1. Insurance Law

Insurance Law

Playlist: 16 Videos: 64 Minutes



Topics: Learning Material

Introduction to Insurance Law
Insurance is a method of mitigating the risk associated with a particular situation or transaction. This chapter introduces the concept of insurance and its importance to individuals and businesses. It explains the mechanics for establishing insurance coverage for specific occurrences. It outlines the rights and obligations of the insurer and insured. It then introduces the most common types of insurance coverage and relevant terms of such coverage. For further written and video explanation, discussion and practice questions, see Insurance Law (Intro)

What is “Insurance Law”?
  • Risk management
  • Insured
  • Insurer
  • Premiums
  • Coverage & Policy Limits

For further written and video explanation, discussion and practice questions, see What is "insurance"?

What is an “Insurance Contract”?
  • “insurance policy”
  • “effective date”
  • Extent to which the parties allocate or transfer the contingent risk of loss

For further written and video explanation, discussion and practice questions, see What is an "insurance contract"?

What is an “Insurable Interest”?
  • Some form of interest in the insured property
  • Subject to a particular loss from an occurrence or event.

For further written and video explanation, discussion and practice questions, see What is an "insurable interest"?

Common categories of insurance
  • Individual vs Group
  • Personal vs Commercial
  • Liability Insurance
  • Property & Casualty Insurance

For further written and video explanation, discussion and practice questions, see What are the common categorizations of insurance?

Vehicle Insurance
  • Vehicle Insurance

Liability Coverage

Collision Coverage

Comprehensive Coverage

Uninsured (& Underinsured) Motorist Coverage

Other Coverage

For further written and video explanation, discussion and practice questions, see Vehicle insurance?

Health Insurance
  • Health Insurance

Preferred Provider Organizations (PPO)

Health Maintenance Organization (HMO)

Exclusive Provider Organization (EPO)

Point of Service (POS)

High Deductible Health Plan (HDHP)

⁃ Health Savings Account (HSA)

Flexible Spending Account (FSA)

For further written and video explanation, discussion and practice questions, see Health insurance?

Disability Insurance
  • unable to continue working in a given profession or function.
  • divided into short-term and long-term disability.

For further written and video explanation, discussion and practice questions, see Disability Insurance?

Life Insurance
  • Life Insurance

Whole-Life Plan

Limited-Payment Life

Term-Life Policy

Endowment Insurance

Life Annuity Policy

Universal Life Policy

For further written and video explanation, discussion and practice questions, see Life Insurance?

Homeowners, Renters, and Fire Insurance
  • Homeowner’s & Renter’s Insurance

Property Coverage

Liability Coverage

  • Fire Insurance

For further written and video explanation, discussion and practice questions, see Homeowners, Renters, and Fire Insurance?

Business Liability Insurance

Business Liability Insurance: “comprehensive general liability” (CGL) policy.

Professional Liability Insurance - “malpractice insurance”,

Others - crime, flood, pollution, mortgage insurance, title insurance, worker’s compensation, unemployment, cyber privacy, etc.

For further written and video explanation, discussion and practice questions, see Business Liability Insurance?

Primary Obligations of Insurer
  • Payment for Losses
  • Duty to Defend

For further written and video explanation, discussion and practice questions, see What are the primary obligations of the insurer?

Primary Obligations of Insured
  • Duty to Disclose Information
  • Duty to Cooperate

For further written and video explanation, discussion and practice questions, see What are the primary obligations of the insured?

General Structure of an Insurance Contract
  • Declarations
  • Definitions
  • Terms of Insurance

Named Perils Coverage

All-Risk Coverage

  • Exclusions

Excluded Perils or Causes of Loss

Excluded Losses

⁃ Excluded property

  • Conditions
  • Endorsements
  • Policy riders

Policy Jackets or Binders

For further written and video explanation, discussion and practice questions, see What is the general structure of an insurance contract?

Commonly Disputed Provisions in Insurance Contract
  • Incontestability Clauses

⁃ “contestability period”

  • Anti-Lapse Clauses
  • Appraisal Clause
  • Duty to Preserve Clause and Notice of Claims

Preserve Evidence

Notice of Claims

  • Co-Insurance Clause
  • Multiple Coverage Clause
  • Dispute Clause

For further written and video explanation, discussion and practice questions, see What are the common disputed provisions in an insurance contract?

