Chapter 15: Wills

1
Chapter 15 Wills Insurance
2
What Youll Learn

• How to describe what happens when someone dies
  with and without a will
• (p 783)
• How to outline the legal procedures that apply
  when someone dies owning property (p. 785)

3
Why Its Important
Knowledge of wills and estates will help you when
the time comes in your life.
4
Section Outline
Making a Will
Who May Make a Will Formal Requirements of a Will
Revoking or Changing a Will
5
Section Outline
Family Protection
Protection of Spouses Protection of Children
Dying Without a Will   Settling an Estate
6
Pre-Learning Question
What is a will?
7
Making a Will
A will is a document that is signed during your
lifetime that provides for the distribution of
your property upon death. Each state has it own
requirements for making a will.
8
Making a Will
A person who dies with a will is said to die
testate and is called a testator (male) or
testatrix (female).
9
Making a Will

• A gift of personal property that is made by will
  is called a bequest, or legacy.
• A gift of real property that is made by will is
  called a devise in most states.

10
Making a Will

• Those who receive property by will are referred
  to as beneficiaries.
• The term heir refers to one who inherits property
  under a will or from someone dying without a
  will.

11
Who May Make a Will
Any person of sound mind who has reached the age
of adulthood (eighteen years) may make a will.
12
Formal Requirements of a Will
To be valid, a will must conform exactly to the
law of the state where it is made. A will that
is legally made in one state will be recognized
as valid in every state.
13
Formal Requirements of a Will

• With some exceptions, a will must be in writing.
• It must be signed and witnessed by the number of
  witnesses required by state law.

14
Pre-Learning Question
What do you think it means to revoke a will?
15
Revoking or Changing a Will
In some states, a will may be revoked by

• Burning, tearing, canceling, or obliterating the
  will with intent to revoke it
• Executing a new one
• Marrying after the will was created

16
Pre-Learning Question
How are families protected when someone dies?
17
Family Protection
State laws contain provisions designed to protect
surviving family members when a spouse dies.
18
Family Protection
Some states provide for a family allowance, or
money taken from the decedents estate to meet
the familys needs while the estate is being
settled.
19
Family Protection
Another family protection is the homestead
exemption, which puts the family home beyond the
reach of creditors up to a certain limit.
20
Protection of Spouses
A surviving spouse who doesnt like the
provisions of a deceased spouses will may choose
to take a different portion of the estate set by
state statute.
21
Protection of Children
Children who can prove that they were mistakenly
left out of a parents will are protected by the
laws of most states. Children who are
intentionally left out do not have this
protection.
22
Protection of Children
Adopted children are treated, in most states, as
though they were the naturally born children of
their adoptive parents. They inherit from the
adoptive parents rather than from their natural
parents.
23
Pre-Learning Question
What happens if you die without a will?
24
Dying Without a Will
A person who dies without a will is said to have
died intestate. The deceaseds personal property
is distributed according to the laws of intestate
succession of the state in which the deceased was
domiciled.
25
Dying Without a Will
In contrast, the real property passes according
to the law where the property is located.
26
Dying Without a Will
In general, the surviving spouse is entitled to
one-third or one-half of the estate. The
balance of the estate is usually divided equally
among the deceaseds children.
27
Dying Without a Will
If any of the deceaseds children are deceased,
the estate is distributed in the following order.

1. Decedents grandchildren
2. Decedents parents

28
Dying Without a Will

1. Decedents brothers and sisters
2. Children of decedents brothers and sisters
3. Decedents aunts and uncles
4. Decedents cousins

29
Pre-Learning Question
What legal procedure takes place to distribute
assets when a person dies?
30
Settling an Estate
When people die owning assets, their estate must
be probated that is, it must be settled under
the supervision of the probate court.
31
Settling an Estate
First, the probate court establishes the validity
of the will. A will usually names a personal
representative called an executor (male) or
executrix (female) to carry out the terms of the
will.
32
Settling an Estate
If there is no will, or if the executor or
executrix named in the will fails to perform,
someone must petition the court to settle the
estate. That person is called an administrator or
administratrix.
33
Settling an Estate
The executor or administrator gathers the estate
assets, pays the debts and taxes, and distributes
the remainder of the assets according to the
terms of the will or state law.
34
Read the following scenario and answer the
questions below. Petunia Appleby died without
a will. Her husband, Clark, had preceded her in
death, and they had no children.
35
Petunia had a sister, Daisy, and a brother, Duke.
Daisy was still living, but Duke was dead. He had
three children, all of whom were still living.
36
Both of Petunias parents were dead, but she had
one living uncle, Trey. Trey had two sons, both
living. After Petunias debts and taxes are paid
there is 1,000,000.
37

