Fundamentals of risk and insurance 11e vaughan

Fundamentals of Risk and Insurance Emmett J Vaughan • Therese M Vaughan 11e ■ FUNDAMENTALS OF RISK AND INSURANCE ■ www.freebookslides.com ■ FUNDAMENTALS OF RISK AND INSURANCE ■ ELEVENTH EDITION EMMETT J VAUGHAN THERESE M VAUGHAN www.freebookslides.com VICE PRESIDENT & EXECUTIVE PUBLISHER EXECUTIVE EDITOR CONTENT EDITOR ASSISTANT EDITOR SENIOR EDITORIAL ASSISTANT DIRECTOR OF MARKETING ASSISTANT MARKETING MANAGER MARKETING ASSISTANT SENIOR PRODUCT DESIGNER SENIOR PRODUCTION MANAGER ASSOCIATE PRODUCTION MANAGER COVER DESIGNER COVER CREDIT George Hoffman Joel Hollenbeck Jennifer Manias Courtney Luzzi Erica Horowitz Amy Scholz Puja Katariwala Mia Brady Allison Morris Janis Soo Joel Balbin Kenji Ngieng Bart Sadowski/iStockphoto This book was set in 10/12 Cheltenham Light by Aptara, Corp and printed and bound by Courier/Kendallville The cover was printed by Courier/Kendallville The book is printed on acid-free paper ∞ Founded in 1807, John Wiley & Sons, Inc has been a valued source of knowledge and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations Our company is built on a foundation of principles that include responsibility to the communities we serve and where we live and work In 2008, we launched a Corporate Citizenship Initiative, a global effort to address the environmental, social, economic, and ethical challenges we face in our business Among the issues we are addressing are carbon impact, paper specifications and procurement, ethical conduct within our business and among our vendors, and community and charitable support For more information, please visit our website: www.wiley.com/go/citizenship Copyright c 2014, 2008, 2003, and 1999 John Wiley & Sons, Inc 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, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc 222 Rosewood Drive, Danvers, MA 01923, website www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748- 6008, website http://www.wiley.com/go/permissions Evaluation copies are provided to qualified academics and professionals for review purposes only, for use in their courses during the next academic year These copies are licensed and may not be sold or transferred to a third party Upon completion of the review period, please return the evaluation copy to Wiley Return instructions and a free of charge return mailing label are available at www.wiley.com/go/returnlabel If you have chosen to adopt this textbook for use in your course, please accept this book as your complimentary desk copy Outside of the United States, please contact your local sales representative Library of Congress Cataloging-in-Publication Data Vaughan, Emmett J Fundamentals of risk and insurance / Emmett J Vaughan, Therese M Vaughan — Eleventh edition pages cm Includes bibliographical references and index ISBN 978-1-118-53400-7 (pbk.) Insurance Risk (Insurance) I Vaughan, Therese M II Title HG8051.V35 2014 368—dc23 2013033075 Printed in the United States of America 10 www.freebookslides.com To Bob, Kevin, and Tommy www.freebookslides.com ■ ABOUT THE AUTHORS ■ Emmett J Vaughan was a Professor of Insurance at the University of Iowa for over 40 years, where he held the Partington Professorship in Insurance until his death in 2004 Professor Vaughan earned his undergraduate degree in economics from Creighton University and his M.A and Ph.D in economics and insurance from the University of Nebraska He was an enthusiastic teacher, prolific scholar, and beloved by his students He inspired hundreds of students to choose careers in insurance Therese M Vaughan has spent her career in academia and insurance regulation She was the Robb B Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University Prior to joining Drake, she served as Iowa Insurance Commissioner for over 10 years, and most recently, she was the CEO of the National Association of Insurance Commissioners Vaughan earned her undergraduate degree in economics and insurance from the University of Iowa and her Ph.D in risk and insurance from the University of Pennsylvania vii www.freebookslides.com www.freebookslides.com SUBJECT INDEX Disaster clause (time clause), 273 Discharge of mechanic’s lien bond, 613 Disciplined current scale, 298 Discounted income flows, 184 Discovery coverage, 573 Discretionary groups, 235 Dishonest insurance coverage triggers, 573–574 Dishonesty insurance, 573–578 coverage, continuity, 574 discovery period, 573 Dispersion, measures, 38–40 Disqualifying income, 210–211 Distressed pools, 85–86 Distress risk companies, 519 Distress terminations, 424 Dividends accumulation, 151 provisions, 268–269 Divorce, income needs, 188–189 Documents, analysis, 26–27 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) (DFA), 85, 106–107, 316 Dollar-a-day policy, 517 Domestic credit insurance, 614 Domestic insurer, 74 Donut hole, 398 Double indemnity, 271 Dread-disease policy, 375 Drug formulary, 376 Dual eligibles, 397 Durable medical equipment (DME), 391 Dwelling exclusions, 451–452 forms, 463 policies, personal liability supplement, 465 program theft endorsements, 464–465 Dwelling Property Basic Form, 463 Dynamic risks, 5–6 Earned premiums, concept, 147 Earnings, indexing, 207 Earthquake and Volcanic Eruption Form, 558 Earthquake Endorsement, 458 Economic feasibility, 43 Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA-2001), 195, 320, 325, 418, 419 Economic value, 187t Educational organizations, 87 Elective deferrals, limit, 324 Electronic data processing (EDP) policy, 572 Electronic fund transfer card/access device, coverage, 441 Elimination periods, 352 Emergency funds, purpose, 189 Empirical probabilities, 37 Employee benefit plan provisions, 576 Employee benefits, 413–414 cafeteria employee benefit plans, 426–427 defined benefit plans, accounting, 425 funding 501(c)(9) trust, usage, 416–417 issues, 415–417 group life/health insurance, 414–415 group ordinary life insurance, 