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Unformatted text preview: Chapter 28: Insurance Introduction An effective risk management program is insurance coverage Insurance is the primary means of transferring the risk of various kinds of losses It permits a business to shift the risk, because through an insurance policy, the insurer promises to compensate the person business should the contemplated loss actually occur The insurer provides this protection in exchange for payment, known as an insurance premium, from the insured Insurance policy: a contract of insurance Insurer: A company that sells insurance coverage Insured: One who buys the insurance coverage Premium: The price paid for insurance coverage It is important to remember that insurance does not prevent a loss from occurring, nor does it prevent the potential adverse publicity associated with a loss An insurance policy is a contract By the terms of the contract, the parties agree to what kind of loss is covered, in what amount, under what circumstances, and at what cost Insurance policies are also regulated by legislation in each of the provinces Insurance legislation serves a number of significant purposes including: Mandating the terms that must be found in insurance contracts Regulating the insurance industry generally by setting out licensing requirements for insurance companies, insurance brokers, and insurance adjusters Putting in place a system for monitoring insurance companies, particularly with respect to their financial operation Main goal of insurance legislation is to protect the public from dishonest, financially unstable, and otherwise problematic insurance companies Three basic kinds of insurance are: Life and disability insurance, provides payments on the death or disability of the insured Property insurance provides payment when property of the insured is damaged or destroyed through accidents. It also can cover the costs of machine breakdown Liability insurance (aka casualty insurance) provides payment in circumstances where the insured is held legally responsible for causing loss or damage to another With the exception of life insurance contracts, insurance policies can be written so that the insured pays a deductible Deductible: the part of a loss for which the insured is responsible Agreeing to a deductible generally reduces the premiums that the insured must pay for the coverage The Insurance Contract Duty to Disclose Insurance are contracts of utmost good faith A key consequence is that the insured has a duty to disclose to the insurer all info relevant to the risk; if the insured fails in that duty, the insurer may choose not to honour the policy An insurance company can deny coverage for non-disclosure even if the loss has nothing to do with the matter that was left undisclosed The law places a duty of disclosure on the insured b/c the insurer has to be in a position to fully assess the risk against which the insured wants protection...
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- Spring '10