1. Who inherits from Petunia, if you follow the
   general guidelines from the text?

38
ANSWER
Daisy and Dukes three children.
39

1. How much does the heir or heirs inherit?

40
ANSWER
Daisy inherits 500,000, and Dukes three
children divide the other 500,000 (166,667
each).
41

1. Who is the executor of the estate? How do you
   know?

42
ANSWER
There is no executor because there was no will
naming an executor.
43
Section 36.2 Assessment
Reviewing What You Learned

1. What are the formal requirements of a will?

44
Section 36.2 Assessment
Reviewing What You Learned
Answer
Must conform exactly to the law of the state
where it is made to be valid (in writing, signed,
and witnessed).
45
Section 36.2 Assessment
Reviewing What You Learned

1. How can a will be changed or revoked?

46
Section 36.2 Assessment
Reviewing What You Learned
Answer
(1) Burning, tearing, canceling or obliterating
the will with intent to revoke (2) executing a
new one and (3) subsequent marriage. A codicil
is a formal document used to supplement or change
an existing will.
47
Section 36.2 Assessment
Reviewing What You Learned

1. Explain how surviving families are protected
   legally when a spouse dies.

48
Section 36.2 Assessment
Reviewing What You Learned
Answer
Some states provide for a family allowance (money
taken from the decedents estate for the family
to meet its needs while the estate is being
settled).
49
Section 36.2 Assessment
Reviewing What You Learned
Answer
The homestead exemption puts the family home
beyond the reach of creditors up to a certain
limit.
50
Section 36.2 Assessment
Reviewing What You Learned

1. What happens when a person dies without a will?

51
Section 36.2 Assessment
Reviewing What You Learned
Answer
The deceaseds personal property is distributed
according to the laws of intestate succession of
the state where the deceased was domiciled. The
real property passes according to the law where
the property is located.
52
Section 36.2 Assessment
Reviewing What You Learned

1. Discuss the legal procedure that must be followed
   when someone dies owning property.

53
Section 36.2 Assessment
Reviewing What You Learned
Answer
The estate must be probated. If a will exists, an
executor/executrix carries out the terms.
54
Section 36.2 Assessment
Reviewing What You Learned
Answer
If there is no will, an administrator/administratr
ix is appointed. The executor or administrator
gathers the estate assets, pays the debts and
taxes, and distributes the remainder according to
the terms of will or state law.
55
End of Section 36.2
56
Section 16.2 Motor Insurance
57
Section Outline
Financial Responsibility Types of Motor Vehicle
Insurance
Bodily Injury Coverage Property Damage
Coverage No-Fault Insurance
58
Pre-Learning Question
What are the different types of motor vehicle
insurance?
59
16.2
Types of Motor Vehicle Insurance
60
Bodily Injury Coverage
The main types of bodily injury coverage are

• Bodily injury liability insurance
• Medical payments insurance
• Uninsured motorist insurance
• Underinsured motorist insurance

61
Bodily Injury Coverage
Bodily injury liability insurance protects the
insured against claims or lawsuits for injuries
or death caused by negligence.
62
Bodily Injury Coverage
Medical payments insurance pays for medical, and
sometimes funeral, expenses resulting from bodily
injuries to anyone occupying the policyholders
car in an accident.
63
Bodily Injury Coverage
Uninsured motorist insurance provides protection
when the insured is injured in an automobile
accident that is caused by a driver who has no
insurance. It also protects parties who are
injured by a hit-and-run driver.
64
Bodily Injury Coverage
Underinsured motorist insurance protects you when
another driver has insurance, but not enough to
pay for any injuries.
65
Property Damage Coverage
Collision insurance covers damage to your vehicle
when it is in an accident and pays for vehicle
repairs, regardless of who was at fault.
66
Property Damage Coverage
Comprehensive insurance covers damage to your
vehicle from sources other than collision,
including fire, theft, lightning, flood, hail,
windstorm, riot, and vandalism.
67
No-Fault Insurance
Under no-fault insurance, regardless of who
caused the accident, all drivers involved collect
money from their own insurance companies.
68
No-Fault Insurance
Because no-fault systems vary by state, you
should investigate the coverage provided by
no-fault insurance in your state.
69
Section 35.1
70
Why Its Important
Understanding how insurance works and knowing key
insurance terms will help you choose good
policies throughout your life.
71
Section Outline
What is Insurance?
Insurance Terms
72
Pre-Learning Question
What is insurance?
73
What Is Insurance?
Our lives are filled with risks, including the
loss of