414 group paid-up life insurance, 414–415 group term life insurance, 414 group universal life, 415 longevity risk transfer, 425–426 pensions, 417–423 plan de-risking, 425–426 Employee crime coverages, 574–576 exclusions, 575–576 Employee, definition, 575 Employee dishonesty insurance, 47 Employee Retirement Income Security Act of 1974 (ERISA), 317–318, 320, 370 impact, 417 pension plan termination insurance, 423–425 preemption, 416 Employee stock ownership plan (ESOP), 322 Employee theft, 574–576 Employer group Medicare coverage, 391 Employer-provided health insurance, 370–371 Employer self-insured plans, 370–371 Employers liability, 495, 583–585 insurance, 553, 584–585 law, 216 Employer-sponsored insurance benefits, prevalence, 413 Employer-sponsored plans, types, 318 Employment earnings, retirement funding source, 337 Employment practices liability coverage, 595 Endowment life insurance, 225, 233–234 policies, issuance, 234 Enforceable contract elements, 164–166 requirements, 164–166 English common law, 216, 486 Enterprise risk management, 15–16, 104–105 Entity plan, 428 Equal Opportunity Act, 137 Equipment breakdown insurance (boiler and machinery insurance), 46 Equipment Breakdown Protection Coverage Form, 565–566 Equipment Dealers Coverage Form, 571–572 Equipment floaters, 571 Equitable Society for the Assurance of Life, 73 Equity-indexed annuities, 312 Equity index universal life insurance, 277 Errors and omissions insurance, 507, 508 Essential health benefits, 383 Essential insurance, 60 Estate liquidity need, 193 I-7 Estate planning, 193–195 federal estate tax, 193–195 Estate recovery, 409 Estate taxes, 328 Estoppel, 176–177 Evaluation See Risk implication, 28 Event, probability (determination), 36–38 Excess liability coverage, 604–607 umbrella liability contracts, difference, 605 Excess-loss reinsurance, 153 Excess-of-loss treaty, 154 Excess-over-other-insurance clause, 171 Excess Umbrella Liability Policy, 605 Exclusion ratio, 327 formula, 310–311 Exclusions (insurance contracts), 178 Exclusive agents, 82 Exculpatory clauses, 171 Executive Life, seizure, 293 Executor’s bond, 612 Expanded first-party/add-on benefit laws, 522t Expanded first-party/add-on coverage, 520 Expected loss ratio, 129 Expected value, 55–56 Expenses incurred, 148 Expenses, revenues (matching), 146 Experience rating, 131 Explosion, coverage, 452 Export credit insurance, 614 Export-Import Bank, 79 Exposure checklists, 27 Express authority (stipulated authority), 164 Extended Business Income, 563 Extended nonowned coverage, 545 Extended term insurance, 266–267 Extra expense insurance, 563–564 Extra risk policies (rated policies), 134 Facility, 518 Facultative treaty, 153 Fair Access to Insurance Requirements (FAIR) plans, 85, 121, 562 Fair Credit Reporting Act (FCRA), 137 Fair Isaac Corporation (FICO) scores, 136 Fair rate of return, 121 Family income policy, 281, 281f Family income rider, 281 Family protection policy, 281–282 popularity, 282 Family purpose doctrine, 514 Fathers, benefits, 208 Fayol, Henri, 20 Federal Crime Insurance Program, 80 Federal crop insurance, 79 Federal Department Insurance Corporation (FDIC), 51 Federal Emergency Management Agency (FEMA), 466 www.freebookslides.com I-8 Federal estate tax (death tax), 193–195 annuities, relationship, 311 Federal Flood Insurance Program (residential property limits), 467t Federal Insurance Contribution Act (FICA) tax, 205–206, 324 Federal Insurance Office (FIO), creation, 107 Federal insurance regulation control, varieties, 115 public choice, 116 state insurance regulation, difference, 113–116 support, arguments, 113–114 Federal Motor Carrier Safety Administration (FMCSA), 600–601 Federal poverty level (FPL), 372 Federal private (voluntary) insurance programs, 79–80 Federal public guarantee insurance programs, 51–52 Federal Riot Reinsurance Program, 80 Federal Terrorism Reinsurance, 79–80 Federal Terrorism Reinsurance Act (TRIA), 79–80 Federal TRICARE programs, 372–373 Fee for service, 366 Fee-for-service coverage, 366 Fee-for-service program, 396 Fellow servant rule, 217 Fidelity Bankers Life, failure, 293 Fidelity bonds, risk transfer device, 47 Fiduciary bonds, 611–612 Field underwriter, 134 File-and-use laws, 111 Final average salary plans, 318 Financed purchases, 299 Financial Accounting Standards Board (FASB), Statement No 115 (issuance), 145 Financial Analysis Division (FAD), 103 Financial Analysis Solvency Tracking (FAST), 103 Financial Analysis Working Group (FAWG), 103 Financial guaranty insurance (FGI), 616–617 financial crisis, 617 Financial Industry Regulatory Authority (FINRA), 313, 316 Financial planners, impact, 81 Financial Regulation Standards Accreditation Program (NAIC), 106 Financial responsibility laws, 515 Financial Services Modernization Act, 84 Financial Stability Oversight Council (FSOC), 107 Fire and allied lines, 554 Fire department service charge, 441, 556 Fire insurance, 45, 554 Fire legal liability, 591 Fire Legal Liability Insurance, 502 Fire/lightning, coverage, 452 First aid expenses, 504 SUBJECT INDEX First Capital Life, failure, 293 First-dollar coverages, 376 First-surplus treaties, 153 Fixed-dollar annuities, variable annuities (difference), 309 Fixed period, installments, 259–260 Flexible spending accounts, 427 Flex-rating, 110 insurer usage, 111–112 Floaters, 471 Flood insurance, 466–471, 477 agreement, 468 building coverage, 468–469 compliance cost, increase, 469 coverage, inception, 469–470 debris removal/coverages, 469 eligible communities, 466–467 personal property, 469 policy, 468–471 provisions, 467–468 rate maps, 467 Flood Insurance Rate Map (FIRM), 470 Flood Insurance Reform Act of 2012, 470–471 Floor of protection, 214 Flowcharts, usage, 27 Following-Form Excess Liability Policies, 605 Foreign insurer, 74 Foreign trade credit insurance, 614 Forgery, coverage, 441 Franklin, Benjamin, 73 Fraternal insurers, 76 Fraud tax, 523 Free-bite laws, 515 Free