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Canada (510,787)
MTHEL 131 (111)
David Kohler (106)
Lecture 11

MTHEL131 lecture 11.docx

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Mathematics Electives
David Kohler

Review: Business overhead expense insurance  Designed to pay monthly the cost of operating • Waiting period is very short (1-7 days) – business needs cash flow • Benefit period (6-36 months) – insured will know if they will ever return to work • Benefit amount (= total expenses) – must prove expenses, taxable Gives the policy owner time to recover and decide the business’s future Contracts Concept of utmost of good faith: • Important to an insurance contract • Says that both sides are entitled to accept an act of good faith from the other and they both must not deceive the other Contract: important, valuable • Understand the laws of a legal contract • Terms to be valid: 1. Offer 2. Acceptance (or not) 3. Consideration (ex: down payment) • In life insurance the terms are: 1. Application for insurance (offer) by the proposed insurer 2. Policy being issued (acceptance) 3. Consideration (Premium) • Other terms: 1. Person must be mentally capable to understand the contract 2. Must be old enough to enter into a life insurance contract (16 years old in Ontario) 3. Must be for a lawful purpose Overriding Principle of underwriting 1. Ensure the financial soundness of the insurer 2. To be fair 3. Prevent the economic incentive to … If application was accepted, the underwriter issued a Standard Policy Claiming a policy Will be a claim form, accompanied by a death certificate (life insurance) Attending physician report (APS – letter) - how the patient died Face Value: • Increased by unpaid dividends • Decreased by outstanding premiums • Decreased by outstanding interest on loan • Decreased by outstanding loan (Loan against a life insurance policy is very flexible) Insurance is about managing risk (risk transfer) Ex: manage risk of premature death with life insurance  frequency vs. severity Transfers the risk from the individual to the insurer Low frequency and high severity of loss: managed by insurance (ie. House burnt down) Severity: Value of 1. Their ability to earn an income 2. Home 3. Car Frequency: … NOTE: Takes 5 years for cash to build in par policy. Taxation Tariffs (imported goods, cigarettes, liquor) – (1867-1917, sustained country) 1. Income tax (federal and provincial government) 2. Consumption (HST) F&P - 3. Property (municipal) Taxable Gain=CSV – (Premiums paid) – (net cost of pure insurance) Ex: Whole life policy, csv of $25,000  taxable? ($25,000 - $20,000 - $6000)=-1000 Negative number  no tax Note: policy owner can borrow up to 90% of the CSV Broker license can sell the products of many companies, representative can only sell one. Why do brokers do business with the same company 90% of the time? 1. Compensation (more
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