Today

1
Todays Lecture

• Insurance Contracts
• Applications and Binders
• Parts of the Contract
• Declarations
• Insuring Clauses
• Exclusions and Exceptions
• Conditions
• Endorsements and Riders

2
Application

• The potential insured offers to buy coverage by
  submitting an application.
• The insurer decides whether to accept the offer.

3
Binders and Receipts

• Binder - temporary contract to provide coverage
  until the policy is issued
• Conditional receipt - no coverage unless policy
  is issued, but coverage is retroactive
• Binding receipt - coverage is in force while
  application is being processed

4
Receipts - Example

• On September 20, 2006, a student applies for auto
  insurance with American Family. He does not list
  three speeding tickets he received on the
  application. The agent issues him a binding
  receipt. On September 23, 2006, the student is
  speeding again, and gets into an accident. On
  September 27, 2006, the underwriter rejects this
  application for coverage. Does American Family
  have to pay this claim?

5
Receipts - Example

• A No, since coverage is retroactive only when
  issued
• B No, since the student lied on the application
• C No, since the rejection was related to the
  misrepresentation
• D Yes, since the claim was not related to past
  incidents of speeding
• E Yes, since the company had not yet rejected
  the application

6
Parts of an Insurance Contract

• Declarations
• Identify insured
• Describe coverage
• Insuring Clause
• Open-Perils - covers any loss not excluded
• Named-Perils - covers specified losses

7
Insuring Clause - Example

• Which of your State Farm Car coverages have a
  Named-Peril insuring clause?
• A All coverages
• B Comprehensive and Collision
• C Collision and Emergency Road Service
• D Collision only
• E None of the coverages

8
Exclusions and Exceptions

• Reasons for Exclusions
• Ideal Requisites for Insurability
• Possibility of catastrophe
• Fortuitous
• Definite
• Standardize the Risk
• Avoid Duplication of Coverage

9
Exclusions Example

• Why does the State Farm Car policy exclude
  coverage when the vehicle is used to carry
  persons for a charge?
• A To avoid the possibility of a catastrophe
• B To avoid losses that are not fortuitous
• C To avoid losses that are not definite
• D To standardize the risk
• E To avoid duplication of coverage

10
Types of Exclusions

• Excluded locations
• Excluded perils
• Excluded property
• Excluded losses

11
Conditions

• Must be fulfilled by insured in order to obtain
  coverage
• Examples
• Notice and proof of loss
• Cooperation of the insured
• Protection of property after a loss
• Examination

12
Endorsements and Riders

• Endorsements used in property-liability insurance
• Riders used in life-health insurance
• Both change the contract in some way

13
Parts of a Contract - Example

• On page 26 of the State Farm Car Policy the
  policy reads, There is no coverage under this
  policy if you or any other person insured under
  this policy has made false statements with the
  intent to conceal or misrepresent any material
  fact or circumstance in connection with any claim
  under this policy. This is an example of which
  part of the contract?

14
Parts of a Contract - Example

• A Excluded peril
• B Excluded loss
• C Condition
• D Endorsement
• E Rider