of Capture and Seizure, 568 Freight insurance, 568 Friendly fire, hostile fire (difference), 452 Full-time equivalent employees (FTEs), penalty assessment, 381–382 Full value reporting clause (honesty clause), 561 Fully insured status, 205, 206 Functional building valuation endorsement, 560 Functional personal property valuation, 560–561 Fundamental risk, Funded retention program, 62 Fund for last expenses, 189 Funding, term (usage), 420 Funds transfer fraud, 577–578 Furriers Block Policy, 571–572 Furrier’s Customer Policy, 604 Future benefits, present value, 249 Future income needs, determination, 191, 334 Future interest gifts, representation, 196 Futures contract, 156–157 Gambling, insurance (relationship), 41 Garage Coverage Form, 599–600 Garagekeepers Coverage Form, 599–600 Garnishment bonds, 612 Gatekeeper, 367 Gender-neutral rating, 119–120 General administrative expenses, 129 General agents, 81 General Agreement on Tariffs and Trade (GATT), 424 General damages, 484 General liability, 495 Generally accepted accounting principles (GAAP), 145 statutory accounting, difference, 145–146 General theft exclusions, 453 Generation-skipping transfers, 194 Gift tax, 194 Glass Coverage Form, 562 Glass or Safety Glazing Material additional coverage, 442 Glass-Steagall Act of 1933, 84 Global systemically important insurers (G-SIIs), identification, 117 Go-Cart Liability Policy, 546 Government bodies, liability, 482 Government insurance programs, 118–119 Government insurers, 78–80 Government-sponsored entities (GSEs), mortgage insurance writing, 617–618 GPS-Based Teen Driver Pilot Program, 525 Grace period (life insurance contracts), 257 Graded annuity payments, 345t Graded payment method, 344–345 Graded-premium whole life insurance, 283 Gramm-Leach-Bliley Act (GLBA), 84, 107 impact, 113 privacy, relationship, 108–109 Grave markers, coverage, 443 Great Code of Hammurabi, 72 Gross domestic product (GDP) growth, 400 health care percentage, 378 Gross estate, 194 impact, 195 Gross national product (GNP), 377 Gross premium, 129 Gross rate, 129 calculation, 130 Group annuities, 309 Group Annuity Mortality (GAM 83) Table (1983), 424 Group deficit annuities, 422 Group life insurance, 234, 235–236 coverage, 236 groupings, 235 importance, 236 Group ordinary life insurance, 414 Group paid-up life insurance, 414–415 Group permanent plans, 422 Group term life insurance, 414 Group universal life, 415 Guaranteed insurability option, 272–273, 356 Guaranteed investment contracts (GICs), 421–422 Guaranteed issue, 379 Guaranteed living benefits (GLBs), 315 www.freebookslides.com I-9 SUBJECT INDEX Guaranteed minimum death benefits (GMDBs), 315 Guaranteed minimum withdrawal benefits, 315 Guaranteed renewability, 379 Guaranteed renewable health insurance policy, 358 Guaranteed replacement cost, 437 Guaranteed values, table, 265t Guardian’s bond, 612 Guest hazard statutes, 514–515 Guideline premium test, 229 Gybbons, William, 73 Halley, Edmund (mortality table), 73 Hazard groups, 507 risk, difference, Hazardous substances, 567 Health care access, 377 adverse selection, 378–379 aging population, 378 benefits, coordination, 375 capacity, excess, 378 costs, 378 taxes, relationship, 377 deficiencies, 377–380 financing, public sector, 371–373 prior reform efforts, 377–380 segmentation, 378–379 Health expense associations, 78 Health insurance, 45, 348, 376–377 See also Employer-provided health insurance continuance provisions, 357–358 coverage, type, 370t exchanges, 382–383 creation, 371 first-dollar coverages, 376–377 historical development, 366–368 market, 370–373 background, 366–370 system, deficiencies, 377–380 Health insurance policies continuance provision classification, 358 exclusions, 374–375 limitations, prescription drugs, 376 provisions, 357–360 uniform provisions, 358–359 options, 360 Health Insurance Portability and Accountability Act of 1996 (HIPAA), 369, 380, 384, 407 Health Maintenance Organizations (HMOs), 78, 367 contracts, 374 plans, 396 Health organizations, payments, 397 Health Reimbursement Arrangement (HRA), 369 Health Savings Account (HSA), 369 High Deductible Health Plans (HDHPs), 368, 369 High-risk drivers, insurance, 517–519 High-risk plan, 420 Hired autos, inclusion, 597 Hold-harmless agreements, 20 Home care benefits, inclusion, 404 Home Day Care Coverage endorsement, 500 Home health care, 390 Medicare payment, 403 Homemaker spouse, employment ability, 190 Homeowners Broad Form, 448–449 Homeowners Special Form, 449–454 Homeowners Contents Broad Form, 454–455 Homeowners Comprehensive Form, 455–456 exclusions, 455–456 Homeowners Condominium Unit-Owners Form, 456–457 coverage, 546 endorsements, 456–457 Homeowners Modified Coverage Form, 457–458 Form loss settlement provisions, 457–458 Homeowners Coverage C: Personal Property Perils Insured, 452–454 Homeowners deductible premium credits, 476 Homeowners forms, difference, 448–458 Homeowners policy Section I, 504 Section II conditions, 505–506 Homeowners policy coverage, 476–477 Homeowners policy program, 432–433 characteristic, 433 Coverage A: Dwelling, 434, 436 Coverage B: Other Structures, 436 development, 432–433 inflation, impact, 437 personal property coverage, 437–440 provisions, 443–446 replacement cost coverage, 436 Homeowners Program, 499–500 Homeowners Scheduled Personal Property Endorsement, 471–472 Homeowners Section I coverage, 433–443 dwelling/structures, coverage, 434–437 overview, 433–434 perils insured, 434 Homeowners Section I optional coverages, 458–459 endorsements, 459 optional perils, 458–459 Honesty clause (full value reporting clause), 561 Hospice care, 390 Hospital Insurance (HI) coverage (Medicare Part A), 391–392 tax, addition, 206 Hovercraft liability, 498 Hull insurance, 568 Human life value, 183–184 examples, 184, 187 Hurricane futures/options, CME trading, 157 Hurricane Katrina, losses, 132 Hutton Life, UL insurance (introduction), 232 Immediate annuities, deferred