Terminate an Insurance Contract
  • Insured may terminate an insurance policy at any time.
  • Insurer must provide the insured with notice of its intention to cancel the policy.
  • Void by Insurer
  • Conditions in Policy
  • End of Policy Term

For further written and video explanation, discussion and practice questions, see What is required for termination of an insurance contract?


Flashcard - Study Practice

Q1
_______________ is a risk management and mitigation relationship between an insurer and the insured party.

Q2
The __________ allocates the contingent risk of loss in a particular situation to an _________.

A2
Insured; insurer.

Resource Video: https://thebusinessprofessor.com/what-is-insurance/

Q3
The ________ is a business entity that agrees to bear the burden of potential losses and to indemnify the insured from a degree of personal loss.

Q4
_____________ generally means to hold a person harmless by paying any costs or expenses incurred.

A4

Q5
The insurer receives some form of compensation for assuming the insured party’s risk, known as a ___________.

Q6
The insurer assesses the extent or severity of the contingent risk through a process or system known as ___________.

A6
“actuarial science”

Resource Video: https://thebusinessprofessor.com/what-is-insurance/

Q7
An ____________ is the legal document evidencing each party’s right and obligations in the insurance relationship. It will cover or establish terms of indemnification of an insured for losses suffered as a result of a specific occurrence. It will identify specific limits on the amount of indemnification payable upon the occurrence of a specific risk.

A7
“insurance policy”.

Resource Video: https://thebusinessprofessor.com/what-is-insurance/

Q8
An _____________, lays out the extent to which the parties allocate or transfer the contingent risk of loss to the insurer. It will detail the rights and obligations of the parties, as well as the types of situation giving rise to loss and the limits of the insurer’s responsibility to pay for losses incurred.

A8
insurance contract, or “insurance policy”

Resource Video: https://thebusinessprofessor.com/what-is-an-insurance-contract-or-policy/

Q9
The insurance relationship begins when the insurer accepts the insured’s offer to purchase coverage, which is the ___________ of the insurance policy.

Q10
For a party to seek insurance against a potential loss, the insured must have some form of interest in the insured property or be subject to a particular loss from an occurrence or event affecting the insured property or individual. This is known as having an ____________.

A10
“insurable interest”.

Resource Video: https://thebusinessprofessor.com/what-is-an-insurable-interest/

Q11
An insurable interest may be any form of ______________, including security interests in the property as collateral.

A11
legal or equitable interest in the property

Resource Video: https://thebusinessprofessor.com/what-is-an-insurable-interest/

Q12
Insurance policies may cover the following types of individuals and contingent risks:

A12
individuals or groups of individuals for identified risk(s); personal or commercial activity or property; the insured or categories of third parties from potential liability for losses incurred in a specific instance or situation; and Property and casualty insurance generally insures against damage to the subject property.

Resource Video: https://thebusinessprofessor.com/common-characterizations-of-insurance/

Q13
_________ covers damages suffered by either the individual or automobile pursuant to any number of risks.

Q14
This type of policy covers, up to the policy amount, the costs and damages suffered by third parties as a result of operating the insured vehicle.

Q15
This is a form of property insurance that will pay the value of the damages suffered to a vehicle in a crash, up to a stated amount or up to the total value of the vehicle.

Q16
This type of insurance coverage insures the vehicle against forms of damage other than collision, such as vandalism, theft, hazardous weather, etc.

A16

Q17
This type of insurance coverage provides indemnification for injuries suffered by the driver and passengers of the covered automobile when another party without insurance causes personal injury in a crash.

A17
Uninsured (& Underinsured) Motorist Coverage

Resource Video: https://thebusinessprofessor.com/what-is-automobile-insurance/

Q18
____________ pays the medical expenses incurred by an individual pursuant to treatment of covered health risks. This may include medical, pharmaceutical, dental, and vision services by health providers.

Q19
A health insurer will often disclaim or limit coverage for known conditions of the insured that are present within a stated period of time prior to purchasing insurance. This is known as excluding _____________.

Q20
Most health insurers are limited in the ability to exclude preexisting conditions for more than _______ years following issuance of the policy.

