Principles of risk management and insurance ,13th edition mcnamara michael,george rejda 2017

Principles of Risk Management and Insurance13e This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition.

Global edition Global edition Principles of Risk Management and Insurance For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version tHiRteentH edition Rejda • McNamara tHiRteentH edition George E Rejda • Michael J McNamara GLOBal edition This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or Author Principles of Risk Management and Insurance Pearson Global Edition Download more at Learnclax.com Rejda_13_129215103X_Final.indd 12/09/16 7:12 AM Principles of Risk Management and Insurance Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM The Pearson Series in Finance Berk/DeMarzo Corporate Finance†* Corporate Finance: The Core†* Keown Personal Finance: Turning Money into Wealth* Berk/DeMarzo/Harford Fundamentals of Corporate Finance†* Keown/Martin/Petty Foundations of Finance: The Logic and Practice of Financial Management†* Brooks Financial Management: Core Concepts†* Madura Personal Finance* Copeland/Weston/Shastri Financial Theory and Corporate Policy Marthinsen Risk Takers: Uses and Abuses of Financial Derivatives Dorfman/Cather Introduction to Risk Management and Insurance McDonald Derivatives Markets Fundamentals of Derivatives Markets Eakins/McNally Corporate Finance Online* Mishkin/Eakins Financial Markets and Institutions† Eiteman/Stonehill/Moffett Multinational Business Finance†* 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Restructuring, and Corporate Governance Denotes titles with MyFinanceLab Log onto www.myfinancelab.com to learn more Denotes availability of Global Edition Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM Principles of Risk Management and Insurance George E Rejda Michael J McNamara Thirteenth Edition Global Edition Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM Vice President, Business Publishing: Donna Battista Editor-in-Chief: Adrienne D’Ambrosio Senior Sponsoring Editor: Neeraj Bhalla Associate Acquisitions Editor, Global Edition: Ananya Srivastava Associate Project Editor, Global Edition: Paromita Banerjee Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Senior Product Marketing Manager: Alison Haskins Executive Field Marketing Manager: Adam Goldstein Product Marketing Assistant: Jessica Quazza Team Lead, Program Management: Ashley Santora Team Lead, Project 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accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Principles of Risk Management and Insurance, 13th Edition, ISBN 978-0-13-408257-8 by George E Rejda and Michael J McNamara, published by Pearson Education © 2017 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-15103-X ISBN 13: 978-1-292-15103-8 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 Typeset in Times NRMT Pro by SPi Global Printed and bound by Vivar in Malaysia Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM Contents Preface 15 part one Basic Concepts in Risk Management and Insurance Chapter 1 Risk and Its Treatment  19 Definitions of Risk  20 Chance of Loss  22 Peril and Hazard  22 Classification of Risk  23 Major Personal Risks and Commercial Risks  25 Burden of Risk on Society  31 Techniques for Managing Risk  31 Summary 35 ■  Key Concepts and Terms  36  ■  Review Questions  36  ■ Application ■  Internet Resources  Questions 36  37  ■  Selected References  38  ■ Notes  38 Case Application  34 Insight 1.1: What Are Your Chances of Not Being Able to Earn an Income? Calculate Your personal Disability Quotient  28 Chapter 2 Insurance and Risk  39 Definition of Insurance  40 Basic Characteristics of Insurance  40 Characteristics of an Ideally Insurable Risk  42 Two Applications: The Risks of Fire and Unemployment  44 Adverse Selection and Insurance  46 Insurance and Gambling Compared  46 Insurance and Hedging Compared  46 Types of Insurance  47 Benefits of Insurance to Society  51 Costs of Insurance to Society  52 Summary 56 ■  Key Concepts and Terms  57  ■  Review Questions  57  ■ Application ■  Internet Resources  Questions 57  58  ■  Selected References  58  ■ Notes  59 Case Application  56 Insight 2.1: Examples of Insurance Fraud—Hall of Shame  53 Insight 2.2: Have You Ever Committed Insurance Fraud? Think Again  55 Appendix: Basic Statistics and the Law of Large Numbers  60 Chapter 3 Introduction to Risk Management  64 Meaning of Risk Management  66 Objectives of Risk Management  66 Steps in the Risk Management Process  66 Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM 6 CONTENTS Benefits of Risk Management  77 Personal Risk Management  77 Summary 80 ■  Key Concepts and Terms  81  ■  Review Questions  81  ■ Application ■  Internet Resources  Questions 81  82  ■  Selected References  83  ■ Notes  83 Case Application  79 Insight 3.1: Bermuda Leads Global Captive Domiciles  71 Insight 3.2: Advantages of Self-Insurance  72 Chapter 4 Enterprise Risk Management and Related Topics  85 Enterprise Risk Management  86 Insurance Market Dynamics  92 Loss Forecasting  98 Financial Analysis in Risk Management Decision Making  100 Other Risk Management Tools  102 Summary 105 ■  Key Concepts and Terms  105  ■  Review Questions  106  ■ Application ■  Internet Resources  Questions 106  106  ■  Selected References  107  ■ Notes  107 Case Application  104 Insight 4.1: Weather Futures and Options: Financial Tools That Provide a Means of Transferring Risk Associated with Adverse Weather Events  97 part two The Private Insurance Industry Chapter 5 Types of Insurers and Marketing Systems  109 Overview of Private Insurance in the Financial Services Industry  110 Types of Private Insurers  111 Agents and Brokers  116 Types of Marketing Systems  117 Group Insurance Marketing  120 Summary 121 ■  Key Concepts and Terms  121  ■  Review Questions  122  ■ Application ■  Internet Resources  Questions 122  123  ■  Selected References  124  ■ Notes  124 Case Application  121 Insight 5.1: Show Me the Money—How Much Can I Earn as an Insurance Sales Agent?  117 Chapter 6 Insurance Company Operations  125 Insurance Company Operations  126 Rating and Rate Making  126 Underwriting 127 Production 130 Claims Settlement  131 Reinsurance 133 Investments 138 Other Insurance Company Functions  140 Summary 142 ■  Key Concepts and Terms  142  ■  Review Questions  143  ■ Application ■  Internet Resources  Questions 143  143  ■  Selected References  144  ■ Notes  145 Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM CONTENTS Case Application  141 Insight 6.1: Home Owner’s Failure to Cooperate Yields Denied Claim  133 Insight 6.2: Be a Smart Consumer—Check the Claims Record of Insurers before You Buy  134 Chapter 7 Financial Operations of Insurers  146 Property and Casualty Insurers  147 Life Insurance Companies  152 Rate Making in Property and Casualty Insurance  154 Rate Making in Life Insurance  158 Summary 159 ■  Key Concepts and Terms  160  ■  Review Questions  160  ■ Application ■  Internet Resources  Questions 161  162  ■  Selected References  162  ■ Notes  162 Case Application  159 Insight 7.1: How Profitable Is the Property and Casualty Insurance Industry?  153 Chapter 8 Government Regulation of Insurance  164 Reasons for Insurance Regulation  165 Historical Development of Insurance Regulation  166 Methods for Regulating Insurers  168 What Areas Are Regulated?  168 State versus Federal Regulation  174 Current Issues in Insurance Regulation  177 Modernizing Insurance Regulation  177 Insolvency of Insurers  180 Market Conduct Regulation  181 Summary 184 ■  Key Concepts and Terms  185  ■  Review Questions  185  ■ Application ■  Internet Resources  Questions 185  186  ■  Selected References  186  ■ Notes  187 Case Application  183 Insight 8.1: The Pros and Cons of Credit-Based Insurance Scores  182 part three Legal Principles in Risk and Insurance Chapter 9 Fundamental Legal Principles  188 Principle of Indemnity  189 Principle of Insurable Interest  192 Principle of Subrogation  193 Principle of Utmost Good Faith  194 Requirements of an Insurance Contract  197 Distinct Legal Characteristics of Insurance Contracts  198 Law and the Insurance Agent  199 Summary 202 ■  Key Concepts and Terms  203  ■  Review Questions  203  ■ Application ■  Internet Resources  Questions 203  204  ■  Selected References  204  ■ Notes  204 Case Application  201 Insight 9.1: Corporation Lacking Insurable Interest at Time of Death Can Receive Life Insurance Proceeds  194 Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM 8 CONTENTS Insight 9.2: Auto Insurer Denies Coverage Because of Material Misrepresentation  195 Insight 9.3: Insurer Voids Coverage Because of Misrepresentations in Proof of Loss  196 Chapter 10 Analysis of Insurance Contracts  206 Basic Parts of an Insurance Contract  207 Definition of “Insured”  209 Endorsements and Riders  211 Deductibles 211 Coinsurance 213 Coinsurance in Health Insurance  214 Other-Insurance Provisions  214 Summary 217 ■  Key Concepts and Terms  217  ■  Review Questions  218  ■ Application ■  Internet Resources  Questions 218  219  ■  Selected References  219  ■ Notes  219 Case Application  216 Insight 10.1: Will Your Auto Insurance Cover You When You Drive another Person’s Car?  210 part four Life and Health Risks Chapter 11 Life Insurance  220 Premature Death  221 Financial Impact of Premature Death on Different Types of Families  222 Amount of Life Insurance to Own  223 Types of Life Insurance  228 Variations of Whole Life Insurance  234 Other Types of Life Insurance  242 Summary 246 ■  Key Concepts and Terms  247  ■  Review Questions  248  ■ Application ■  Internet Resources  Questions 248  249  ■  Selected References  250  ■ Notes  251 Case Application  245 Insight 11.1: Cash-Value Life Insurance as an Investment—Don’t Ignore Two Points  233 Insight 11.2: Be a Savvy Consumer—Four Life Insurance Policies to Avoid  244 Chapter 12 Life Insurance Contractual Provisions  252 Life Insurance Contractual Provisions  253 Dividend Options  259 Nonforfeiture Options  261 Settlement Options  263 Additional Life Insurance Benefits  267 Summary 272 ■  Key Concepts and Terms  273  ■  Review Questions  274  ■ Application ■  Internet Resources  Questions 274  275  ■  Selected References  276  ■ Notes  276 Case Application  272 Insight 12.1: Is This Death A Suicide?  