annuities (difference), 309 Immediate participation guarantee (IPG) plans, 422 Implied authority (incidental authority), 164–165 Implied powers, 164 Important insurance, 60 Important risks, 28 Imputed liability, 485 Incidental authority (implied authority), 164–165 Incidents of ownership, 195 Income deductions, 152 Income-earning spouse, coverage, 304 Income-fat years, 196–197 Income-lean years, 196–197 Income loss, amount (determination), 355–356 Income needs, 189 dependency period, 190 divorce, relationship, 188–189 future income needs, determination, 191 representation, 190 Income replacement coverage, 354 Incontestable clause, 256 Incurred losses, 147–148 Indemnity, 568 contract, 166–172 life insurance, difference, 225 coverage, 366 partial indemnity, 218 periods/limits, 564 Independent adjusters, usage, 138 Independent agents, 82 Independent Payment Advisory Board (IPAB), 400 Indeterminate premium policies, 285–286 benefit structure, 285 interest-sensitive whole life insurance, 285 Index annuities, 312 Index universal life (UL) insurance (equity index universal life insurance), 277 Indirect loss boiler and machinery coverages, 567 commercial property coverage, 563–565 Individual annuities, group annuities (difference), 309 Individual life insurance, 234–235 Individual policy pension trust, 422 Individual Retirement Accounts (IRAs), 215, 318, 328–331 establishment, 369 partial IRA rollovers, 330 portable pensions, 330 tax treatment, 329–330 traditional IRAs, 329–330 eligibility, 329 nondeductible contributions, 329 www.freebookslides.com I-10 Individual, risk management (difference), 24 Industry loss warranties (ILWs), 157–158 Infants, liability, 482 Inflation protection, 319–320 rate, CPI indication, 338 Inflation-adjusted future income needs, present value, 192t Inflation-adjusted retirement need projection, 341t Inflation Guard Endorsement, 437 Informational filing, 111 Information technology (IT), advances, 120 Inherited property, basis, 194 Initial reserve, 247 Injunction bonds, 612–613 Injured party, negligence, 488–490 Injury, definition, 353 Inland marine coverage (individual), 471–475 cameras, 472–473 coverage, scope, 472 fine art/antiques, 473 golfer’s equipment, 472 musical instruments, 473–474 personal furs, 472 postage stamps, 473 silverware, 472 valuation options, 472 Inland marine forms, 572 Inland marine insurance, 45–46, 569–572 controlled/uncontrolled forms, 570 dealers forms, 571–572 property, classes, 569 transportation forms, 570–571 Innkeepers Liability Policy, 604 Insolvencies, control, 105–106 Installment annuities, 309 Installment refund annuities, 310 Installments-of-fixed-amount option, 260 Insurable interest, 167–168 doctrine, usage, 167 question, 225 Insurable risk elements, 42–45 securitization, 155 Insurable value, calculations, 291 Insurance See Self-insurance affordability debate, 118–125 problems, causes, 123–124 agent, 80–81 selection, 62–65 aleatory contract, 173 anti-insurance bias, 23 availability affordability debate, 118–125 problems, causes, 122–123 banks, relationship, 84–85 broker, 80–81 business, origins, 72–73 buying, 59–65 plan, necessity, 60 cash-flow underwriting, 91 competition, intensity (evidence), 90 SUBJECT INDEX competitive industry, hallmarks, 90 complicating factor, 378–379 concealment, 176 conditional contract, 173 consultants, usage, 81 contract of adhesion, 173 corporate combinations, 83 cost-based approach, 119 courts, impact, 178 coverage, ACA expansion, 381 cross-subsidies, 124 cycle, 90–91 defined, 35 derivatives, 155 destructive-competition rationale, 98–99 direct response distribution, 82 economic contribution, 41–42 economic feasibility, 43 educational organizations, 87 estoppel, 176–177 exchanges, 78 expenditures, priority ranking, 60 fields, 44–52 similarities, 52 financial planners, usage, 81 gambling, relationship, 41 gender-neutral rating, 119–120 government programs, 118–119 groups, systemic risk, 106–107 incorporation location, classification, 74–75 indemnity contract, 166–172 last resort, 61 law of contracts, 163–166 licensing, classification, 74–75 management, risk management (difference), 20–21 mandated underwriting losses, 118 market reforms, 379–380, 383–384 subsidies, 118 marketing Internet, impact, 83 systems, 80–85 misrepresentation, 174 multiple-line transition, 74 nature/functions, 34–41 operation, factors, 133 optional coverages, 61 personal contract, 172 policies checklists, 27–28 personal contract rule, application, 172 price competition, 88–89 product, 373–375 classification, 74 program, 189 public guarantee programs, usage, 52 purchase, errors, 59–60 quality competition, 89 rating organizations, 85–86 redlining, 120–121 reporting, 103 retention, selections (consideration), 61–62 selection, considerations, 61–62 severability, 506 shared markets, 118 social pricing, 119 societal definition, 40–41 subsidies, income redistribution effects, 122 suretyship, difference, 610–611 trade organizations, 87–88 transfer/pooling, selection, 41 unilateral contract, 172 vested-in-the-public-interest rationale, 98 waivers, 176–177 warranties, 175–176 Insurance companies cost, 65 costs, 88 examination, 103 federal income taxes, 159–160 financial stability, 63, 65 groups, 83 licensing, 102–103 policyholders, treatment, 65 selection, 62–65 state premium tax, 158–159 taxation, 158–160 Insurance Company of North America, 73 Insurance contracts, 177–178 actual cash value, 168–170 cash payment policies, 169, 170 complexity, 178 conditions, 178 declarations, 178 exclusions, 178 insuring agreement, 178 legal characteristics, 166–178 parol evidence rule, 177 parts, 178 policy construction, 178 reasonable expectations, 177–178 subrogation, 171–172 valued policies, 169 laws, 170 Insurance-encouraged utilization, 379 Insurance industry competition, 88–92 cooperation, 85–88 market structure, 90 profitability, 92 regulation, rationale, 97–99 Insurance-linked securities (ILS), 