• Property
• Health
• Income
• Life

74
What Is Insurance?
Insurance can protect you against such losses.
75
What Is Insurance?
The basic purpose of insurance is to spread the
losses among a greater number of people.
76
What Is Insurance?
Insurance is a contract under which, for
consideration, the insurer, or the insurance
company, agrees to compensate you for a specific
loss.
77
Insurance Terms
The policy is the written contract between a
person buying insurance and the insurance company
that sells it. When you buy the policy, you
are the policyholder.
78
Insurance Terms
The insured is the person whose life or property
is insured. The beneficiary is the person named
in the policy to receive benefits paid by the
insurer in the event of a loss.
79
Insurance Terms
A rider is an attachment to an insurance policy
that modifies the policys terms.
80
Insurance Terms
You cant take out insurance unless you have an
insurable interest in the person or property you
want to insure.
81
Insurance Terms
Consequently, you can only take out insurance on
a person or property if the loss of that person
or property would pose a financial burden to you.
82
Insurance Terms
The premium is the amount of money you pay to the
insurance company for insurance coverage.
Proceeds are payments by insurance companies to
beneficiaries for losses covered by the policy.
83
Insurance Terms
The face value is the amount of protection stated
in a life insurance policy, meaning the amount of
money a beneficiary would receive if the insured
died.
84
Section 35.1 Assessment
Reviewing What You Learned

1. What is the purpose of insurance?

85
Section 35.1 Assessment
Reviewing What You Learned
Answer
To spread losses among a greater number of
people.
86
Section 35.1 Assessment
Reviewing What You Learned

1. Explain why insurance is a contract.

87
Section 35.1 Assessment
Reviewing What You Learned
Answer
Insurance is a contract under which, for
consideration, the insurer (the insurance
company) agrees to compensate you for a specific
loss.
88
Section 35.2
89
Why Its Important
Knowing how to determine your life and health
insurance needs will help you handle your
finances when dealing with unexpected events.
90
Section Outline
Life Insurance
Straight Life Insurance Limited-Payment Life
Insurance Endowment Insurance Annuity
91
Section Outline
Life Insurance, continued
Accidental Death and Dismemberment Insurance Term
Insurance Exemptions from Risk
92
Section Outline
Health Insurance
Insurance Plans HMOs and PPOs Government Health
Care Plans Disability Insurance
93
Pre-Learning Question
What is life insurance?
94
Life Insurance
Life insurance is an insurance contract that
provides monetary compensation for losses
suffered as a result of someones death.
95
Life Insurance
Premiums for life insurance are based on several
factors.

• Age and health of insured
• Coverage
• Type of policy

96
Straight Life Insurance
Straight life insurance, also called ordinary
life insurance and whole life insurance, requires
the payment of premiums throughout the insureds
life. The premiums remain constant throughout the
policy.
97
Straight Life Insurance
Upon the insureds death, the beneficiary is paid
the face value of the policy. Because straight
life insurance builds up a cash and loan value,
it provides savings as well as protection.
98
Straight Life Insurance
Universal life insurance, a form of straight life
insurance, allows policyholders to change the
terms of the policy as their needs change.
99
Limited-Payment Life Insurance
Limited-payment life insurance allows you to stop
paying premiums after a stated length of
timeusually 10, 20, or 30 years.
100
Limited-Payment Life Insurance
The beneficiary will receive the amount of the
policy upon the death of the insured, whether it
occurs during the payment period or after.
101
Endowment Insurance
Endowment insurance provides protection for a
stated time, generally 20 to 30 years. The face
value of the policy is paid to the insured at the
end of the agreed period.
102
Endowment Insurance
If the insured dies before the end of the agreed
period, the full amount is paid to the
beneficiary at the time of death.
103
Accidental Death and Dismemberment Insurance
Accidental death and dismemberment insurance
provides benefits only when the insured is killed
in an accident, loses the use of one or more
limbs, or loses sight in one or both eyes.
104
Term Insurance
Term insurance is issued for a particular period,
usually five or ten years. It is the least
expensive kind of life insurance because it has
no cash or loan value.
105
Term Insurance
Premiums for term insurance increase at the end
of each term because the insured is older and is
considered a greater risk.
106
Exemptions from Risk
Some states do not allow beneficiaries to receive
life insurance proceeds if the insured is legally
executed or if the insured is killed by the
police while trying to avoid capture.
107
Exemptions from Risk
In most cases, the courts allow a beneficiary to
receive benefits under a life insurance policy
when the insured is murdered, except when the
murderer is the beneficiary.
108
Name the type of insurance described below.
Renée Morris, who is a firefighter in New York
City, purchased insurance that pays her a benefit
if she loses a limb or her eyesight.
109
Pre-Learning Question
What benefits does health insurance include?
110
Health Insurance
Basic health insurance often includes the
following benefits