255 Insight 12.2: Selection of the Best Dividend Option in a Participating Whole Life Policy  260 Insight 12.3: Accelerated Death Benefits—A Real-Life Example  270 Insight 12.4: What Is a Life Settlement? Examples of Actual Cases  271 Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM CONTENTS Chapter 13 Buying Life Insurance  277 Determining the Cost of Life Insurance  278 Rate of Return on Saving Component  281 Taxation of Life Insurance  283 Shopping for Life Insurance  285 Summary 288 ■  Key Concepts and Terms  288  ■  Review Questions  288  ■ Application ■  Internet Resources  Questions 289  289  ■  Selected References  290  ■ Notes  290 Case Application  287 Insight 13.1: Be Careful in Replacing an Existing Life Insurance Policy  281 Appendix: Calculation of Life Insurance Premiums   291 Chapter 14 Annuities and Individual Retirement Accounts  296 Individual Annuities  297 Types of Annuities  298 Taxation of Individual Annuities  305 Individual Retirement Accounts  306 Adequacy of IRA Funds  309 Summary 312 ■  Key Concepts and Terms  313  ■  Review Questions  313  ■ Application ■  Internet Resources  Questions 314  314  ■  Selected References  315  ■ Notes  315 Case Application 1  311 Case Application 2  312 Insight 14.1: Advantages of an Immediate Annuity to Retired Workers  299 Insight 14.2: Bells and Whistles of Variable Annuities  302 Insight 14.3: Ten Questions to Answer Before You Buy a Variable Annuity  306 Insight 14.4: Will You Have Enough Money at Retirement? Monte Carlo Simulations Can Be Helpful  310 Chapter 15 Healthcare Reform: Individual Health Insurance Coverages  316 Defects in the Healthcare System in the United States  317 Basic Provisions of the Affordable Care Act  322 Individual Medical Expense Insurance  328 Individual Medical Expense Plans and Managed Care  330 Health Savings Accounts  331 Long-Term Care Insurance  332 Disability-Income Insurance  336 Individual Health Insurance Contractual Provisions  339 Summary 341 ■  Key Concepts and Terms  342  ■  Review Questions  342  ■ Application ■  Internet Resources  Questions 343  343  ■  Selected References  344  ■ Notes  345 Case Application  341 Insight 15.1: Health Insurance Options for College Students under the Affordable Care Act  325 Download more at Learnclax.com A01_REJD1038_13_GE_FM.indd 9/20/16 2:35 PM I n d e x Health insurance (continued) grandfathered plans, under ACA, 323–324, 355 guaranteed access to, under ACA, 323 individual mandate for, under ACA, 324 lifetime or annual limits on benefits in, 322–323 limited waiting periods for, under ACA, 324 Medical Loss Ratio (MLR) rule for, 324 persons without, in U.S population, 321 98/38 rule for, under ACA, 324 Health Insurance Marketplace, 323, 324–326, 355, 362 insurance plans, 328–329 Health Insurance Portability and Accountability Act (HIPAA), 362 Health insurance reforms See Affordable Care Act Health maintenance organizations (HMOs), 115, 352–353 dental plans, 362 gatekeeper physician for, 353 group model, 353 individual practice association (IPA) plan, 353 Medicare and, 403 network model, 353 and preferred provider organizations, differences between, 353–354 staff model, 353 types of, 353 Health reimbursement arrangements (HRA), 358–360 Health risk assessment (HRA), 360 Health savings account (HSA), 331–332, 357–358 See also Medical savings accounts (MSA) limits, 329 Heating Degree Day (HDD), 97 Hedging, 34 and insurance, comparison of, 46–47 Hewitt Associates, Inc., 95 High-deductible health plan (HDHP), 357–358 with health reimbursement arrangements (HDHP-HRA), 358–360 with savings option (HDHP-SO), 358–360 Highly compensated employees, 373, 390(n2) HIPAA (Health Insurance Portability and Accountability Act), 362 HMOs See Health maintenance organizations HO-3 See Special form Hold-harmless clause, 34, 73 Holding company definition of, 113 mutual, 113–114 Home business insurance coverage endorsement, 533 Home Depot, data breach, 92, 436, 612 Home healthcare, Medicare and, 402 Home inventory, 512 Homeland Security Act, 31 Homeowner Flood Insurance Affordability Act of 2014, 554 Homeowners (broad form), 497–498 cost of, 534 Homeowners (special form) See Special form Homeowners (contents broad form), 497–498 Homeowners (comprehensive form), 497, 499 cost of, 534–535 Homeowners (unit-owners form), 497, 499 Homeowners (modified coverage form), 497–499 Homeowners insurance, 48 See also Special form AAIS forms, 496 abandonment of property and, 515 acts or decisions and, 511 adequate, 535 appraisal clause, 515 assignment of policy, 517 broad form, 497–498, 534 and business liability, 530 buying tips, 535–537 cancellation, 516 claim expenses, 529 comparison shopping for, 536 comprehensive form, 497, 499, 534–535 and concealment or fraud, 516, 531 concurrent causation exclusions, 510 contents broad form, 497–498 cost of, 534–535 and damage to property of others, 529–530 death of named insured or spouse and, 517 deductible amount, 535, 536 discounts, 536 duties after an ‘‘occurrence,” 530 duties after loss, 512–513 duties of injured person under coverage F, 530 earth movement and, 510 earthquake endorsement, 531–532, 535 eligible dwellings, 496 endorsements, 531–534, 535–536 excluded property in, 208 extended replacement cost endorsement, 514 first-aid expenses, 529 governmental action and, 511 guaranteed replacement cost coverage, 514 home business insurance coverage endorsement, 533 identity theft endorsement, 533–534 inflation guard endorsement, 531, 535 insurance score and, 535 insurer’s option, 515 intentional loss and, 511 ISO forms, 496 liberalization clause, 516 limit of liability, 530 loss assessment, 530 loss history report and, 535 loss payment, 515 loss settlement, 513–514 and loss to a pair or set, 514–515 mistakes, 537–538 modified coverage form, 497–499 mortgage clause, 515–516 neglect and, 511 nonrenewal, 517 and no suit against insurer, 531 and other insurance, 515, 531 personal injury endorsement, 532–533 personal property replacement cost endorsement, 535 personal property replacement cost loss settlement endorsement, 532 planning and design and, 511 policies, overview of, 497–499 policy period, 516 power failure and, 510 rating and underwriting factors, 534–535 scheduled personal property endorsement (with agreed value loss settlement), 532, 536 Section I, 495–521 Section II, 516–517, 522–542 and service agreements, 515 subrogation, 517 and suit against insurer, 515 unit-owners form, 497, 499 waiver or change of policy provisions, 516 war and, 511 watercraft endorsement, 533 weather conditions and, 511 Home service life insurance, 245 Honeywell, 88–89 Hopkins, Jamie P., 252 Hospice care, Medicare and, 402, 403 Hospital insurance (Medicare Part A), 401–403 HRA (health reimbursement arrangements), 358–360 HRA (health risk assessment), 360 HSA (health savings account), 329, 331–332, 357–358 See also Medical savings accounts (MSA) HSA-qualified high-deductible health plan (HDHP), 357–358 Hub International, 95 Huebner, Solomon S., 37–38 Huebner Foundation, 37–38 Hull coverage, 548 Hull insurance, 582 on airplanes, 610 Human life value, 26, 223–224 Human resources department, and risk management, 77 Human resources exposures, 30 Hurricane(s), 96 and catastrophe modeling, 104 Hurricane Katrina, 94, 135–136, 537, 549 Hybrid policies, 333 Hydraulic fracturing, 437 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 706 9/19/16 3:30 PM index 707 I IBNR (incurred but not yet reported) claims, 603 IBNR (incurred-but-not-reported) reserve, 149 Ice, weight of, 509 Identity theft, 30, 533–534 Identity theft endorsement, 533–534 III See Insurance Information Institute (III) IIPRC (Interstate Insurance Product Regulation Commission), 182 ImmediateAnnuities.com, 314 Impact Forecasting, 104 Implied authority, 116, 200 Implied warranties, 582 Imputed negligence, 425–426 Income See also Business income; Disabilityincome insurance; Retirement income and being insured, relationship between, 475 current net, paying losses from, 70 disability and, 27 median money (U.S.), 26 modified adjusted gross, 315(n6) of retired workers, 26 unemployment and, 28 Income and expense statement definition of, 150 life insurers, 154 property and casualty insurers, 150–151 Income for elected amount option, for life insurance settlement, 264 Income for elected period option, for life insurance settlement, 263 Income tax and health savings account, 331–332 and individual annuities, 305 insurers’, federal, 174 on life insurance, 283–284 and long-term care insurance, 335 and qualified pension plans, 372–373 on Social Security benefits, 400–401 and traditional IRA, 307–308 and universal life insurance, 237 Incontestable clause, 254 Incorporation, as risk transfer, 34 Incurred-but-not-reported (IBNR) reserve, 149 Incurred but not yet reported (IBNR) claims, 603 Indemnification, 42, 51 Indemnity double, 269 extended period of, 577 life insurance as exception to principle of, 191–192 maximum period of, 577 monthly limit of, 577 principle of, 189–192 Indemnity plans, group medical expense insurance, 352 Indemnity policies long-term care insurance, 333 Protection and indemnity (P&I) insurance, 582 Independent adjustors, 131–132 Independent agency system, 119 Independent events, 98 Independent Insurance Agents & Brokers of America, 563, 591 Indexed universal life insurance, 240 Indirect loss, 29 Individual annuity, 297–298 Individual equity, 393 Individual 401(k) retirement plan, 381 Individual health insurance conditionally renewable policy, 339 contractual provisions, 339–340 guaranteed issue, 339–340 guaranteed renewable policy, 339 noncancelable policy, 339 nonrenewable policy, 339 renewal provisions, 339 Uniform Individual Accident and Sickness Policy Provisions Act and, 340 Individual mandate, Affordable Care Act (ACA), 324 Individual medical expense insurance, 328–330 annual out-of-pocket limit, 330 bronze plans, 328–329 calendar-year deductible, 329–330 catastrophic plans, 329 and coinsurance, 330 and copayments, 330 exclusions, 330 gold plans, 329 inpatient hospital benefits, 329 and lifetime or annual limits, 328 and managed care, 330–331 out-of-pocket maximum limit, 330 outpatient benefits, 329 physician benefits, 329 platinum plans, 329 and prescription drugs, 329 and preventive services, 329 silver plans, 329 Summary of Benefits and Coverage for, 330 Individual practice association (IPA) plan, 353 Individual retirement account (IRA), 306–310 funds in, adequacy of, 309–311 inadequate balances in, 385 leakages from, 385–386 nondeductible, 307 Roth, 309–310 SIMPLE, 383 simplified employee pension (SEP), 382–383 traditional, 306–310 Individual retirement annuity, 308 Inductive reasoning, 22 Industrial life insurance, 245 Inflation annuity option, 300 Inflation guard endorsement, 531, 535 Information systems, 140–141 Inherent vice, 209 Initial reserve, 295 Injury bodily, 528, 597–601 expected or intended, exclusion from CGL policy, 597 expected or intentional, and homeowners insurance, 527 and negligence, 424 personal and advertising, 599, 601, 602 Inland marine floater, 547–548 Inland marine insurance, 48–49, 581, 583–585 forms, 584–585 major classes of, 583–584 Inland Marine Underwriters Association, 591 Innocent misrepresentation, 195 Inside the premises—robbery or safe burglary of other property, 626–627 Inside the premises—theft of money and securities, 626 Insolvency, of insurers, 180–181 Inspection report, 128–129 Installment refund option, 300 The Institutes, 82, 107, 123, 144 Instrumentalities of transportation and communication, 584–585 Insurable interest in life insurance, 192–194 principle of, 192–193 in property and casualty insurance, 192–193 purposes of, 192 Insurable risk characteristics of, 42–44 definition of, 42 fire as, 44–45 requirements of, 44–45 unemployment as, 44–45 Insurance See also specific type of insurance benefits