155, 157–158 Insurance Marketplace Standards Association (IMSA), 300 Insurance purchasing groups, 69 Insurance regulation areas, 102–112 capture theory, 96–97 current status, 101–102 economic theories, 96 executive branch regulation, 102 federal control, varieties, 115 federal regulation public choice, 116 state regulation, difference, 113 support, arguments, 113–114 www.freebookslides.com SUBJECT INDEX global influences, 117 goals, 99 history, 99–101 judicial branch regulation, 102 legislative branch regulation, 101–102 market failure theory, 96 market regulation, 107–109 National Association of Insurance Commissioners (NAIC), impact, 102 Paul v Virginia, 99–100 post-Civil War change, 100 public choice theory, 97 regulatory structure, 101–102 state regulation continuation, 115 federal regulation, difference, 113–116 modernization, NAIC efforts, 115–116 public choice, 116 support, arguments, 114 Insurance Regulatory Information System (IRIS), 103 Insurance Service Office (ISO), 85, 509, 553 Breakdown Protection Coverage Form, 565–566 Commercial Umbrella Liability Coverage Form, 606–607 Crime Insurance Program, 574 Insured periods, injuries, 502–503 Insured plans, 422–423 Insureds duties, 506 financial loss, measurement, 169 property ownership, 502 severability, 497 status, requirement, 209, 210t Insurers accounting functions, 140 classification, 74–75 consumer complaints/assistance, 108 diversity, state preference, 112 engineering functions, 140 enterprise risk management, 104–105 file-and-use laws, 111 filing, absence, 111 financial analysis, 103 flex-rating, 111–112 functions, 128 government insurers, 78–80 impairments, 91t informational filing, 111 insolvencies, 91, 91t control, 105–106 investment function, 128, 139–140 investment, percentage composition, 140 investments, 105 legal functions, 140 liability rates, regulation, 110–112 loss adjustment, 128, 137–139 ownership, legal form classification, 75–80 policy forms, usage, 108 prior approval system, 110–111 privacy, GLBA (impact), 108–109 production, 128, 133 property rates, regulation, 110–112 ratemaking, 128–133 concepts, 129–130 rates, regulation, 109 rating, 294 agencies, rating categories, 64t reinsurance, 105 reserves, regulation, 105 retrospective rating plans, 141 solvency regulation, 102–107 state insolvency funds, 106 trade profit, 150 types, 74–75, 349 underwriting, 128, 133–137 unfair practices, 107–108 Insuring agreement (insurance contracts), 178 Integration (permitted disparity), 325 Intentional injury, 498–499 Intentional loss, 450 Intentional torts, 481 Interest current rate, 315 life insurance ratemaking element, 240, 241, 244 maintenance reserve, 151 option, 259 rates, present value, 185t Interest-adjusted cost index, calculation, 296 Interest-sensitive whole life insurance, 285 Internal communication system, usage, 27 Internal explosion, 463 Internal Revenue Code (IRC), 159 gift exemptions, 196 requirements, 343 service tax code, 275 International Accounting Standards Board (IASB), creation, 117 International Association of Insurance Supervisors (IAIS), core principles, 116 International Financial Reporting Standards (IFRS), adoption, 117 International Monetary Fund (IMF), country compliance assessment, 117 Internet, insurance marketing (relationship), 83 Interstate compact, 116 Inter vivos trust, 195, 612 living trusts, 196 Inventory Shortage Exclusion, 575 Investment accumulation, 336t function, 128, 139–140 results (property and liability insurer), 149–150 risk, 319 tax treatment, 336 Investment generation method (IGM), 286 partitioned-portfolio IGM, 286 I-11 Investor-initiated life insurance, 299–300 Investor-owned life insurance (IOLI), 299–300 Invitees, 487 Irrevocable beneficiary designation, 255 Irrevocable inter vivos trust, 196 Irrevocable life insurance trust (ILIT), 196 Jewelers Block Policy, 571 John Hancock Mutual Life Insurance Co v Harris Trust & Savings Bank, 422–423 Joint-and-last-survivor annuity, 309 Joint-and-several liability, 486 Joint and survivor income option, 260 monthly payments, 261t Joint-and-survivor option, requirement, 326 Joint life annuities, 309, 310, 345 Joint mortgage protection policy, 280 Joint underwriting associations, 518 Judgment rating, 130 Judicial bonds, 611–613 Junk bonds (unrated bonds), 293 Juvenile insurance, 284–285 appeal, 285 Keogh plans, 322 Key-person insurance, 428 King, Jr., Martin Luther (assassination), 120 Labor and materials payment, 611 Landlord’s Furnishings additional coverage, 442 Large employer penalties, 381–382 Large-loss principle, 60–61 Last clear chance, doctrine, 489–490 Last-in first-out (LIFO) treatment, 284 Law coverage endorsement, 560 Law of averages, 196 Law of large numbers, 36–41 dual application, 40 Leasehold interest coverage, 564–565 Legal form (enforceable contract requirement), 166 Legal hazard, Legal liability, 481 bankruptcy, 490 Legal object (enforceable contract requirement), 165 Level premium concept, 227–228 understanding, absence, 282 plan, 228 costs, prepayment (effect), 247 Liability absolute liability, 483 exclusions, 497–503 exposures, 585–587 joint-and-several liability, 486 limitation, 505–506 rates, regulation, 110–112 risks, 7–8, 15 Liability-driven investing (LDI), 425 www.freebookslides.com I-12 Liability insurance, 45–47, 494–495, 585–595 coverage range, 46 types, 496 Liability insurers, 147–150 License bonds, 611, 613 Licensed insurer (admitted insurer), 74–75 Licensees, 487 Lienholders Single Interest Endorsement, 466 Life and Longevity Markets Association (LLMA), formation, 426 Life annuity, 196 function, 308 installment distributions, 344 Life-contingency risk, 340 Life income options, 260–262 payments, 260, 262 single life, 261t period certain, 260 refund option, 260 straight life income, 260 Life insurance, 45 accelerated benefits, 407 advantage, l292 beneficiary clause, 255–256 characteristics, 224–225 choices, 291 classifications, 234–238 code