• Inpatient and outpatient hospital care
• Physician care

111
Health Insurance

• Surgery
• Prescription drugs
• Dental and vision care

112
Health Insurance
Major medical coverage pays for expenses beyond
those covered by a basic plan, including
long-term hospitalization and the cost of
catastrophic illness.
113
Insurance Plans
Health insurance companies offer a variety of
health insurance plans to make some degree of
health insurance coverage available to most
people. The type of coverage people carry depends
on their individual situations.
114
35.2
Health Insurance Must Haves
A health insurance plan should
Offer basic coverage for hospital and doctor
bills.
Provide at least 120 days hospital room and
board in full.
Provide at least 1 million lifetime maximum for
each family member.
Pay at least 80 percent for out-of-hospital
expenses after a yearly deductible of 500 per
person or 1,000 per family.
Impose no unreasonable exclusions.
Limit your out-of-pocket expenses to no more than
3,000 to 5,000 a year, excluding dental,
vision care, and prescription costs.
115
Group Plans
Many people get their health insurance through a
group insurance plan where they work. Insurance
companies can offer lower premiums to large
groups, and many employers pay part of the
premium for each employee.
116
Individual Plans
People who work for a company that does not offer
health insurance or who are self-employed can buy
individual health insurance.
117
Individual Plans
This insurance is more expensive than group
insurance because the cost cannot be spread among
a large group of people.
118
HMOs and PPOs
HMOs and PPOs are other types of health insurance
plans.
119
Health Maintenance Organizations
Health Maintenance Organizations (HMOs) contract
with doctors and other healthcare professionals
to provide healthcare services for their members.
120
Health Maintenance Organizations
Members pay monthly premiums and must choose from
a list of doctors provided by the HMO.
121
Preferred Provider Organizations
A Preferred Provider Organization (PPO) is a
group of healthcare providers, such as doctors or
hospitals, who provide care for groups of
employees at reduced rates.
122
Government Health Care Plans
People over 65 who are covered by social security
are eligible for Medicare, a federally funded
health insurance program.
123
Government Health Care Plans
Medicaid is a healthcare plan for low-income
people. State governments administer Medicaid,
which is funded by both state and federal funds.
124
Disability Insurance
Disability insurance pays you benefits when you
cant work because of a disability.
125
Section 35.2 Assessment
Reviewing What You Learned

1. What are the principal types of life insurance?
   Briefly describe each one in your own words.

126
Section 35.2 Assessment
Reviewing What You Learned
Answer
(1) Straight liferequires payment of premiums
through the insureds life. The premiums remain
constant.
127
Section 35.2 Assessment
Reviewing What You Learned
Answer
(2) Universal lifea form of straight life
insurance but it allows policyholders to change
the terms of the policy as their needs change.
Premiums fluctuate according to the changes.  
128
Section 35.2 Assessment
Reviewing What You Learned
Answer
(3) Limited-payment lifeprovides that the
payment of premiums will stop after a stated
length of time. (4) Endowmentprovides protection
for a stated time.
129
Section 35.2 Assessment
Reviewing What You Learned
Answer
(5) Termissued for a particular period. It has
no cash or loan value. (Answers may vary but
should closely parallel the descriptions in the
chapter.)
130
Section 35.2 Assessment
Reviewing What You Learned

1. What risks are generally not covered by
   insurance?

131
Section 35.2 Assessment
Reviewing What You Learned
Answer
Some states do not allow beneficiaries to receive
life insurance proceeds when an insured is
legally executed or killed by the police to avoid
capture. When the beneficiary is the murderer of
the insured, no proceeds are allowed.
132
Section 35.2 Assessment
Reviewing What You Learned