to society, 51–52 Bierce’s definition of, 39 characteristics of, 40–42 costs of, to society, 52–55 definition of, 40 and gambling, comparison of, 46 and hedging, comparison of, 46–47 in personal risk management, 79 and pooling technique, 34 as risk transfer, 34 types of, 47–51 Insurance agent bond, 633 Insurance agents See Agent(s) Insurance annuities, top ten writers of, by direct premiums written, 111 Insurance brokerages, mergers and acquisitions, 95 Insurance brokers, 95 Insurance.com, 290, 520 Insurance commission(s), state, 166–167 Insurance commissioner(s), state, 168 employment by insurers, 177 lobbying by, 176 Insurance Committee for Arson Control, 636 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 707 9/19/16 3:30 PM I n d e x Insurance company accounting department, 141 claims settlement, 131–133 information systems, 140–141 investment function of, 138–140 legal function of, 141 loss-control services, 141 operations of, 126 production, 130–131 rate making by, 126–127 reinsurance by See Reinsurance underwriting by See Underwriting Insurance contract(s) analysis of, 206–219 basic parts of, 207–209 competent parties to, 198 conditions in, 209 declarations section, 207 deductibles in, 211–213 definition of ‘‘insured,” 209–211 definitions section, 207 endorsements and riders, 211 and exchange of consideration, 197 exclusions in, 208–209 insuring agreement, 208 legal characteristics of, 198–199 legal purpose for, 198 legal requirements, 197–198 miscellaneous provisions in, 209 offer and acceptance, 197 other-insurance provisions, 214–216 Insurance industry capacity, 94 consolidation in, 95–96 financial data of, 110 investment returns, 94–95 Insurance Information Institute (III), 37, 58, 106, 109, 123, 144, 162, 186, 219, 469, 492–493, 520, 541, 563, 591, 620 Insurance Journal, 58, 123, 162 Insurance market dynamics of, 92–97 hard vs soft, 93–94 Insurance mistakes, five biggest, 537–538 Insurance options, 97 Insurance Regulatory Examiners Society, 186 Insurance Regulatory Information System (IRIS), 181 Insurance Research Council (IRC), 58, 469, 493, 591 Insurance risk, 170 See also Risk(s) Insurancesavenow.com, 541 Insurance score(s), 182–183 and auto insurance, 487 and homeowners insurance, 535 Insurance Services Office (ISO), 127, 162, 591, 620 business auto coverage form, 607–608 businessowners policy, 586 commercial crime insurance program, 624–625 commercial general liability policy, 596 commercial liability umbrella coverage form, 611–612 commercial package policies, 567 Dwelling Property (basic form), 544–545 Dwelling Property (broad form), 545 Dwelling Property (special form), 545–546 employment-related practices liability coverage form, 604–605 homeowners forms, 496 inland marine forms, 584–585 loss history database, 535 package policies, 567 personal umbrella policy, 558–560 rating of public fire departments, 534 Insure.com, 58, 123, 250, 275, 290, 314, 344, 493, 520, 541, 563 Insured definition of, in insurance contract, 209–211 personal assistance to, 131 Insured contract, 597 Insured location, 527–529, 534 Insured plan, 384 Insurer(s) See also Life insurer(s); Property and casualty insurer(s) aircraft, 609–610 alien, 169 annual reports, 171 claims record of, NAIC information on, 132–133, 134 complaint ratios for, 176 corporate governance of, 179 domestic, 169 foreign, 169 formation and licensing of, regulation of, 169 insolvency of, 180–181 liquidation of, 171 nonadmitted, 116–117 optional federal charter for, 180 selection of, 74 solvency of, 165–166, 180–181 specialty, and auto insurance for high-risk drivers, 483 state field examinations of, 171, 181 taxation of, 174 Insurers Supervision, Rehabilitation, and Liquidation Model Act, 171 Insuring agreement, 208 InsWeb, 58, 123, 250, 275, 290, 469, 493, 520–521, 541, 563 Intangible property exposures, 30 Integrated risk program, 89 Intended injury, 527 Intentional injury, 527 Intentional loss, 511 Intentional tort, 423 Interest-adjusted cost method, 279 Interest option, for life insurance settlement, 263 Interest rate, of universal life insurance, 235 Interest rate risk, 87–88, 170 Interest-sensitive whole life insurance, 241–242 Interinsurance exchange, 114–115 Internal rate of return (IRR), 101–102 Internal Revenue Service (IRS) and captive insurers, 72 and private retirement plans, 372–373 International Foundation of Employee Benefit Plans, 369 International Risk Management Institute (IRMI), 58, 82, 106, 469, 493, 521, 541 Interstate Insurance Product Regulation Commission (IIPRC), 182 Intranet definition of, 103 for risk management, 103 In-transit coverage, 630–631 Investment(s) insurance company, 138–140 life insurance, 138–139 permissible, restrictions on, 181 property and casualty insurance, 139–140 regulation of, 170–171 risk-control, analysis, 101–102 Investment funds, insurance industry as source of, 51 Investment income ratio, 152 Investment returns, insurance industry, 94–95 Invitee, and property owners’ negligence, 426 Involuntary market plans, 50–51 IPA (individual practice association) plan, 353 IRA See Individual retirement account IRA rollover account, 308–309 IRC (Insurance Research Council), 58, 469, 493, 591 IRIS (Insurance Regulatory Information System), 181 IRMI See International Risk Management Institute IRR (internal rate of return), 101–102 Irrevocable beneficiary, 256 IRS (Internal Revenue Service), 72, 372–373 ISO See Insurance Services Office J Jewelers block coverage form, 584 Jewelry, 547 Johnson & Higgins, 95 Joint and several liability rule, 433 Joint-and-survivor annuity, 299, 301 Joint-and-survivor income, 264–266 Joint business venture, and imputed negligence, 426 Joint life annuity, 299 Joint life insurance, 244 Joint or Disputed Loss Agreement, in commercial package policy, 574 Joint Underwriting Association (JUA), and auto insurance for high-risk drivers, 483 Joseph v State Farm Fire & Cas Co., 133 JUA (Joint Underwriting Association), 483 Judgment method, 148 Judgment rating, 156 Judicial bonds, 632–633 Judicial hellholes, 431–432 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 708 9/19/16 3:30 PM index 709 K Kaiser Family Foundation, 344 Kelly Blue Book, 470(n9) Keogh plans, 382 Kidnap/ransom and extortion coverage, 625 L La Reunion Aerienne, 610 Large-loss principle, 212 Last clear chance rule, 425 Law of agency, 200–201 Law of large numbers, 21, 24, 34, 41–42, 43, 46, 61–63 Law of negligence, 423–428 Lawsuits See also Legal defense costs; Tort liability system class action, in medical sector, 436 Lawyers.com, 204 Legal defense costs, 29 businessowners policy (BOP) and, 613 employment-related practices liability insurance and, 604 Personal Auto Policy and, 446 Legal hazard, 23 Legal Information Institute at Cornell University Law School, 204, 440 Legal liability See Liability(ies) Legally competent, definition of, 198 Legal purpose(s), and insurance contracts, 198 Legal reserve, 145(n1), 153, 181, 231–232, 294–295 Legal wrong, 422 Legislation, regulation by, 168 Liability(ies), 422–423 See also Tort liability system absolute, 423, 609 aircraft, 526, 530 animal owners’,428, 524 of anti-terrorism technology producers, 31 car sharing and, 437 completed operations, 596 contingent, 596 contractual, 528, 596–597 cyber, 92, 436–437, 599–600, 612–613 employers, 412, 598, 605–607 general, 48, 595–596 hovercraft, 526–527, 530 insurer’s, 147–149 life insurers’, 153–154 liquor, 597–598 loss exposure, 67, 78 medical, Affordable Care Act (ACA) and, 436 motor vehicle, 526, 530 parental, for children’s torts, 428 premises and operations, 595 products, 48, 596 pro rata, 215 ride sharing and, 437 room sharing and, 437 societal change, 437 strict, 423 technology-related, 436–437 watercraft, 526, 530 without fault, 412, 605 Liability coverage (Part A), in Personal Auto Policy, 445–451 Liability insurance, 47 See also Commercial liability insurance directors and officers (D&O), 49 general, 48 personal umbrella, 48, 537 products, 48 professional, 49 Liability risk(s), 29, 30, 421–442 commercial, 30 personal, 29 Liability without fault principle, 412, 605 License and permit bonds, 632 Licensee, and property owners’ negligence, 426 Licensing, of agents and brokers, 173 Lien, 29 Life and Health Insurance Foundation for Education (LIFE), 250, 275 Life annuity (no refund), 300 Life annuity with period certain, 300 Life expectancy, 221–222 Life income, 264 with guaranteed period, 264, 265 with guaranteed total amount, 264, 266 Life income option(s), for life insurance settlement, 264–266 Life insurance, 47, 119, 220–251 See also Ordinary life insurance; Term insurance; Whole life insurance absolute assignment, 258 accelerated death benefits, 270 accidental death benefit rider, 269 additional amounts, 268 adequacy of, 227–228 advance purchase privilege, 268 agent’s report for, 128–129 amount needed, estimation of, 285 amount to own, 223–228 and annuity, comparison of, 297 application, 128 assignment clause, 258 automatic premium loan provision, 259 aviation exclusion, 257 beneficiary designation, 256–257 buying, 277–290 cash-surrender value, 261 cash value, 261 cash-value, 228, 233 change-of-plan provision, 257 collateral assignment, 258 comparison of policies, 286 contractual provisions, 252–276 cost of, determination of, 278–281 cost-of-living rider, 269 direct response system for, 118 dividend options, 259–261 double indemnity, 269 economic justification for, 222 entire-contract clause, 253–254 as exception to principle of indemnity, 191–192 excluded activities/hobbies, 257 exclusions and limitations, 257 extended term insurance option, 262 federal estate tax and, 284 federal income tax and, 283–284 financial institution distribution systems for, 118 financial planners selling, 119 first-to-die, 244 fixed-amount option, 264 fixed-period option, 263 flexible premium, 234–240 fraternal insurers and, 112–113 grace period, 254–255 gross premium for, 294 group, 120, 245, 349–350 guaranteed purchase option, 268 home service, 245 human life value approach to, 223–224 income for elected period option, 263 incontestable clause, 254 industrial, 245 insurable interest in, 192–194 interest-adjusted cost data for, 280 interest option, 263 investments, 138–139 joint, 244 life income options, 264–265 life settlement, 270–271 limited-payment, 230, 232 and long-term care coverage, 333 marketing of, 117–119 misstatement of age or sex clause, 256 modified, 242 monthly debit ordinary, 245 narrative summary, 280–281 need for, determination of, 285 needs approach to, 224–227 net single premium, 291–293 nonforfeiture options, 261–262 nonforfeiture value, 261 numeric summary, 281 as open-perils policy, 208 opportunity cost of, 228 ownership clause, 253 personal selling systems for, 117–118 physical examination for, 129 policies to avoid, 244 policyholders’ surplus, 154, 169 policy loans, 153, 258 policy reserves, 294–295 premium payment, 257 premiums, calculation of, 291–295 rate making in, 158 rate regulation, 172 reduced paid-up insurance option for, 261–262 reinstatement clause, 255 replacement of existing policy, 281 reserves in, 153–154, 294–295 results