definition, 228–229 collateral assignment, 256 contract of indemnity, difference, 225 cost-comparison techniques, 297 difference, investment, 290–291 distribution system, 81–82 divorce agreements, 304–305 existence (United States), 237 financed purchases, 299 industry, reform initiatives, 300 insurable interest, requirements, 168 interest-adjusted method, 296–297 investment, 292–293 investor-owned life insurance, 299–300 IRC definition, 284 level premium, concept, 227–228 long-term investment, 292 low-load/no-load life insurance, 286 need, measurement, 196 needs analysis, 187–188 overcharge, return, 295 ownership clause, 255 partial loss, possibility, 225 policies elimination, 229 reserves, 247–249, 247t types, availability, 294 premium computation, 240–247 premium payment options, 297 probabilities, 250 proceeds, creditor rights, 274 products, 230–234 purchase amount, 187 decisions, 289–302 rates, regulation, 109–110 SUBJECT INDEX reinsurance, 154 securitizations, 156 settlement options, 258–262 specialized business use, 427–430 special policy forms, advantages/disadvantages, 286–287 surplus drain, 152 tax code definition, 276 tax-free exchanges, 303 tax treatment, 228–230 trust agreement, 196 types, 238 Life insurance companies, 150–152 cost consideration, 294–295 cost difference, comparison, 295 federal income taxes, 159 financial strength/integrity, 293–294 net-cost comparisons, traditional system, 295 policies, types (availability), 294 selection, 293–295 Life insurance company taxable income (LICTI), 159 Life insurance contracts automatic premium loan, 267–268 aviation exclusions, 258 cash option, 265–266 clause, 254 cost-of-living riders, 274 disaster clause, 273 extended term insurance, 266–267 grace period, 257 inception, 254 incontestable clause, 256 installments (fixed amount), 260 installments (fixed period), 259–260, 259t joint and survivor income option, 260 life income options, 260–262 life income with refund option, 260 misstatement of age clause, 256–257 optional provisions, 270–274 paid-up reduced amount, 266 payments, 260, 262 policy loan provisions, 267 policy proceeds, taxation, 262 provisions, 254–258 reinstatement, 257–258 settlement, optional modes, 259 settlement options, policy proceeds (taxation), 262 specialized life contracts, 279–286 spendthrift clause, 273–274 suicide clause, 258 tax considerations, 302–305 types, 225–228 war clause, 258 Life Insurance Illustration Questionnaire, 30 Life Insurance Illustrations Model Regulation (NAIC), 298–299 Life Insurance Solicitation Model Regulation (NAIC), 296 Life insurers assets, 150 valuation reserve, 151 dividends, accumulation, 151 financial problems, 293 income, 151 deductions, 152 interest maintenance reserve, 151 liabilities, 150–151 operations, 151–152 policyholders, surplus, 151 principles-based reserving (PBR) system, 151 regulation, rules-based system, 150–151 unpaid claims, reserves, 151 Life settlement, 299 Lifestyles, needs approach, 188 Limited health insurance policies, 375 Limited own occupation, 354 Limited-payment whole life insurance, 231–232 Limited-payment whole-life policy, 231–232 Limited Theft Coverage Endorsement, 465 Litigation bonds, 611, 612–613 Living benefits, 407 Living death, 198, 349 Living trusts (inter vivos trusts), 196 Lloyd’s associations, 77–78 Lloyd’s of London, 73, 77–78 Loading, 129 Loading (life insurance ratemaking element), 240, 241 Loan transactions, limitations, 328 Longevity, 181 risk, 196–197 transfer, 425–426 Long-term care (LTC) combination policies, 407–408 coverage trigger, 404–405 exposure, 402 insurance, 388, 402–408 cost, 406–407 development, 403 life insurance accelerated benefits, 407 limited-payment (limited-pay) policy, 405–406 Medicaid planning, 408–409 needs, Medicare inadequacy, 402–403 partnership programs, 409 policies benefit limits, 404 coverage, 404–406 elimination periods, 404 inflation protection, 405 lapses, 405 nonforfeiture provisions, 405–406 renewability, 405 services, 427 Long-term disability (LTD) coverage, short-term disability (difference), 350 plans, elimination periods, 352 policies, provisions, 353 writing, 352 Long-term investment (life insurance), 292 www.freebookslides.com SUBJECT INDEX Loss adjustment, 128, 137–139 adjusters, 138 claim settlement, action, 138 expense, 88 investigation, 139 payment/denial, 139 process, 138–139 Loss assessment coverage, 457, 505 share, 469 Loss Assessment coverage, 442 Losses See Incurred losses catastrophic loss, avoidance, 42 duties, 506, 543 illustrations, 505 notice, 138–139 other than by collision, 539–540 payment, 542 predictability, homogeneous exposure (impact), 42 production, risk (impact), 42 proof, 139 sharing, 34 Loss of earnings approach, 354 Loss-of-income protection, 198 Loss of Use coverage, 440 Loss reserves, 147, 148 Loss settlement, 443 difficulties, 139 Loss severity impact, 415–416 increase, 10 Loss sustained forms, 574 Loss-to-a-Pair-or-Set clause, 443 Loss unit, concept, 29 Lost instrument bond, 613 Low-cost auto insurance policies, 516–517 Low-income beneficiaries, Medicare assistance, 399 Low-load insurance, 286 Lump-sum death benefit, 208 Lump-sum distribution, 327 Mail Coverage Form, 571 Malpractice insurance, 507–508 Managed care attack, 368–369 dominance, 368 plans, 368 Managed care organizations (MCOs), 367–368 Mandated benefits, 379–380 Mandated underwriting losses, 118 Manufacturers Output Policy, 572 Manufacturer’s selling price clause, 561 Market failure theory of regulation, 96 Marketing systems, 80–85 Market regulation, 107–109 Market-value-adjusted annuities, 312 Material fact, 174 McCarran-Ferguson Act (Public Law 15), 101 repeal consequences, 114–115 pressure, 113, 114 states-rights issue, 115 Mean reserve, 247 Means test, usage, 48 Medicaid benefits, 372 expansion, 381 maintenance of effort requirements, 381 planning, 408–409 program, 371–372 spousal impoverishment provisions, 408–409 statutory restrictions, 408 