Fin 350 Test 2 Study Guide

Fin 350 Test 2 Study Guide - Finance Test 2 Study Guide...

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Finance Test 2 Study Guide Chapter 10 – Insurance Contracts Insurance contracts may be: o Prepared by a rating bureau o Prepared by a company o Manuscript policies Parts of an insurance contract o Declarations: Statements about the life, activity, or property that is insured, usually the first page of the contract o Definitions: Glossary of key terms and how the terms are defined o Conditions: Provisions limiting/qualifying the insurer’s promise to perform o Insuring Agreement: Summary of all the insurer’s promises All Risks Named Perils o Exclusions: lists of property, losses, and perils that are not covered by the policy o Misc. Provisions: cancellation rights, valuation, dispute resolution, how subrogation is handled etc. Endorsements and Riders o Both amendments to insurance policy provisions and normally take precedence over the original wording o Endorsements are used in property and liability insurance o Riders are used in life and health insurance Deductibles o Cost sharing provisions through which the insured pays a portion of the claim o Eliminate small claims, reduce premiums, and prevent moral and morale hazard o Property insurance deductibles Straight deductible: The insured must pay a certain amount of loss before the insurer is required to make a payment Aggregate deductible: All the losses that occur during a specified time period, usually a policy year, are accumulated to satisfy the deductible amount o Health insurance deductibles Calendar-year deductible: An aggregate deductible that is found in basic and major medical contracts Waiting periods: Stated period of time at the beginning of a loss during which no insurance benefits are paid Corridor deductible: Can be used to integrate a basic medical expense plan with a supplemental major medical expense plan “Other Insurance” Provisions o More than one policy may cover a loss, these provisions explain how the loss will be settled and support the principle of indemnity Pro rata liability: Loss is pro-rated based on applicable insurance limits Whatever percentage of coverage each policy has on the property is the amount that will be paid by that policy
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Ex. $400,000 policy and $100,000 policy, then the first policy pays 80% on claims and second policy will pay 20% Primary and Excess: One policy responds first, then the second pays if the coverage limit of the first policy is met Coinsurance o In property insurance, it is often not insured for full value due to loss control, partial losses, etc. This provision helps to provide equitable settlements when less than full coverage is purchased. If the insured doesn’t insure for a specified percentage of the value, the insured must bear a portion of the loss Formula: Insurance purchased / Insurance required * Loss = Insurer’s liability The fundamental purpose of coinsurance is to achieve equity in rating o In health insurance, coinsurance specifies loss sharing after the deductible
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This note was uploaded on 01/10/2012 for the course FIN 350 taught by Professor Mcnamara during the Spring '11 term at Washington State University .

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Fin 350 Test 2 Study Guide - Finance Test 2 Study Guide...

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