clause, 257 risk-based capital requirements in, 170 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 709 9/19/16 3:30 PM I n d e x Life insurance (continued) savings bank, 116, 244–245 second-to-die, 244 selection of, 285–286 settlement options, 263–266 shopping for, 285–287 status clause, 257 stock brokers selling, 119 suicide clause, 254, 257 survivorship, 244 table of guaranteed values, 262 taxation of, 283–284 types of, 228–234 universal, 234–240, 243 use of trust, 267 variable, 234 viatical settlement, 270–271 waiver-of-premium provision, 267, 269 war clause, 257 worksite marketing of, 118–119 Life Insurance and Market Research Association See LIMRA Life insurer(s) agency or sales department, 130 assets of, 138–140, 152–153 balance sheet for, 152–154 financial operations of, 152–154 financial performance of, measurement of, 154 income and expense statement, 154 liabilities of, 153–154 mergers of, 113 optional federal charter for, 180 rating categories for (financial strength of), 286–287 Life Office Management Association (LOMA), 144, 250 Life settlement, 270–271 Lifetime reserve, Medicare, 402 Lightning, homeowners insurance and, 508 Limited-payment life insurance, 230, 232 LIMRA, 123, 144, 227–228, 250 Linton yield, 282 Liquidation period, 298 Liquor liability, exclusion from CGL policy, 597–598 Lloyd’s of London, 114, 124 Loading, definition of, 155 Location and homeowners insurance, 527–529, 534 uninsured, 527 LOMA (Life Office Management Association), 144, 250 Longevity annuity, 299, 304–305 Longevity insurance, 299, 304–305 Longshoremen’s and Harbor Workers’ Compensation Act, 549 Long-tail claims, 603 Long-term care insurance, 332–335 benefit triggers, 334 characteristics of, 333–335 contingent nonforfeiture benefits upon lapse, 335 costs of, 335 covered services, 334 eligibility for benefits, 334 elimination period, 334 exclusions, 335 expense-incurred policies, 333 guaranteed renewable policy, 334 indemnity policies, 333 inflation protection, 334 nonforfeiture benefits, 335 per diem policies, 333 reimbursement policies, 333 return of premium benefit, 335 shortened benefit period, 335 tax-qualified, 333 types of policies, 333–334 Long-term care partnership programs, 335 Long-term care rider, 333 Loss(es) See also Catastrophic loss; Loss exposure(s) accidental, 43 actual vs expected, 21, 41–42, 63 of business income, 30 calculable chance of, 44 cause of, 22 chance of, 22 clash, 94 collision, 457 consequential, 29 covered, verification of, 131 determinable, 43 direct, 29 direct costs of, 32 of earnings, no-fault auto insurance and, 479–480 excluded, 208 expected, determination of, 60–61 fortuitous, 42 of goods and services, 31 indirect, 29 indirect costs of, 32 maximum possible, 68 measurable, 43 noneconomic, no-fault auto insurance and, 479 notice of, 132 other-than-collision, 457 paying, retention and, 70–71 pooling of, 40–42, 43 prediction of, 42–43, 98–100 probable maximum, 68, 74 proof of, filing, 132 sharing, reinsurance methods for, 136–137 unintentional, 43 Loss-adjustment expenses, 149 Loss control, 141 rate making and, 154–155 Loss distribution, 100 Loss exposure(s), 21, 66 analysis of, 68, 78 business income, 67 crime, 67 employee benefit, 67 failure to comply with government laws and regulations and, 67 foreign, 67 frequency of, 68 geographic dispersion of, 44 human resources, 67 identification of, 67–68, 78 intangible property, 67 liability, 67, 78 matrix of, 75–76 measurement of, 68 personal, 78 property, 67, 78 ranking of, 68 in schedule rating, 157 severity of, 68 techniques for treating, 68–76, 78–79 Loss forecasting, 42–43, 98–100 Loss frequency, 68 Loss history report, and homeowners insurance, 535 Loss of consortium, 606 Loss prevention, 32, 69, 73 insurers’ activities in, 51–52 Loss ratio, 145(n3), 151, 163(n5), 355 required minimum medical, under ACA, 355 Loss ratio method of class rating, 156–157 of determining loss reserves, 149 Loss reduction, 32, 69 Loss reserve, 145(n2), 149, 181 property and casualty insurance, 148–149 Loss severity, 68 Loss sustained during prior insurance not issued by us or any affiliate, in commercial crime coverage, 629–630 Loss-sustained form, of commercial crime insurance, 624–625, 629 Loss to a pair or set, 514–515 Lost-instrument bond, 633 Louisiana, as judicial hellhole, 432 Louisiana Citizens Property Insurance Company, 554 Louisiana Citizens Property Insurance Corporation, 51 Low-cost auto insurance, 478 Lyft See Ride sharing M Madison County, Illinois, as judicial hellhole, 432 Mail coverage form, 585 Maintenance, in schedule rating, 157–158 Maintenance bond, 632–633 Malicious mischief, homeowners insurance and, 508 Malpractice, 49 Malpractice insurance, 434–436, 614 Managed care, 330–331, 351–354 See also Health maintenance organizations; Preferred provider organization Medicare and, 403 point-of-service (POS) plan for, 354 Manual rating, 156 Manuscript policy, 74 Maps, risk, 103 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 710 9/19/16 3:30 PM index 11 Marijuana, medical, and workers compensation, 414 Marine insurance, 48–49 See also Inland marine insurance; Ocean marine insurance Marital deduction, 284 Marital status, and underwriting rating, 182 Market ‘‘hard” (insurance), 93–94 residual, and auto insurance for high-risk drivers, 482 shared, and auto insurance for high-risk drivers, 482 ‘‘soft” (insurance), 93–94 Market conduct definition of, 181 regulation of, 181–182 Marketing of group insurance, 120 of life insurance, 117–119 professionalism in, 130–131 of property and casualty insurance, 119–120 worksite, 118–119 Marketing department of property and casualty insurers, 130 and risk management, 77 Marketing systems definition of, 117 types of, 117–120 Marsh, Inc., 95 Marsh & McLennan, 95 Maryland Automobile Insurance (Fund), 51, 483, 494(n16) Mass merchandising, 120 Master contract, 347 Material (fact), definition of, 195 Material misrepresentations, 195–196 Maximum cap rate, for equity-indexed annuity, 303 Maximum period of indemnity, 577 Maximum possible loss, 68 McCarran-Ferguson Act, 167 repeal of, 177 Mean (m), 60–61 Mean reserve, 295 Means test, 393 Measurable loss, 43 Measure(s) continuous, 63(n1) discrete, 63(n1) Mechanical breakdown coverage, 49 Median, 63(n2) Mediation, 433 Medicaid, 319–321 ACA and, 327 coverage for students, 325 expansion of, under ACA, 326 and long-term care, 332, 335 Medical care See also Health care workers compensation and, 413 Medical errors deaths caused by, 442(n30) “I’m sorry laws” and, 435–436 and malpractice costs, 435 as ‘‘never events,” 435 prompt disclosure of, 436 Medical expense coverage See also Group medical expense insurance; Individual medical expense insurance in businessowners policy (BOP), 613 in commercial general liability (CGL) policy, 601–602 no-fault auto insurance and, 479 Medical incident, 614 Medical Information Bureau report, 129 Medical insurance (Medicare Part B), 402–403 Medical Loss Ratio (MLR) rule, 324 Medical malpractice, 434–436, 614 definition of, 434 Medical malpractice insurance, 49 Medical marijuana, and workers compensation, 414 Medical necessity trigger, 334 Medical payments coverage in auto insurance, 451–452, 479 in commercial general liability policy, 601 Medical payments to others, 524–525 Medical savings accounts (MSA) See also Health savings account (HSA) Medicare and, 404 Medicare, 50, 319–321, 401–406 Advantage Plans (Part C), 403–404 Affordable Care Act and, 327–328, 408 areas covered by, 401 benefit period, 401 and blood transfusions, 402 Cost Plans, 404 and diagnosis-related groups, 402 financial crisis, 408 financing of, 403 and health maintenance organizations, 403 and home healthcare, 402 innovation projects, 404 lifetime reserve, 402 and long-term care, 332 and medical errors, 435 and medical savings accounts, 404 monthly premiums (Part B), 403 Original Medicare Plan, 401–403 PACE programs, 404 Part A (hospital insurance), 401–403 Part B (medical insurance), 402–403 payments to hospitals, 402 payroll tax rate for, 401 plans, 401 and preferred provider organizations, 403 Prescription Drug Coverage (Part D), 404–406 and private fee-for-service plans, 403–404 and skilled nursing facility care, 402 and Special Needs Plans, 404 Medicare.gov, 418 Medigap insurance, 406 “M&E” fee, 303 Mergers and acquisitions definition of, 113 insurance brokerage, 95 insurance company, 95 of life insurers, 113 Merit rating, 157–158 MIB Group, Inc (Medical Information Bureau) report, 129 Minimum age and service requirement, for retirement plans, 373 Minimum coverage requirements, for qualified pension plans, 373, 387 Minimum distribution requirements, 375 Minimum vesting standards, for retirement plans, 374 Minor(s), and insurance contracts, 198 Miscellaneous-type motor vehicle endorsement, 465 Mississippi, tort reform in, 433–434 Missouri Supreme Court, liability-expanding decisions of, 432 Misstatement of age or sex clause, in life insurance, 256 Mobile equipment and property, 584 exclusion from CGL policy, 598 Mobile home insurance, 546 Modified adjusted gross income, 315(n6) Modified coverage form (HO-8), 497–499 Modified life policy, 242 Modified no-fault plan, 479 Modified prior-approval law, 172 Monetary threshold, for no-fault auto insurance, 479 Money counterfeit, 506, 628 theft of, 626 time value of, 100–102 Money orders, 628 Money purchase plan, 378 Monoline policy, 567 Monopoly state fund, and workers compensation, 412 Monte Carlo simulation, 309–311 Monthly debit ordinary life insurance, 245 Monthly limit of indemnity, business income insurance, 577 Monthly premiums, Medicare (Part B), 403 Monthly retirement benefits, 395 Morale hazard, 23, 209, 212 Moral hazard, 43, 189, 192, 212 definition of, 23 and exclusions, 209 Mortality and expense (‘‘M&E”) fee, 303 Mortality charge, of universal life insurance, 235, 239–240 Mortality table, Commissioners Standard Ordinary (2001), 291–292 Mortgage clause, in homeowners insurance, 515–516 Mortgage insurer(s), regulation of, 179 Mortgage redemption fund, 225 Motorcycles, insuring, 465 Motor vehicles See also Auto insurance deaths caused by, prediction of, 41–42 liability from, 526, 530 miscellaneous-type, endorsement, 465 nonowned, 450–452, 457–458 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 711 9/19/16 3:30 PM I n d e x MSA (medical savings accounts) See also Health savings account (HSA) Medicare and, 404 MSO (Mutual Service Office), 591 Multicar discount, for auto insurance, 487 Multiple distribution systems, 120 Multiple line exclusive agency system, 118 Multiple-line policy, 48, 567 Multiple-peril insurance, commercial, 48 Musical instruments, 547 Mutual holding company, 113–114 Mutual insurer(s), 112–114 corporate structure of, 113–114 Mutually exclusive events, 98 Mutual of Omaha, 95 Mutual Service Office (MSO), 591 N NAIC See National Association of Insurance Commissioners NALP (net annual level premium), 293–294 Named insured, 210 Named-perils policy, 208 Names, and Lloyd’s of London, 114 Narrative summary, life insurance, 280–281 National Academy of Social Insurance, 418–419 National Alliance for Insurance