Medical expense, 219 coverages, 375–376 exposure, evaluation, 199–200 insurance, 348–349, 365 Medical Information Bureau (MIB), 135 Medical malpractice pools, 86 Medical payments, 503–504 coverage, 475, 513, 536–537, 549 exclusions, 503, 536–537 insurance agreement, 536 Medical technology, improvement, 378 Medicare, 50, 366–367, 388–402 claims/charges, assignment, 392 costs controls, 399–401 deceleration, 400 coverage See Employer group Medicare coverage eligibility, 389–390 enrollment periods, 390 federal standards, 395 financial condition, 399–401 low-income beneficiaries assistance, 399 market forces, 401–402 Part A (Hospital Insurance Coverage), 389, 391–392 costs, assistance, 399 Part B (Supplementary Medical Insurance) (SMI), 389, 392–393 costs, assistance, 399 premiums, modified AGI (impact), 390t Trust Fund, 401 Part C (Medicare Advantage), 395, 396–397 plans, types, 396 Part D (Prescription Drug Coverage), 397–399 base beneficiary premium, 399 costs, assistance, 399 stand-alone plans, 398 Prescription Drug Benefit, 398f Prescription Drug Programs (PDPs), 395, 397–399 formulary, 398 program, 371 reform, proposals, 401–402 supplement policies, 388, 389 comparison, 394t regulation, NAIC model act, 393 traditional program Medicare supplement policies, 393–396 Trust Funds, 401 trust funds, Trustee warnings, 399–400 I-13 Medicare Advantage (MA), 395, 396–397 plans, types, 396 Medicare benefits, 205 Medicare Catastrophic Coverage Act (MCCA), 391 Medicare+Choice, 396 Medicare Medical Savings Account (MSA) plans, 396, 397 Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA-2003), 389, 394, 397 Medicare Special Needs (MSN) plans, 396, 397 Medicare Supplement (MedSupp), 402 Medigap contracts, 394–395 insurance, regulation, 393–394 policies, 388, 389 premiums, 395–396 Mentally incompetent, liability, 482 Merritt Committee Investigation, 100–101 Merritt, Jr., Edwin A., 100 Minimax regret strategy, 57 Minimum premium plan, 415–416 Miscellaneous bonds, 611, 613–614 Miscellaneous Type Vehicle Endorsement, 546 Misrepresentation (insurance), 174–175 doctrine, 174 usage, 174–175 Mississippi rule, 489 Misstatement of age clause, 256–257 Mobilehome program, 465–466 coverage, 465–466 eligibility, 465 personal property, coverage, 466 property removal, 466 Model Group Life Insurance Law (NAIC), 235 Model Holding Company Act (NAIC), 103 Model Holding Company Act and Regulation (NAIC), 104 Model Life Insurance Solicitation Regulation (NAIC), 110 Model Policy Loan Interest Rate (NAIC), 267 Model regulation, purposes, 298 Model Replacement Regulation (NAIC), 299 Modified adjusted gross income, 206, 211 Modified endowment contracts (MECs), 284 Modified Loss Settlement Endorsement, 464 Modified no-fault proposals, 520 Modified own occupation, 353 Modified whole life insurance, 283 Monarch Life Insurance, failure, 293 Money-Operated Devices exclusion, 577 Money purchase plans, 318 Monoline fire dwelling program, 463–465 coverages, 463–464 dwelling forms/homeowner forms, difference, 464 www.freebookslides.com I-14 Monoline fire dwelling program (continued ) dwelling program, 463 forms, endorsements, 464 eligibility, 463 Monoline organization, 74 Morale hazard, potential, 353 Moral hazard, Mortality (life insurance ratemaking element), 240, 241 Mortgagee clause, 444 obligations, 444 Mortgage guaranty insurance, 617–618 Mortgage loan insurance, 79 Mortgage payment fund, 189 Mortgage redemption policy (mortgage protection policy), 280, 280f Mothers, benefits, 208 Motor Carrier Coverage Form (MCCF), 600–601 Motor Carriers Insurance for Non-Trucking Use, 601 Motor home endorsement, 547 Motor Truck Cargo liability policy, 602 Motor Truck Cargo Owner’s Policy, 571 Motor Truck Cargo policies, 602 Motor vehicle liability, 497–498 Moving Ahead for Progress in the 21st Century (MAP-21), 420, 424 Multiple employer welfare arrangements (MEWAs), 370–371 Multiple-line transition, 74 Multiple-line underwriting, 74 Mutual fund, wrapping, 315 Mutual insurance companies, 75–76 Mutual insurance holding companies, 76 Named non-owner policy, 545–546 Named-peril coverage, 45 Name schedule bonds, 574 National Association for the Advancement of Colored People (NAACP), 121 National Association of Insurance Commissioners (NAIC) All Industry Model Rating (development), 110 Annual Statement, 151 Annual Statement Blank, 144 Contingent Deferred Annuities Working Group, formation, 315 Credit for Reinsurance Model Act and Regulation, 105 Financial Regulation Standards Accreditation Program, 106 Life Insurance Illustrations Model Regulation, 298–299 Life Insurance Solicitation Model Regulation, 296 Model Group Life Insurance Law, 235 Model Holding Company Act, 103 model law, 403–404 Model Life Insurance Solicitation Regulation, 110 Model Policy Loan Interest Rate, 267 SUBJECT INDEX Model Replacement Regulation, 299 Nationwide Marine Insurance Definition, 569 Privacy of Consumer Financial and Health Information Model Regulation (adoption), 109 RBC standards, development, 104 regulation impact, 102 Securities Valuation Office (SVO), 105 Senior Protection in Annuity Transactions Model Regulation, 316–317 Standard Valuation Law, 150–151 state accreditation program, 106 Suitability in Annuity Transactions Model Regulation, 317 Uniform Accident and Sickness Policy Provision Law (UPPL), 358 uniform provisions, inclusion, 358 Valuation of Securities Task Force, 145–146 National Association of Mutual Insurance Companies, 87 National Banking Act of 1864, 84 National Commission on Society Security Reform, 213 National Council on Compensation Insurance (NCCI), 85 National Credit Union Administration (NCUA), 51 National Federation of Independent Businesses (NFIB), ACA lawsuit, 385 National Federation of Independent Business v Sebelius, 385 National Flood Insurance Program (NFIP), 79, 572–573 financial challenges, 471 initiation, 466 National Flood Insurance Reform Act of 1994, 467–468 Nationwide Marine