remains valid, even after interest no longer exists. Key-person insurance—insurance obtained by an organization on the life of a person important to that organization.
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Property Insurance o A person who derives a pecuniary benefit from the preservation and continued existence of the property. The Insurance Contract o Governed by the general principles of contract law, and regulated by the state. Application is an offer, which insurance company can either reject or accept. Acceptance sometimes conditional. o Need consideration o Parties need capacity. o Application For Insurance Filled in application attached to the policy and made a part of the contract Misstatements or misrepresentation can void a policy, especially if company can show it would not have issued policy if had known the facts. o Effective Date Broker is agent for the applicant. Agent is agent for the insurance company. He can issue a binder, if some consideration is paid, which will immediately bind the insurance company, depending on certain conditions being met. Parties may agree contract will not be effective until policy is issued and delivered or sent to applicant. Parties may agree policy will be binding, not be effective, until first premium paid, or physical exam passed. Provisions and Clauses o Provisions Mandated by Statute Provisions which are mandated by statue to be included in the insurance policy will be deemed to be in the insurance policy—whether they are in the policy or not.
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o Incontestability Clauses State statues sometimes provide that once a life or health insurance policy has been in force for a specified length of time, the insurer cannot contest statements made in the application. o
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This note was uploaded on 12/14/2010 for the course ACCT 215 taught by Professor Curtis during the Spring '08 term at Iowa State.

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FINAL EXAM REVIEW - Insurance Insurances- contractual...

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