Education and Research, 107, 131 National Association of Health Underwriters, 344 National Association of Insurance and Financial Advisors, 250 National Association of Insurance Commissioners (NAIC), 144, 168, 175–177, 180–181, 186, 250, 275, 344, 469, 521, 563 Consumer Alert about title insurance, 555–556 Consumer Information Source (CIS), 132–133, 134 coordination-of-benefits provision, 216, 361 Market Regulation Handbook, 182 Model Act, 131 Policy illustration Model Regulation, 280–281 Uniform Individual Accident and Sickness Policy Provisions Act, 340 National Association of Mutual Insurance Companies, 58, 124, 144 National Association of Surety Bond Producers, 636 National Commission to Preserve Social Security, 419 National Committee for Quality Assurance (NCQA), 369 National Conference of Insurance Guaranty Funds, 180 National Conference of Insurance Legislators, 186 National Council on Compensation Insurance, 620 workers compensation and employers liability insurance policy, 605 National Council on Compensation Insurance Holdings, Inc., 419 National Flood Insurance Program (NFIP), 24, 50, 549–554, 565(n7) amounts of insurance in, 550–551 Building Property coverage, 551 critical problems and issues with, 552 deductible, 552 Dwelling Form, 551 eligibility requirements, 549–550 emergency program, 550 extension of, 552–554 General Property Policy Form, 551 Personal Property coverage, 551 policy forms, 551 premiums, 552 property covered under, 551 property not covered under, 551 regular program, 550 Residential Condominium Building Association Policy, 551 waiting period, 552 National Flood Mapping Program, 554 National Insurance Crime Bureau, 636 National Organization of Life & Health Insurance Guaranty Associations (NOLHGA), 186 The National Property Casualty Magazine, 162 National Safety Council, 620 prediction of motor vehicle deaths, 41–42 National Underwriter Company, 250, 275 Nationwide marine definition, 583 Native Americans, 179 NCQA (National Committee for Quality Assurance), 369 Needs approach to life insurance, 224–227 Neglect, 511 Negligence and assumption of risk, 425 automobile owners/operators and, 427 charitable institutions and, 427 comparative, 424–425 contributory, 424 defenses against, 424–425 definition of, 423 elements of, 423–424 government entities and, 427 imputed, 425–426 last clear chance rule and, 425 law of, 423–428 physician’s, 434 property owners and, 426–427 res ipsa loquitur doctrine, 426 respondeat superior doctrine, 427–428 slight/gross (comparative fault system), 441(n2) Net amount at risk, 231 Net annual level premium (NALP), 293–294 Net gain from operation, 154 Net income, current, paying losses from, 70 Net level premium, 158 Net payment cost index, 279–280 Net present value (NPV), 101–102 Net retention, 133 Net single premium (NSP), 158, 291–293 New York City asbestos litigation (NYCAL), 431 New York Department of Financial Services, 219 New York Stock Exchange, 114 NFIP See National Flood Insurance Program No-fault auto insurance, 478–482 add-on plan, 479 arguments against, 481 arguments for, 480–481 basic characteristics of, 479 benefits, 479–480 choice no-fault plan, 479 definition of, 478–479 and essential services expenses, 480 exclusion of property damage, 480 and funeral expenses, 480 laws, evaluation of, 481–482 and medical expenses, 479 modified no-fault plan, 479 monetary threshold for, 479 and noneconomic loss, 479 optional deductibles, 480 optional no-fault benefits, 480 pure no-fault plan, 479 and right to sue, 480 survivors’ loss benefits under, 480 types of plans, 479 verbal threshold for, 479 No filing required, 172 No-lapse guarantee, of universal life insurance, 235 NOLHGA (National Organization of Life & Health Insurance Guaranty Associations), 186 Nolo.com, 440 Nonadmitted insurer, 116–117 Noncancellable policy, for individual health insurance, 339 Noncontributory plan group insurance, 348 group life insurance, 350 Nondeductible IRA, 307 Nondiversifiable risk, 24 Noneconomic loss, no-fault auto insurance and, 479 Nonforfeiture laws, 261 Nonforfeiture options, for life insurance, 261–262 Noninsurance transfers, 33–34, 73–74, 79 Nonoccupational disability, 363 Nonowned vehicles, 450–452, 457–458 Nonparticipating policy, 241, 259 Nonprofit Risk Management Center, 82, 107 Nonqualified annuity, 305 Nonrenewable policy, for individual health insurance, 339 Nonrenewal, of auto insurance, 464 Nonsystematic risk, 24 Nonwaiver clause, 201 ‘‘No pay, no play” laws, 478 Normal distribution, 62 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 712 9/19/16 3:30 PM index 713 Normal retirement age, 373 Northwestern Mutual Life Insurance Company, 95 Notice of loss, 132 NPV (net present value), 101–102 NSP (net single premium), 158, 291–293 Nuclear energy, exclusion, in section II, homeowners insurance, 528, 529 Nuclear hazard, property loss from, 511 Numeric summary, life insurance, 281 Nursing home average length of stay in, 333 chance of entering, 332–333 O OASDI See Social Security Obamacare See Affordable Care Act Obesity, 222 Objective probability, 22 Objective risk, 21, 46, 63 Obligee, surety bond, 631 Occupancy, in schedule rating, 157 Occurrence, definition of, 523, 597 Occurrence policy, 603 Ocean marine insurance, 49, 194–195, 581–583 Offer and acceptance, 197 Office of Personnel Management, 92 Office of the Chief Actuary (Social Security Administration), 419 Old-Age, Survivors, and Disability Insurance (OASDI) See Social Security ‘‘Open perils” basis, personal articles floater and, 547–548 Open-perils policy, 208 Operational risk, 24, 89 Operations, and risk management, 77 Opiate overuse, and workers compensation, 414 Opportunity cost definition of, 228 of life insurance, 228 Option(s) call, 88 double-trigger, 89 insurance, 97 premium, 88 put, 88 on stocks, 88 weather, 97 Optional deductibles, in no-fault auto insurance, 480 Optional no-fault benefits, 480 Ordinance or law, and Section I, special form (HO-3), 507, 510 Ordinary life insurance, 230–232, 243 cash value, 231–232 characteristics of, 231–232 legal reserve, 231–232 limitations of, 232 net annual level premium for, 294 net single premium for, 293 uses of, 232 Original-age method, for converting term policy, 229 Other-insurance provisions, 214–216 Other insureds, 210 Other property, 626 robbery or safe burglary of, 626–627 Other-states insurance, 607 Other-than-collision loss, 457 Out-of-pocket maximum limits, health insurance, 330 in group insurance, 357 Out-of-state coverage, Personal Auto Policy, 450–451 Outside the premises, insuring agreement, 627–628 Overall operating ratio, 152 Owner’s equity, 147 Ownership clause, 253 P PACE programs, 404 Package policy, 567 commercial, 567–569 PAF (personal articles floater), 547 ‘‘direct physical losses” basis, 547–548 ‘‘open perils” basis, 547–548 Paid-up additions option, 260 Paid-up contract, 260 PAP See Personal Auto Policy Parents, children’s torts and, 428 Part A, Medicare, 401–403 Part B, Medicare, 402–403 Part C, Medicare, 403–404 Part D, Medicare, 404–406 Partial disability, 337 Participating policy, 259 Participation rate, equity-indexed annuity, 303 Particular average, 582 Particular risk, 24 Passive retention, 33, 70 Past-service credits, 376 Patient Protection and Affordable Care Act See Affordable Care Act Paul v Virginia, 166–167 Pay, final average, 376 Payment bond, 632–633 Payout period, 298 PBGC (Pension Benefit Guaranty Corporation), 50, 376–377, 389 Peak season endorsement, 575 Pecuniary (financial) interest, 193 Pension accrual benefit, 364 Pension Benefit Guaranty Corporation (PBGC), 50, 376–377, 389 Pension Protection Act of 2006, 372 Performance bond, 632–633 Peril(s), 22 excluded, 208 extended coverage, 545, 564(n2) insured against, in Section I, special form (HO-3), 507–510 named-perils policy, 208 “open perils” basis, 547–548 open-perils policy, 208 of the sea, 582 uninsurable, 208–209 Permissible loss ratio, 163(n13) Permitted disparity rules, 375 Personal and advertising injury, 599, 601, 602 Personal articles floater, 547 “direct physical losses” basis, 547–548 “open perils” basis, 547–548 Personal Auto Policy (PAP), 444–445 appraisal provision, 463 automatic termination, 464 and betterment, 462 cancellation, 464 collision damage waiver on rental cars, 458 collision loss, 457 coverage for damage to your auto (Part D), 456–463 coverages, 445 covered autos in, 444–445 deductible, 458 and diminution in value, 462 duties after an accident or loss (Part E), 463–464 eligible vehicles, 444 exclusions, 447–450, 455, 459–461 extended nonowned coverage endorsement, 450 general provisions (Part F), 464–465 insured persons, 446–447, 451, 454 insuring agreement, 446, 451, 453–454, 456–457 liability coverage (Part A), 445–451 limit of liability, 450, 462 medical payments coverage (Part B), 451–452 miscellaneous-type motor vehicle endorsement, 465 and nonowned vehicle, 451, 452, 457–458 nonrenewal, 464 other-than-collision loss, 457 out-of-state coverage, 450–451 and owned vehicle, 451, 452 payment of loss, 462–463 policy period and territory, 464 primary and excess insurance with, 451 supplementary payments, 447 temporary substitute vehicle and, 445 termination, 464–465 towing and labor costs coverage, 458–459 transportation expenses, 458–459 underinsured motorists coverage, 456 uninsured motorist coverage (Part C), 452–456 uninsured vehicles, 455 your covered auto in, 444 Personal contract, 199 Personal disability quotient (PDQ), 27, 28 Personal injury, 557 definition of, 533 Personal injury endorsement, homeowners insurance, 532–533 Personal injury protection (PIP) coverage, auto insurance, 479, 482 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 713 9/19/16 3:30 PM I n d e x Personal liability insurance, 523–525 Personal liability supplement, Dwelling program, 546 Personal lines, 47–48 Personal-producing general agent (PPGA), 118 Personal property actual cash value of, 513 loss settlement for, 513 replacement cost endorsement, homeowners insurance, 535 replacement cost loss settlement endorsement, 532 replacement cost of, 513 Personal risk management, 77–79 implementation and monitoring of program for, 79 steps in, 78–79 Personal risks, 25–29 Personal selling distribution systems, for life insurance, 117–118 Personal umbrella policy, 48, 537, 557–560 Insurance Services Office (ISO), 558–560 PFFS (private fee-for-service plans), Medicare and, 403–404 Physical abuse, 528 Physical examination, for life insurance, 129 Physical hazard, 23 Physical inspection, for property and casualty insurance, 129 Physicians, surgeons, and dentists professional liability insurance, 613–615 Physicians and surgeons equipment coverage form, 585 Plaintiff, 422 Point-of-service (POS) plan, 354 Policy See specific policy Policy forms, regulation of, 172–173 Policyholders’ surplus, 145(n7) life insurance, 154, 169 property and casualty insurance, 149–150, 169 regulation of, 169 Policy loans, 153, 258–259 Policy reserves, 153, 181, 294–295 Pollution exclusion, CGL policy and, 598 Pooling of losses, 40–42, 43 Portable term insurance, 350 POS (point-of-service) plan, 354 