Q21
_______________ limits the ability for insurers to exclude preexisting conditions, while placing additional tax burdens on those who do not purchase a qualified health insurance plan. It also authorizes the establishment of state and federal insurance exchanges where individuals can purchase an insurance plan.

A21
The Affordable Care Act of 2010 (ACA)

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q22
As part of an insurance plan, an insured may be responsible for: _______________ - Payments for insurance coverage; ____________ - This is a minimum amount that an insured must pay towards the cost of services addressing a contingent risk or occurrence before the insured will begin to pay; _______________ - This is an amount or percentage for which the insured is responsible for any costs incurred pursuant to the occurrence of a covered event; _________ - This is a fixed amount that an insured must pay toward costs incurred as part of a contingent event.

A22
Premiums; Deductibles; Co-Insurance; Co-pay

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q23
______________- These policies provide a rate of expense coverage for medical treatment received within a specific network of physicians, hospitals, and clinics.

A23
Preferred Provider Organizations (PPO)

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q24
______________ - These policies provide a rate of coverage for medical treatment received within a specific network of physicians, hospitals, and clinics. The key characteristic is that the insured is assigned to a primary care physician who must refer the insured for treatment at any of the network participants. The insurer provides a rate of coverage for these in-network providers. The insurer provides no coverage for treatment received outside of the network, except in the case of emergency treatment.

A24
Health Maintenance Organization (HMO)

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q25
______________ - EPO plans cover specific types of medical treatment within a specific provider network. These plans are more limited in their coverage than HMO plans, but the costs for the plan are generally lower. Any treatment received outside of the EPO is not covered.

A25
Exclusive Provider Organization (EPO)

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q26
_____________ - This type of plan is similar to a PPO plan in that it provides a rate of expense coverage for in-network healthcare providers. The insured is assigned to a primary care physician or network for certain types of services. The insured has flexibility, however, to visit out-of-network healthcare providers, but the expense coverage is lower than in-network.

Q27
___________ is a plan that provides a stated rate of health expense coverage after a high annual deductible amount is paid by the insured. Once the insured covers her medical expenses up to the deductible amount, the insurer will pay a stated percentage of costs.

A27

Q28
A High Deductible Health Plan (HDHP) is generally grouped with a _____________, which allows an individual to make tax-free contributions to a qualified trust account to cover the costs of medical expenses. These contributions allow the insured to pay for much of the deductible costs of HDHPs with pre-tax funds.

Q29
This is a form of self-insurance that is similar to an HSA. It is an employer-sponsored account that allows the employee to make pre-tax contributions to a healthcare (or childcare) spending account.

A29
Flexible Spending Account (FSA). While an HSA is only available with a HDHP, the FSA is available along with any healthcare plan. An employer must sponsor the FSA for its employees.

Resource Video: https://thebusinessprofessor.com/common-health-insurance-plan-characteristics/

Q30
_____________ provides financial benefits to someone who becomes disabled and is unable to continue working in a given profession or function.

A30
Disability insurance. Coverage is generally divided into short-term and long-term disability.

Resource Video: https://thebusinessprofessor.com/what-is-disability-insurance/

Q31
____________ financial benefits in the event a covered individual passes away. The beneficiaries of the policy are generally third parties rather than the insured or the insured’s estate.

Q32
___________ provides a benefit to a named beneficiary upon the insured’s death. Coverage lasts for the remainder of the insured’s life. The owner of the policy pays regular premiums (that are generally locked in at a fixed rate) until time of the insured’s death.

Q33
Because of the certainty of payout of the policy, the policy has a cumulated cash value that can be cashed out or used to secure a loan during the insured’s life. True of False.

Q34
________________ is a variation upon the whole-life policy. All things are similar under these plans, except that the policy becomes fully funded after a certain number of payments. Once these payments are met, the owner of the policy no longer pays a recurring premium.

Q35
___________ insurance provides benefits to a named beneficiary for a specific term from the initiation of the policy. The owner of the policy pays premiums until the end of the term. At the end of the term, if the insured is alive, the policy ends and no longer offers benefits.

Q36
___________ is a less common form of life insurance in which the owner of the policy pays premiums for the term of the insurance. At the end of the term, a fixed amount is paid to the beneficiary on a certain date.

