Ch 28 Insurance.docx

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Western University
Management and Organizational Studies
Management and Organizational Studies 2275A/B
Frederick King

Insurance 10/24/2012 8:02:00 PM Chapter 28 Insurance  Insurance is the primary means to transferring the risk of various kinds of losses o It permits a business to shift the risk because through an insurance policy, the insurer promises to compensate the business should the contemplated loss actually occur o Insurance premium – payment in exchanges for the insurer providing protection o Insurance can be costly and is not always available  An insurance policy is a contract – by the terms of the contract, the parties agree to what kind of loss is covered, in what amount  Insurance legislation serves a number of significant purposes: o Mandating the terms that must be found in insurance contracts o Regulating the insurance industry by setting out licensing agreements for insurance companies, brokers and adjusters o Putting in place a system for monitoring insurance companies o The main goal of insurance legislation is to protect the public from dishonest financially unstable and otherwise problematic insurance companies  The three kinds of basic insurance are as follows: o Life and disability insurance o Property insurance o Liability insurance (also known as casualty insurance) – provides payment in circumstances where the insured is held legally responsibility causing a loss o Deductible – fee the insured pays that is written into insurance policies, the exception of life insurance contracts  This means the insured is responsible for the first part of the loss and the insurer has liability for the balance The Insurance Contract  Duty to disclose – a key consequence that the insured has to their insurer to disclose all the info relevant to the risk – an insurer can deny coverage for non-disclosure even if the loss has nothing to do with the matter that was undisclosed  The law expects the insurer to be “worldly wise” and show personal judgment  A duty to disclose exists not only at the time of applying – but its an ongoing duty Insurable Interest  Insurable interest – the special nature of the insurance contract also means that its validity is contingent on the insured having an insurable interest in the thing being insure  The rationale behind this rule is that allowing people to insure property they have no real interest in may lead them to intentionally destroy property in order to make an insurance claim Indemnity  Indemnity – the insured is not supposed to profit from the happening of the insured-against event  Coinsurance clause – intended to discourage the insured from insuring the property for less
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