Post-loss objectives of risk management, 66 Poverty measurement of, 26 in old age, 26 retirees living in, 26 Power failure, 510 PPGA (personal-producing general agent), 118 PPO See Preferred provider organization Predetermination-of-benefits provision, in group dental insurance, 363 Predictive analytics, 103 Preexisting condition(s), 322–323, 362 Preferred provider organization (PPO), 330–331, 353–354, 358 dental plans, 362 and health maintenance organization, differences between, 353–354 Medicare and, 403 Preferred risks, 242–244 Pre-loss objectives of risk management, 66 Premature death, 25–26 costs of, 221 declining problem of, 221–222 definition of, 221 financial impact, 222–223 Premises and operations liability, 595 Premium(s) auto insurance, comparison of, 488–489 for current assumption whole life insurance, 242 deductibles and, 211–212 earned, 151, 163(n14) economically feasible, 44 gross, 155–156, 294 for group medical expense insurance, 358–359 life insurance, calculation of, 291–295 monthly, Medicare (Part B), 403 net annual level, 293–294 net level, 158 net single, 158, 291–293 option, 88 target, of universal life insurance, 235 temporary life annuity due, 293 term insurance, 230, 291–294 for universal life insurance, 235, 240 whole life annuity due, 293 Premium conversion plans, 364 Prescription drug coverage group medical expense insurance and, 360 individual medical expense insurance and, 329 Medicare (Part D), 404–406 tiered pricing for, 360 Primary and excess insurance, 216 Primary beneficiary, 256 Primary insurance amount (PIA), 396 Principal, 199–200 surety bond, 631 Principal sum, with accidental death, dismemberment, and loss-of-sight benefits, 338, 350 Principle of indemnity, 189–192 exceptions to, 190–192 Principle of insurable interest, 192–193 Principle of reasonable expectations, 199 Principle of subrogation, 193–194 Principle of utmost good faith, 194–196 Principles-based reserving, 179 Prior-approval law, 172 Private fee-for-service plans (PFFS), Medicare and, 403–404 Private insurance, 47–49 insurable risk for, 44 Private insurer(s), types of, 111–116 Private mortgage insurance (PMI), 49 Probability, 60–61, 98 a priori, 22 objective, 22 subjective, 22 Probability analysis, 98–99 Probability distribution, 60–61 Probable maximum loss, 68, 74 Probationary (waiting) period for group life insurance, 350 for group plans, 349 Producer(s), 130 Product(s), approval of, 182 Production, insurance company, 130–131 Products-completed operations aggregate limit, 602 Products-completed operations hazard, 596 Products liability, 596 Products liability insurance, 48 Professionalism, in insurance marketing, 130–131 Professional liability insurance, 49, 613–615 Professional services, homeowners insurance and, 527 Profit(s) property and casualty insurer, measurement of, 151–152 stabilization, reinsurance and, 134 Profit-sharing plans, 382 Progressive Casualty Insurance Company, 469, 493 Property See also Personal property abandonment of, 515 of dealers, 584 excluded, 208, 598 held by bailee, 584 impaired, damage to, exclusion from CGL policy, 599 intangible, 67 loss exposures, 67, 78 of others, damage to, homeowners insurance and, 529–530 Property and casualty insurance agent’s report for, 128 case reserves, 148–149 inspection report for, 128–129 insurable interest in, 192–193 investments, 139–140 loss reserve, 148–149 marketing of, 119–120 physical inspection for, 129 policyholders’ surplus, 149–150, 169 profitability of, 152–153 rate making in, 154–158 reserves in, 148–149 top ten writers of, by direct premiums written, 111–112 underwriting, recent results of, 152–153 underwriting cycle in, 76 Property and casualty insurer(s) assets, 147–148 balance sheet, 147–150 expenses, 151 financial operations of, 147–152 income and expense statement, 150–151 liabilities, 147–149 marketing department, 130 profit or loss, measurement of, 151–152 recent underwriting results, 152 revenues, 150–151 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 714 9/19/16 3:30 PM index 715 Property and liability insurance combined ratio for, 93 other-insurance provisions, 215–216 price fluctuations in, 93–94 Property Casualty Insurers Association of America (PCI), 591 Property damage CGL policy and, 597–601 from vehicles, homeowners insurance and, 508 from war, 511 Property insurance, 47 See also Commercial property insurance; Property and casualty insurance coinsurance in, 213–214 deductibles in, 212 government programs, 549–554 Property owners, law of negligence and, 426–427 Property risks, 29–30 commercial, 30 personal, 29 Proprietary function, 427 Pro rata liability, 215 Pro rata method, 136–137 Prospective reserve, 294–295 Protection, in schedule rating, 157 Protection and indemnity (P&I) insurance, 582 Proximate cause, 424, 508 Public adjustors, 132 Public Law 33 See McCarran-Ferguson Act Public official bond, 632 Public Risk Management Association, 83, 107 Punitive damages, 424, 433 Pure captive, 71, 72, 115 Pure no-fault plan, 479 Pure premium, definition of, 155 Pure premium method, for class rating, 156–157 Pure risk, 23–24, 42, 46 Pure rule (comparative negligence law), 425 Put option, 88 Q Qualified plans, 372–373 Qualifying event, 361 Quarter of coverage, for Social Security, 394 Quick Quote, 290 Quota-share treaty, 137 R Railroad Retirement Act, 50 Railroad Unemployment Insurance Act, 50 RAND Institute for Civil Justice, 440–441, 469, 493, 620 study of no-fault plans, 481–482 Ratchet method, 304 Rate(s) adequacy, and underwriting, 129–130 definition of, 126, 155 reasonable, ensuring, 166 regulation of, 171–172, 179, 182 state-made, 172 Rate making, 126–127 business objectives, 155 in life insurance, 158 methods of, 156–158 objectives in, 154–155 in property and casualty insurance, 154–158 regulatory objectives, 154–155 Rate of return internal, 101–102 on whole life insurance saving component, 281–283 Rating, 126–127 Ratio percentage test, for retirement plans, 373 RBC (risk-based capital), 169–170, 181 Readjustment period, 224 Real Estate Settlement Procedures Act (RESPA), 556 Reasonable expectations, principle of, 199 Reasonable repairs, 505 Reasoning deductive, 22 inductive, 22 Rebating, 173 Recall of products, exclusion from CGL policy, 599 Recent work test, 394 Recession (2007–2009), 25, 28, 175, 177–178, 183 Reciprocal exchange, 114–115 Reduced paid-up insurance option, for life insurance, 261–262 Reentry term, 229 Regression analysis, 99 Regulation areas regulated by, 168–174 and consumer protection, 173–174 by courts, 168 of dividend policy, 171 federal, 174–175, 179–180 historical development of, 166–168 of insurer formation and licensing, 169 of insurers’ investments, 170–171 issues in, 177 by legislation, 168 of market conduct, 181–182 methods for, 168 modernizing of, 177–180 of policy forms, 172–173 of rates, 171–172, 182 reasons for, 165–166 of sales practices, 173–174 solvency, 169–171 state, 166, 168, 171, 175–177, 178–179 Rehabilitation provision, disability-income insurance, 338 Rehabilitation services, workers compensation insurance and, 413 Reinstatement clause, in life insurance, 255 Reinstatement provision, in individual health insurance, 340 Reinsurance, 43, 133–138 alternatives to, 138 and assistance with underwriting, 136 captive insurers and, 71 definition of, 133 excess-of-loss, 136–137 facultative, 136 and liability transfer, 136 Lloyd’s of London and, 114 methods for sharing losses, 136–137 reasons for, 133–136 regulation of, 179 treaty, 136–137 types of, 136–138 underwriting and, 130 Reinsurance facility (pool), and auto insurance for high-risk drivers, 483 Reinsurance pool, 137–138 Reinsurer(s), 133 regulation of, 179 RelayRides See Car sharing Released bill of lading, 583 Renewable policy, 228 Renewal provisions, individual health insurance, 339 Renewal underwriting, 130 Rental car, collision damage waiver on, 458 Renters insurance, 497–500 mistakes, 537–538 Replacement cost, 190 definition of, 514 of dwelling or other buildings, 514 flood insurance and, 550 guaranteed, 514 less depreciation, 190–192 of personal property, 513 Replacement cost insurance, 191 Reporting form, 214 for commercial package policy, 574–575 Representation(s), 195 Requirements of insurable risk, 44–45 Rescission definition of, 322 of health insurance contracts, 322, 323 Reserve(s) for amounts held on deposit, 153–154 asset valuation, 153–154 funded, paying losses from, 70 incurred-but-not-reported (IBNR), 149 initial, 295 legal, 145(n1), 153, 181, 231–232, 294–295 in life insurance, 153–154, 294–295 loss, 145(n2), 148–149, 181 mean, 295 in property and casualty insurance, 148–149 prospective, 294–295 regulation of, 169 requirements for, 181 retrospective, 294–295 tabular, 149 terminal, 295 unearned premium, 134–135, 149, 181 unfunded, paying losses from, 70 Residual disability, 337 Residual market, and auto insurance for highrisk drivers, 482 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 715 9/19/16 3:30 PM I n d e x Residual market plans, 50–51 Res ipsa loquitur, 426 RESPA (Real Estate Settlement Procedures Act), 556 Respondeat superior, 427–428 Retained limit, 559 in commercial umbrella policy, 611 Retaliatory tax laws, 174 Retention, 92–93 active, 33, 70 advantages and disadvantages of, 73 captive insurer and, 71–72 deductible and, 74 net, 133 passive, 33, 70 and paying losses, 70–71 in risk management, 33, 70, 79 Retention level, 70 Retention limit, 133 surplus-share treaty and, 137 Retiree(s) definition of, 26 income of, 26 living in poverty, 26 savings and investments of, 26, 27 Retirement age(s), 373–374 deferred, 373–374 early, 373, 395 full, 395 normal, 373 Retirement income,225 See also Social Security; Individual retirement accounts inadequate, 26 Retirement Income Calculator, 310–311 Retirement plan(s), 371–390 cash-balance, 377–378 defined-benefit, 374, 375–378 defined-contribution, 374, 375, 378–383 early distribution penalty, 374–375 income tax and, 372–373 incomplete coverage of labor force by, 385 inflation and, 385 integration with Social Security, 375 investment mistakes and, 386 and lower benefits for women, 385 minimum age and service requirement, 373 minimum coverage requirements, 373 minimum distribution requirements, 375 minimum vesting standards, 374 private, characteristics of, 372–375 qualified, types of, 375 ratio percentage test for, 373 for self-employed (Keogh plans), 382 SIMPLE, 383 tax-deferred, problems and issues in, 385–386 vesting provisions, 374 Retroactive date endorsement, 629 Retrocession, 133 Retrocessionaire, 133 Retrospective rating, 158 Retrospective reserve, 294–295 Return of premium benefit, long-term care insurance, 335 Return of premiums rider, disability-income insurance, 338–339 Return of premium term insurance, 229–230 Return on equity (ROE), 154 Revenues, property and casualty insurers, 150–151 Revocable beneficiary, 256 Rider(s), 211 See also Endorsement(s) accidental death benefit, 269 cost-of-living, 269, 338 family, in term insurance, 268 long-term care, 333 partial cash withdrawal, 300 return of premiums, 338–339 Social Security, 338 term insurance, 267–268 