Q37
This form of policy requires the owner of the policy to make a single lump-sum payment or a series of premium payments to the insurer. The insurer agrees to begin making recurring payments to the beneficiary after a certain date. The payments will last until a specific date or (more commonly) until the end of the insured’s life. The lump sum is paid at one time and recurring payments to the beneficiary generally terminate upon the death of the insured.

Q38
This type of policy combines term and life insurance into a combination policy.

A38
Universal Life Policy

Q39
These policies often exclude specific causes of death, such as:

A39
suicide, war, criminal death sentence, or murder of the insured by the beneficiary.

Resource Video: https://thebusinessprofessor.com/characteristics-of-life-insurance-policies/

Q40
_______________ are combination policies that protects property as well as individuals present on the property. It will generally insure the subject property against damages from specific types of occurrence, such as fire, theft, flood, etc.

A40
Homeowner’s & Renter’s Insurance

Resource Video: https://thebusinessprofessor.com/characteristics-of-life-insurance-policies/

Q41
The homeowner or renter’s policy generally provides protection (or indemnification to the property owner) against losses resulting from ____________.

A41
personal injuries suffered on the insured property.

Resource Video: https://thebusinessprofessor.com/characteristics-of-life-insurance-policies/

Q42
_____________ insures specific property for a specific amount against damages from fire and fire-related damages (such as smoke, water, etc.)

Q43
These policies will insure any number of risks commonly faced by businesses, such as premises liability, product liability, professional malpractice, negligence, environmental liability, etc.

A43
“comprehensive general liability” (CGL) policy

Resource Video: https://thebusinessprofessor.com/common-types-of-business-insurance/

Q44
___________ protects the insured from losses incurred as a result of a specific type of negligent professional practice.

A44
Professional liability insurance, often called “malpractice insurance”

Resource Video: https://thebusinessprofessor.com/common-types-of-business-insurance/

Q45
______________ Insurance is purchased by a business to indemnify its officers and directors from losses suffered in the performance of their business duties.

A45
“director & officer liability”

Resource Video: https://thebusinessprofessor.com/common-types-of-business-insurance/

Q46
The primary duties of an insurer in an insurance contract are as follows:

A46
Payment for Losses - An insured is responsible for indemnifying the policyholder or paying for the losses suffered by the insured or a third party as a result of a covered risk; Duty to Defend - An insurer generally has the duty to defend or pay the legal expenses of an insured who is subject to a legal action for the covered risk; Subrogation - The insurer may seek recovery or contribution for harm suffered (funds paid to the insured or third parties) based upon the harm to the insured’s interest.

Resource Video: https://thebusinessprofessor.com/duties-of-an-insurer/

Q47
Failure of an insurer to comply with its duties under an insurance policy is a common subject of litigation, known as __________.

A47
“bad-faith refusal”.

Resource Video: https://thebusinessprofessor.com/duties-of-an-insurer/

Q48
The primary duties of an insured in an insurance contract are as follows:

A48
Duty to Disclose Information - The insured must inform the insurer of any events relevant to the contingent risk transferred to the insurer. Duty to Cooperate - An insured has a duty to cooperate with the insurer in the identification, investigation, and resolution of any event or circumstance giving rise to losses born by the insurer.

Resource Video: https://thebusinessprofessor.com/primary-obligations-of-an-insured/

Q49
The __________ section of an insurance contract identifies the parties to the contract and dictates that the following provisions constitute an insurance contract. It will generally state the intentions of the parties with regard to the subject-matter of the insurance, the term of the policy, the risks covered by the policy, the limits on payment in the event an insured risk occurs, and the financial obligations of the insured (premiums, deductibles, co-payments, etc.).

Q50
Most insurance contracts contain a _______ section that provides the common understanding of certain terms or phrases used throughout the insurance agreement. This section can be very important for avoiding ambiguities in the agreement.

Q51
This section lays out the promises of the insurance company to indemnify the insured against certain risks of loss. Specifically, it will describe the type of risks insured against and the person, property or subject matter covered under the policy.

A51
Terms of Insurance, often called the “insuring agreement”

Resource Video: https://thebusinessprofessor.com/general-structure-of-an-insurance-contract/

Q52
T his form of agreement insures perils specifically listed in the policy. If the peril is not listed, it is not covered.