1. What benefits are provided by basic health
   insurance? Major medical?

133
Section 35.2 Assessment
Reviewing What You Learned
Answer
Basicinpatient and outpatient hospital care,
physician care, surgery, prescription drugs, and
dental and vision care.
134
Section 35.2 Assessment
Reviewing What You Learned
Answer
Major medicalcovers expenses beyond those
covered by a basic plan, including long-term
hospitalization and catastrophic illness.
135
Section 35.3
136
Why Its Important
Understanding property insurance will help you
protect your property at the lowest cost.
137
Section Outline
Property Insurance   Homeowners and Renters
Insurance   Fire Insurance  
138
Pre-Learning Question
What is property insurance?
139
Property Insurance
Property insurance is a contract in which the
insurer promises, for a stated premium, to pay
you a sum of money if a particular piece of real
or personal property is damaged or destroyed.
140
Property Insurance
The policy becomes effective as soon as the
insurer accepts your application, or even sooner
if a binder is issued. A binder gives you
temporary protection until a policy is issued.
141
Property Insurance
A floater policy is one that insures property
that cannot be covered by specific insurance
because it is constantly changing in value or
location.
142
Property Insurance
A personal property floater, for example, can
cover a bicycle or laptop computer, no matter
where the items are located.
143
Pre-Learning Question
What does homeowners and renters insurance
cover?
144
Homeowners and Renters Insurance
Homeowners insurance protects against most types
of losses and liabilities related to home
ownership.
145
Homeowners Insurance Covers

• Fire
• Windstorm
• Vandalism
• Burglary
• Injuries suffered by other persons while on the
  property

146
Homeowners Insurance Covers
With certain limitations, homeowners policies
cover your personal property anywhere in the
world.
147
Homeowners and Renters Insurance
Renters insurance protects you against loss of
personal property, liability for a visitors
personal injury, and liability for negligent
destruction of the rented premises.
148
Pre-Learning Question
What does fire insurance cover?
149
Fire Insurance
Fire insurance covers loss resulting directly
from an unfriendly or hostile fire.
150
Fire Insurance
Damages that result from trying to put out a
fire, or from theft or breakage while attempting
to remove insured goods to a safe location are
considered directly related to the fire and are
usually covered.
151
Pre-Learning Question
What is coinsurance?
152
Coinsurance Clauses
Coinsurance is a provision in an insurance policy
that limits your liability for a loss if the
property is not insured for its full replacement
value.
153
Coinsurance Clauses
For example, if your insurance policy has an 80
percent coinsurance clause, your house must be
insured for 80 percent of its replacement value
to receive full reimbursement for a loss.
154
35.3
Coinsurance Clauses
COINSURANCE CLAUSE
The insurance company will pay that part of a
loss that the insurance carrier bears to 80
percent of the replacement cost of the building.
It would cost 100,000 to replace Zelias house.
If she insured it for 60,000, the insurance
company would pay only three-fourths of any loss,
computed as follows
60,000 60,000 3 80 of
100,000 80,000 4
A fire partially destroys the building, causing
40,000 worth of damage. Because of the
coinsurance clause, Zelia would recover 30,000
(3/4 of the loss) from the insurance company.
155
Pre-Learning Question
What does marine insurance cover?
156
Marine Insurance
Marine insurance is one of the oldest kinds of
insurance coverage, dating back to Venetian
traders who sailed the Mediterranean Sea.
157
Marine Insurance

• Ocean marine insurance covers ships at sea.
• Inland marine insurance covers goods that are
  moved by land carriers such as trains, trucks,
  and airplanes.

158
Section 35.3 Assessment
Reviewing What You Learned

1. What types of losses are covered by homeowners
   insurance? Fire insurance?

159
Section 35.3 Assessment
Reviewing What You Learned
Answer
Homeowners insurance covers losses from fire,
windstorm, vandalism, burglary, and injuries
suffered by other persons while on the property.
160
Section 35.3 Assessment
Reviewing What You Learned
Answer
With certain limitations, homeowners policies
cover personal property owned by the insured
anywhere in the world. Fire insurance covers loss
resulting directly from an unfriendly or hostile
fire.
161
Section 35.3 Assessment
Reviewing What You Learned

1. What is a coinsurance clause? What does it mean
   if your policy has an 80 percent coinsurance
   clause?

162
Section 35.3 Assessment
Reviewing What You Learned
Answer
Coinsurance is a provision in an insurance policy
that limits the insurers liability for a loss if
the property is not insured for its full
replacement value.
163
Section 35.3 Assessment
Reviewing What You Learned
Answer
If your policy has an 80 percent coinsurance
clause, your house must be insured for 80 percent
of its replacement value to receive full
reimbursement for a loss.
164
Section 35.3 Assessment
Reviewing What You Learned

1. Explain marine insurance coverage.

165
Section 35.3 Assessment
Reviewing What You Learned
Answer
Ocean marine insurance covers ships at sea.
Inland marine insurance covers goods that are
moved by land carriers such as rail, truck, and
airplane.
166
End of Section 35.3