Ride sharing and liability exposures, 437 on-demand, 448–449 and personal auto insurance, 448–449 RIMS (Risk Management Society), 83, 107, 591–592, 620 Riot, homeowners insurance and, 508 Rising-floor death benefit, 302 Risk(s) asset, 170 assumption of, 411, 425 burden on society, 31 business, 170 classification of, 23–25 climate change, 92 commercial, 29–30 commodity price, 87 compliance, 89 cost of, 77 currency exchange rate, 88 cyber-liability, 92 definitions of, 20–22 degree of, 21 diversifiable, 24 emerging, 91–92 enterprise, 24–25 financial, 24–25 fundamental, 24 identification of, in enterprise risk management, 90 insurable, 42–45 in insurance terminology, 20 interest rate, 87–88, 170 liability, 29, 30, 421–442 nondiversifiable, 24 noninsurance transfers of, 33–34, 73–74, 79 nonsystematic, 24 objective, 21, 46, 63 operational, 24, 89 particular, 24 perceived, 21–22 personal, 25–29 preferred, 242–244 property, 29, 30 pure, 23–24, 42, 46 regulatory, 89 reputational, 89 securitization of, 96, 138 speculative, 23–24 strategic, 24, 89 subjective, 21–22 systemic, 25, 174–175, 178 terrorism, 91–92 treatment measures, selection of, 91 and uncertainty, 20–21 underwriting, 62–63 worry and fear caused by, 31 Risk analysis in enterprise risk management, 90 questionnaires and checklists for, 68 Risk-based capital (RBC), 169–170, 181 Risk control, 31–32, 68–69, 78–79 investment decisions, analysis of, 101–102 techniques for, 69 and terrorism risk, 91 Risk financing, 31, 33–34, 69, 70 Risk-linked securities, 138 Risk management, 64 See also Enterprise risk management (ERM); Financial risk management benefits of, 77 changes and, 85 cooperation with other departments of firm, 76–77 definition of, 66 intranet for, 103 issues in, 68 periodic review and evaluation of, 77 personal, 77–79 post-loss objectives of, 66 pre-loss objectives of, 66 program implementation and monitoring, 76 steps in, 66–77 technique for, selection of, 75–76 Risk management information systems (RMIS), 102–103 Risk management manual, 76 Risk management matrix, 75–76 Risk management policy statement, 76 Risk Management Society (RIMS), 83, 107, 591–592, 620 Risk manager(s), compensation of, 77 Risk maps, 103 Risk retention See Retention Risk retention groups (RRGs), 73 Risk Theory Society, 37 Risk transfer, 42, 46–47, 92–93 RMIS (risk management information systems), 102–103 RMS (Risk Management Solutions), 104 Robbery, 625 prevention, for small business, 628 ROE (return on equity), 154 Rollover, 308–309 Room sharing, and liability exposures, 437 Roth IRA, 309–310 Roth IRA website, 314 Roth 401(k) plan, 381 Roth 403(b) plan, 382 RRGs (risk retention groups), 73 R-square, 99 Running-down clause, 582 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 716 9/19/16 3:30 PM index 17 S Safe burglary, 625, 626–627 Safe driver plans, or auto insurance, 487 Sales practices, insurers’, regulation of, 173–174 Salvage, 580 SAP (statutory accounting principles), 162(n1), 162(n3), 169 Saver’s credit, 383–384 Savings bank life insurance (SBLI), 116, 244–245 Schedule, 502 Scheduled personal property endorsement, 547–548 with agreed value loss settlement, 532 homeowners insurance, 532, 536 Scheduled stamp/coin collections, 547 Schedule rating, 157–158 SCHIP (state children’s health insurance programs), 50 Second-to-die life insurance, 244 Section I, special form (HO-3) additional coverages, 505–507 additional living expense in, 504–505 collapse (building) in, 506 conditions, 511–517 counterfeit money and, 506 coverage A: dwelling, 501, 507 coverage B: other structures, 501–502, 507 coverage C: personal property, 502–504, 508–510 coverage D: loss of use, 504–505 coverages, 501–507 credit card and, 506 and debris removal, 505 deductible, 511–512 duties after loss, 512–513 electronic fund transfer card or access device and, 506 excluded losses, 507 exclusions, 510–511 fair rental value in, 505 fire department service charge in, 505–506 forgery and, 506 glass or safety glazing material in, 506 grave markers and, 507 insurable interest and, 511 landlord’s furnishings in, 506 limit of liability, 511 loss assessment and, 506 ordinance or law and, 507, 510 perils insured against, 507–510 prohibited use losses and, 505 property not covered, 503–504 property removal in, 506 and reasonable repairs, 505 special limits of liability, 502–503 trees, shrubs, and other plants in, 505 Section II, homeowners insurance, 522–542 additional coverages, 529–530 and aircraft liability, 526, 530 and bodily injury to an insured, 528 and business activities, 527 communicable disease exclusion, 527–528 conditions, 516–517, 530–531 contractual liability and, 528 controlled substance exclusion, 528 coverage E: personal liability, 523–528 coverage F: medical payments to others, 524–529, 530 exclusions, 525–529 and expected or intentional injury, 527 and hovercraft liability, 526–527, 530 and injury to residence employee off an insured location, 528–529 and motor vehicle liability, 526, 530 and nuclear energy, 528, 529 personal liability insurance, 523–525 and persons regularly residing on insured location, 529 and professional services, 527 and property in the care of an insured, 528 and property owned by an insured, 528 sexual molestation, corporal punishment, or physical or mental abuse exclusion, 528 and uninsured locations, 527 and war, 527 and watercraft liability, 526, 530 and workers compensation, 528, 529 Section 401(k) plan, 379–381 inadequate balances in, 385 leakages from, 385–386 loan provision, 381 Section 403(b) plan, 381–382 Securities and Exchange Commission, 168 Securitization of risk, 96, 138 Sedgwick Group, 95 Select Quote, 290 Self-funding, 33, 72–73 by employers, for group medical expense insurance, 351–352 Self-insurance, 33, 72–73 advantages of, 72 by employers, for group medical expense insurance, 351–352 funded, 70 and workers compensation, 412 Self-Insurance Institute of America, 83, 107 Self-insured retention (SIR) in commercial umbrella policy, 611 in personal umbrella policy, 557–558 SEP (simplified employee pension), 382–383 Separate account, 139, 140, 170 Separate investment account, 384 Separation, in risk management, 32, 69 SEP-IRA, 383 September 11, 2001, 91, 94 and loss of goods and services, 31 Settlement options, 263–266 cash, 263 SEUA (South-Eastern Underwriters Association), 167 Sexual molestation exclusion, section II, homeowners insurance, 528 Shared market, and auto insurance for highrisk drivers, 482 Shared market plans, 50–51 Sharing economy, and liability exposures, 437 Sherman Antitrust Act, 167 Shipment of goods, inland marine insurance for, 585 SHOP Marketplace program, 326, 355, 356 Shortened benefit period, long-term care insurance, 335 Short-term involuntary unemployment, 409 Short-term plans, group disability-income insurance, 363 Sidecar See Ride sharing Signs coverage form, 585 Silverware, 547 SIMPLE retirement plan, 383 Simplified employee pension (SEP), 382–383 Single limit, 446 Single-parent captive, 71, 72, 115 Single-parent family, and life insurance, 222 Single people, and life insurance, 222 Single-premium deferred annuity, 299 Single-premium immediate annuity, 298 Single-premium whole life insurance, 232 SIR (self-insured retention), in umbrella policy, 557–558 Sleet, 509 Small Business Health Options Program, 326, 355–356 SMI (Solvency Modernization Initiative), 180–181 Smoke damage, homeowners insurance and, 508 Snow, weight of, 509 Social adequacy, 393, 397 Social insurance, 45, 49–50, 391–420 See also Medicare; Social Security basic characteristics of, 392–394 benefits, prescribed by law, 393 as compulsory programs, 392–393 earnings–benefits relationship in, 393 as financially self-supporting, 394 and floor of income, 393 full funding unnecessary for, 393–394 and no means test, 393 and nondiversifiable risks, 24 reasons for, 392 and social adequacy rather than individual equity, 393 Social Security, 49–50, 394–401 See also Medicare automatic cost-of-living adjustment, 399 covered occupations, 394 currently insured for, 394 delayed retirement credit, 397 disability benefits, 364, 400 Disability Insurance (DI) Trust Fund asset depletion, 406–408 disability insured for, 394–395 earnings test (retirement test), 399 eligibility for, 395 financing of, 401 full funding unnecessary for, 393–394 fully insured for, 394 insured status for, 394–395 integration with retirement plans, 375 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 717 9/19/16 3:30 PM I n d e x Social Security (continued) long-range deficit, 406–407 monthly retirement benefits, 395 options for claiming benefits, 398 payroll tax rate for, 401 retirement benefit amount, 396–397 retirement benefits, 395–399 survivor benefits, 399–400 taxation of benefits, 400–401 types of benefits, 395–400 Social Security Advisory Board, 419 Social Security Online, 419 Social Security rider, in disability-income insurance, 338 Societal change liability, 437 Society for Risk Analysis (SRA), 37 Society of Actuaries, 127, 162 Society of Financial Service Professionals, 250 “Soft” insurance market, 93–94 Solo 401(k) plan, 381 Solvency, ensuring, methods for, 181 Solvency Modernization Initiative (SMI), 180–181 Solvency regulation, 169–171, 178–179 South-Eastern Underwriters Association (SEUA), 167 Sovereign immunity, 427 Special agent, 130 Special coverage policy, 208 Special damages, 424 Special form (causes-of-loss), 572 Special form (HO-3), 497–498, 500–516 cost of, 534 persons insured, 500–501 Section I conditions, 511–517 Section I coverages, 501–507 Section I exclusions, 510–511 Section I perils insured against, 507–510 Special Needs Plans (SNP), Medicare and, 404 Special purpose reinsurance vehicle (SPRV), 138 Specialty insurers, and auto insurance for high-risk drivers, 483 Specific beneficiary, 256 Speculative risk, 23–24 Split-funded combination plan, 384 Split limits, 446, 450 SPRV (special purpose reinsurance vehicle), 138 SRA (Society for Risk Analysis), 37 Staff claims representatives, 131 Staff model HMOs, 353 Stamp collections, 547 Standard deviation (SD; s), 41, 61 Standard error of sampling distribution, 62 Standard of care, 423 State(s) guaranty funds, 180 taxation of insurers, 174 valued policy, 204(n2) State children’s health insurance programs (SCHIP), 50 State Farm Insurance, 95, 120, 133 State Farm Mutual, 118 State insurance department(s) complaint division, 173–174 publications and brochures, 174 regulation by, 168 Statistics, 60–61 Status clause, 257 Statutory accounting principles (SAP), 162(n1), 162(n3), 169 Steam damage, homeowners insurance and, 509 Stepped-up benefit, 302 Stock, definition of, 592(n4) Stock brokers, life insurance and annuity marketing by, 119 Stock insurer, 112, 113 STOLI (stranger-owned life insurance), 271 Stop-loss, 72–73 for employers with group medical expense insurance, 351 Stop-loss limit, health insurance, 330 Straight deductible, 212 Stranger-owned life insurance (STOLI), 271 Strict liability, 423 Student health insurance plans, 325 Subjective probability, 22 Subjective risk, 21–22 Subrogation definition of, 193 exceptions to, 194 principle of, 193–194 