Q53
This form of agreement insures all losses suffered to a person or specific property except those losses specifically excluded. If the loss is not excluded, it is covered.

Q54
Exclusions are types of contingent risk that are not covered or insured under a policy. There are three major types:

A54
Excluded Perils or Causes of Loss; Excluded Losses; Excluded property

Resource Video: https://thebusinessprofessor.com/general-structure-of-an-insurance-contract/

Q55
__________ are contractual provisions that require a certain fact or circumstance come about before duties or obligations arise under the contract. If policy conditions are not met, the insurer is not obligated to insure against the loss that is subject to that condition.

Q56
These are forms attached to the main insurance policy used to modify the duties or obligations under the policy. Often these will place some condition on the insurer’s duty to indemnify the insured or cover a particular type of loss. They may also modify or delete express clauses present within the core of the insurance policy.

Q57
__________ are amendments to an existing policy. It contains the amended terms and becomes part of the original insurance contract.

Q58
The ____________ is a cover, binder, envelope, or folder containing the policy. It will often contain boilerplate provisions of the insurance policy.

Q59
An insurer that fails to pay an insurance claim for which it is legally obligated may be subject to a _________ action by the insured.

Q60
An __________ protects the insured by preventing an insurer from denying coverage based upon certain misrepresentations by the insured when applying for the policy. These clauses generally do not protect against fraudulent statements made with the specific purpose of deceiving the insured into granting a policy.

Q61
Incontestability clauses are effective after a stated period of time, the __________ . The theory is that a misrepresentation that does not give rise to an issue in coverage within the stated period was not material at the time of the application for coverage.

Q62
An ____________ prevents an insurer from automatically canceling an insurance policy at the end of a specific policy term. In addition, state statutes require that the insurer give the insured sufficient notice of the policy’s termination date and inform the insured of what is required to continue coverage for a future coverage period.

Q63
_____________ seek to avoid litigation of disputes as to the replacement or repair value of covered items. Specifically, these provisions require that the insured and insurer submit any disputes as to valuation to qualified third-party appraisers.

Q64
Nearly all insurance contracts require that the insured take the following actions when a claim arises or as soon as the insured has a reasonable belief that a claim has arisen.

A64
Preserve Evidence - The insured must preserve any evidence relevant to the situation once the insured reasonably anticipates litigation on the matter. Notice of Claims- These provisions require an insured to provide notice to its insurer of any circumstance that may give rise to a claim under the existing policy.

Resource Video: https://thebusinessprofessor.com/common-legal-disputes-over-insurance-agreement/

Q65
These provisions require that an insured purchase separate insurance on insured property up to a specific percentage of the insured property value. An insured who fails to purchase insurance to meet the required percentage of the property value may forfeit any or all of the coverage under a particular policy.

Q66
These clauses limit the insurer’s responsibility to pay for losses when multiple insurance policies cover the same property or loss.

A66
Multiple Coverage Clause. Generally, these clauses provide that an insurer will be a secondary insurer to any existing insurance. Alternatively, these policies state that the insurer will pay only a pro rata share of losses along with the other insurer.

Resource Video: https://thebusinessprofessor.com/common-legal-disputes-over-insurance-agreement/

Q67
_________ are provisions require the insured and insurer to submit any dispute to binding arbitration, rather than initiating a civil action.

Q68
An insured may terminate an insurance policy at any time. True of False.

Q69
If the insured stops paying the insurance premiums, before canceling the policy, the insurer must ____________.

A69
provide the insured with notice of its intention to cancel the policy.

Resource Video: https://thebusinessprofessor.com/requirements-for-cancelling-and-insurance-contract/

Q70
These are common situations in which an insurer may cancel a policy.

A70
Void by Insurer - An insurer may void a contract if the insured supplies false or misleading information to the insurer to obtain insurance. Conditions in Policy - An insurance policy may contain any number of conditions that can cause cancellation of the insurance policy. End of Policy Term - An insurer may be able to terminate an insurance policy at the end of a stated insurance term.

Resource Video: https://thebusinessprofessor.com/requirements-for-cancelling-and-insurance-contract/


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