purposes of, 194 Subscribers, in reciprocal exchange, 115 Suicide, 254–255, 257 Suitability in Annuities Transactions Model Regulation, 182 Supervisory college, 179 Supplemental term insurance, 349–350 Supplementary payments, Personal Auto Policy and, 447 Surety (obliger), 631 Surety bonds, 49, 631–633 and insurance, comparison of, 631–632 parties to, 631 types of, 631–633 Surety & Fidelity Association of America, 636 Surety Information Office, 637 Surplus, 94 regulation of, 169 Surplus lines, 116 taxes on, 179 Surplus lines broker, 116–117 Surplus-share treaty, 137 Surrender charges, 303–304 Surrender cost index, 279 Survivor benefits, in Social Security, 399–400 Survivor income benefits, 364 Survivorship life insurance, 244 Survivors’ loss benefit, under no-fault auto insurance, 480 Syndicates, and Lloyd’s of London, 114 Systemically important financial institutions (SIFIs), 178 Systemic risk, 25, 174–175, 178 Systems breakdown coverage, 49 T T Rowe Price, Retirement Income Calculator, 310–311 Tabular reserve, 149 Tabular value method, 149 Target, data breach, 92, 436, 612 Target premium, of universal life insurance, 235 Taxable estate, 284 Tax credit See Saver’s credit Taxes See also Estate tax; Income tax on annuities, 305 on benefits, 400–401 Blue Cross and Blue Shield (BCBS) plans and, 115 cadillac, on high-value policies, 356 of insurers, 174 life insurance and, 283–284 retaliatory laws and, 174 on Social Security benefits, 400–401 on surplus lines, 179 variable universal life insurance and, 241 Tax-sheltered annuities (TSAs), 381 Technology, anti-terrorism, 31 Technology-related liability, 436–437 Telephone Consumer Protection Act, 600 Temporary disability insurance, compulsory, 50 Temporary life annuity due, 293 Temporary substitute vehicle, 445 Terminal reserve, 295 Termination automatic, 464 Personal Auto Policy (PAP), 464–465 Termination as to any employee provision, in commercial crime coverage, 630 Term insurance, 228–230, 243 See also Yearly renewable term insurance 5-, 10-, 15-, 20-, 25-, or 30-year, 229 blended policies, 267–268 for children, 244 conversion of group life insurance to, 350 extended, 262 family rider, 268 five-year, net single premium for, 292–293 limitations of, 230 net annual level premium for, 293–294 net single premium for, 291–292 premiums, 230 riders, 267–268 types of, 229–230 uses of, 230 Term4Sale, 290 Term to age 83 policy, 229 Terrorism insurance, 581 Terrorism risk, 91–92 Terrorism Risk Insurance Act (TRIA), 91–92, 581 Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA), 92, 581 Texas, tort reform in, 433–434 Texas Department of Insurance, 219 Theatrical property coverage form, 585 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 718 9/19/16 3:30 PM index 719 Theft, 625–626 See also Burglary; Robbery employee, 626 homeowners insurance and, 508–509 identity, 30, 533–534 Third-party claims, 475, 476 Third-party-over cases, 606 Third-party payers, and health care expenditures (U.S.), 319–320 Thunderstorms/windstorms, 96 TIAA-CREF, 314, 389 Time limit on certain defenses, for health insurers, 340 Time value of money, 100–101 financial analysis applications of, 101–102 Title insurance, 554–556 Tokio Marine, 95 Tort(s) See also Negligence definition of, 422 intentional, 423 types of, 422 Tortfeasor, 422 Tort liability costs, 428–429 for medical malpractice, 434–435 Tort liability system defective, 428–434 delays in settling lawsuits in, 431–432 high jury awards and, 430–431 inefficiency in compensating victims, 429–430 and judicial hellholes, 431–432 medical sector claims, 434–436 problems with, 428–437 reforming, 432–433 state reform proposals, effectiveness of, 433–434 uncertainty of legal outcomes in, 430 Tort Reform Act of 2004 (Mississippi), 434 Total adjusted capital, 170 Total disability, 267, 336–337 Towers Watson, 124, 144, 162, 428–429, 441(n12) Traditional IRA, 306–310 annual contribution limits, 307 contributions, income tax deduction of, 307 distributions, taxation of, 308 eligibility requirements, 307 establishing, 308 investments, 308 rollover account, 308–309 tax penalty for early withdrawal, 307–308, 315(n4) Traditional net cost method, 278–279 Transit policy annual, 585 trip, 585 Transportation insurance, 581–585 Treaty reinsurance, 136–137 Trees, shrubs, and other plants, 505 Trespasser, 426 TRIA (Terrorism Risk Insurance Act), 91–92, 581 TRIPRA (Terrorism Risk Insurance Program Reauthorization Act of 2015), 92, 581 Trip transit policy, 585 Trust, as life insurance settlement option, 267 Trustee, 256 Trust-fund plan, 384 Twisting, 173 Typhoon(s), 96 U Uber See Ride sharing Ultimate net loss, in commercial umbrella policy, 611 Umbrella policy commercial, 611–612 personal, 48, 537, 557–560, 558–560 Uncertainty, and risk, 20–21 Underemployment, financial effects of, 28 Underinsured motorists coverage, 456 Underwriting, 46, 127–130 application for, 128, 129 basic principles of, 127–128 capacity, reinsurance and, 133–134 cash flow, 94 computerized, 129 decision making in, 129 definition of, 127 field, 128 of group insurance, 348 information sources for, 128–129 rate adequacy and, 129–130 and reinsurance, 130 renewal, 130 statement of policy for, 127 steps in, 128 Underwriting cycle, 76, 93–95 Underwriting guide, 127 Underwriting risk, 62–63 Unearned premium reserve, 134–135, 149, 181 Unemployment financial effects of, 27–29 as insurable risk, 44–45 short-term involuntary, 409 Unemployment insurance, 24, 50, 409–411 coverage, 409 eligibility requirements, 409 emergency compensation, 410 exhaustion rates during recessions, 411 experience rating for, 410 extended benefits, 410 financing of, 410–411 limitations and defects of, 28–29 objectives of, 409 problems and issues with, 411 recipiency rates, 411 regular state benefits, 410 Unemployment rate true, 28 in U.S., 28 Unfair claims practices, 131 Unfair trade practices, 173 Unfunded reserve, 70 Unified credit, 284 Uniform Individual Accident and Sickness Policy Provisions Act, 340 Unilateral contract, 198–199 Uninsured boaters coverage, 548 Uninsured motorist coverage, 452–456, 477–478 Uninsured motorists, compulsory insurance laws and, 475 Uninsured persons, in U.S population, 321 Unintentional loss, 43 United States See also Healthcare expenditures; Healthcare system Lloyd’s of London in, 114 uninsured persons in, 321 United States Aircraft Insurance Group (USAIG), 609–610 Unit-owners form (HO-6), 497, 499 Universal life insurance, 234–240, 243 cash withdrawals from, 237 flexibility of, 236–237 forms of, 235–236 illustration of, 237–239 income tax treatment of, 237 increasing death benefit, 235–236 indexed, 240 interest rates, 237–239 level death benefit, 235–236 limitations of, 237–240 premiums, 235, 240 rates of return, 237 separation of component parts, 235 variable, 240–241, 243 Unmanned aircraft, 437 Unsatisfied judgment fund, 475 Urban Property and Reinsurance Act of 1968, 554 U.S See United States U.S Longshoremen’s and Harbor Workers’ Compensation Act, 549 U.S v South-Eastern Underwriters Association, 167 USAA Insurance Company, 96 USAIG (United States Aircraft Insurance Group), 609–610 Use-and-file law, 172 Utah, auto claims filing in, 476–477 Utmost good faith, principle of, 194–196 V Valuable papers and records coverage form, 585 Value at risk (VAR), 103–104 Valued policy, 190–191 Valued policy laws, 191 states with, 204(n2) Value reporting form, 574–575 Vandalism homeowners insurance and, 508 prevention, for small business, 628 Vanguard Group, 118, 314, 389 VAR (value at risk), 103–104 Variable annuity, 301–303, 305–306 administrative charge, 303 annual contract fee, 303 fees and expenses, 302–303 guaranteed death benefit, 301–302 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 719 9/19/16 3:30 PM I n d e x guaranteed lifetime withdrawal benefits, 302 guaranteed minimum accumulation benefit, 302 guaranteed minimum income benefit, 302 guaranteed minimum withdrawal benefits, 302 investment management charge, 303 mortality and expense risk charge, 303 surrender charge, 303 Variable life insurance, 234, 243 Variable universal life insurance, 240–241, 243 charges for, 241 investment risk with, 241 tax treatment of, 241 Vehicles, property damage from, homeowners insurance and, 508 Verbal threshold, for no-fault auto insurance, 479 Vermin, 521(n3) Vermont captive insurers in, 71 Special Insurer Act (1981), 71 Vesting in defined-benefit plans, 374 in defined-contributions plans, 374 definition of, 374 The Viatical and Life Settlement Association of America, 275 Viatical settlement, 270–271 Vicarious liability law, 425 Volcanic eruption, homeowners insurance and, 510 W Waiting period, 212–213, 334, 338 for disability-income insurance, 213, 338 for group life insurance, 350 for group plans, 349 for National Flood Insurance Program (NFIP), 552 Waiver, 201 collision damage, on rental cars, 458 homeowners insurance, 516 Waiver-of-premium provision in disability-income insurance, 267, 338 in life insurance, 267, 269 War damage from, exclusion from CGL policy, 598 definition of, 598 property damage from, 511 Section II exclusions and, 527 War clause, life insurance, 257 Warranty, 196 Watercraft, exclusion from CGL policy, 598 Watercraft endorsement, 533 Watercraft insurance, 548–549 Water damage, homeowners insurance and, 509, 510 Weather futures, 97 Weather options, 97 Weight of ice, snow, or sleet, homeowners insurance and, 509 Wellness benefits, group medical expense insurance and, 360 Wells Fargo, 95–96 West Virginia Supreme Court of Appeals, liability-expanding decisions of, 431 Whole life insurance, 230 See also Ordinary life insurance current assumption, 241–242, 243 interest-sensitive, 241–242 saving component, rate of return on, 281–283 single-premium, 232 variations of, 234–242 Windstorm, homeowners insurance and, 508 Wisconsin, State Life Insurance Fund, 51 Wisconsin Office of the Commissioner of Insurance, 219 Workers compensation exclusion, in section II, homeowners insurance, 528, 529 exclusion from CGL policy, 598 Workers compensation and employers liability insurance policy, 605 Workers compensation insurance, 48, 50, 411–415, 605–607 Affordable Care Act and, 414–415 benefits, 413 compliance with, 412 covered occupations, 412–413 death benefits, 413 definition of, 411 development of, 411–412 and disability income, 413 eligibility requirements, 413 medical marijuana and, 414 monopoly state fund for, 412 objectives of, 412 and opiate overuse, 414 problems and issues with, 413–415 and rehabilitation services, 413 self-insurance and, 412 state, 50 unlimited medical care under, 413 Workers Compensation Research Institute, 419 Worksite marketing, 118–119 Work test, 394–395 Worry reduction of, with insurance, 51 risk and, 31 Wrongful act directors and officers (D&O) liability insurance and, 615–616 employment-related practices liability insurance and, 604 Y Yacht insurance, 548–549 Yearly rate-of-return method, 282–283 Yearly renewable term insurance, 229 net single premium for, 291–292 Your covered auto, in Personal Auto Policy, 444 Download more at Learnclax.com Z04_REJD1038_13_GE_IDX.indd 720 9/19/16 3:30 PM