Insurance Definition (NAIC), 569 Needs analysis, 187–188 See also Disability risks chart, 191f approach, 191 lifestyles, relationship, 188 classification, 189–191 estimation See Accumulation need Need test, usage, 48 Negligence, 481 components, 482–483 damage cause, 485–488 defenses, 488 liability, 482 presence, 481–484 Net level premium, 246–247 policy reserves, 247t Net line (net retention), 153 Net payment cost index, 296–297 importance, 297 Net premiums, comparison, 227f Net single premium, 229, 244–246 computation process, 245 policy reserve, 247t New England Life, 73 Newly acquired auto, inclusion, 533 Newly Acquired Building extension, 556 Newly acquired business personal property, 556–557 Newly Acquired Premises Coverage, 566 No Benefit to Bailee provision, 444 No-fault concept, 519–524 No-fault fraud, 523–524 No-fault legislation, prospects, 524 No-fault states, cost experience, 523 No-load life insurance, 286 Nominator, 312 Nonadmitted assets, admitted assets (difference), 145–146 Nonadmitted insurer (unlicensed insurer), 74–75 Nonbuilding Replacement Cost, 459 Noncancelable health insurance policy, 358 Nonemployee crime coverages, 576–578 exclusions, 576–578 Nonforfeiture value, 228, 264–268 Non-highly compensated employees (NHCEs), eligibility, 322 Non-owned auto, 540 Nonowned automobiles clarification, 597 physical damage coverage, 541 Non-owned detached trailers, 557 Nonowner autos, physical damage, 540–541 Nonparticipating life insurance, 234 policies, availability, 294 Nonparticipating physicians, 392–393 Nonprofit organization employees, Section 403(b) plans, 323 Nonresidential condominiums, 573 Nonvariable annuities, variable distributions, 344–345 No provision health insurance policy, 358 Nuclear energy pools, 83 Nuclear exclusion, 502, 503 Nuclear hazard, 450 Nuclear Hazard clause, 444 Obligee, 47, 610 Occupational disease, 219 Occupational-nonoccupational disability, 352 Occupying, term (usage), 536 Occurrence-first-reported coverage, 593–594 Ocean marine insurance, 45, 568–569 average conditions, 569 perils insured, 568 valuation, 568–569 warehouse-to-warehouse clause, 569 Odds, consideration, 57–58 Offer and acceptance (enforceable contract requirement), 164–165 Office of Thrift Supervision (OTS), 84–85 AIG-FP regulation responsibility, 104 Off-premises theft exclusions, 453–454 Old-age benefits, 205 www.freebookslides.com SUBJECT INDEX Old-Age, Survivors, and Disability Health Insurance (OASDHI), 204–106 disqualifying income, 210–211 earnings, indexing, 207 financing, 206–207 low years, 207 program, Social Security Administration, 206 qualification requirements, 209 self-employment qualification, 205 Trust Funds, 214 Old-Age, Survivors, and Disability Health Insurance (OASDHI) benefits amount, 207 classes, 207–209 insured status, requirement, 210t loss, 209–211 taxation, 211–212 Old-Age, Survivors, and Disability Insurance (OASDI), 49, 350 benefits, increase, 340–341 system, impact, 401 Old-Age, Survivors, and Disability tax, application, 206 Omnibus Budget Reconciliation Act of 1990 (OBRA), 159, 393–394 Omnibus Budget Reconciliation Act of 1993 (OBRA-93), 409 1-8-26 formula, 352, 362 Open-peril coverage, 45, 457 dwellings/structures, 449–452 Open-peril exclusions, grouping, 452 Open rating systems, 110 Operational risk, 15 Optional insurance, 60 Ordinance or Law Enforcement coverage, 566–567 Ordinance or Law exclusion, 442–443 Organization position, 22–23 risk management, contribution, 21–22 Original equipment manufacturer (OEM), 542–543 Ostensible authority (apparent authority), 165 Other insurance, 167 Other-States Insurance, 585 Other suitable occupation, 354 Other than collision, designation, 539–540 Outboard Motor and Boat Policy, 474 Outdoor property, 557 Overseas Private Investor Corporation (OPIC), 79 Owned Motorized Golf Cart (Physical Loss Coverage Endorsement), 459 Ownership clause, 255 incidents, 195 Ownership of renewals, 82 Own occupation, 353 Own Risk and Solvency Assessment (ORSA), 104–105 Package modification factor, 578 Paid-up reduced amount, 266 Parameter, 37 Parcel Post Policy, 571 Parents, benefits, 209 Parol evidence rule, 177 Partial disability benefit, 355 residual disability, difference, 356 Partial permanent disability, 219, 220 Partial temporary disability, 219, 220 Participating life insurance, 234 contracts, availability, 294 Participating physicians, 392–393 Participating policy, innovations, 286 Participation rate, 277 Particular risk, Partitioned-portfolio IGM, 286 Pascal, Blaise, 56 Pascal’s wager, 56–57 Patient Protection and Affordable Care Act of 2009 (ACA) (Obamacare), 206, 380–386 criticisms, 384–385 future, 385–386 impact, 371 individual mandate, 381 large employer penalties, 381–382 Medicaid expansion, 381 objections, 384 PCIP funding, 377 small employer tax credit, 382 Paul v Virginia, 99–100 Pay-As-You-Drive program, 525 Pay-as-You-Go system, 213–214 Payoff matrix, 56 Payor clause, 285 PCS options, 157 Pension Benefit Guaranty Corporation (PBGC), 51–52, 320 establishment, 423–424 Pension fiduciary liability, 595 Pension Funding Equity Act of 2004 (PFEA-2004), 420 Pension plans amortization rules, 421 benefits, 325 commencement, 326–327 restrictions, 421 disability benefits, 326 distribution requirements, 326 funding agencies, 421–423 high-risk plan, 420 insured plans, 422–423 joint-and-survivor option, requirement, 326 legislation, impact, 417–418 liability valuation, 420–421 period-certain payments, 326 premature withdrawals, 327 qualification requirements, 418–420 Pension Protection Act of 2006 (PPA-2006), 318, 322, 407 impact, 417, 418 penalty-free withdrawal option, 327 Pension Relief Act of 2010 (PRA-2010), 420 I-15 Pensions, 417–423 funding, 420–421 maximization, 345–346 Performance bonds, 611 Peril, risk (difference), Perils of transportation, 571 Period certain, 260 Period-certain annuities, 310 Period-certain contract, 311 Period-certain payments, 326 Periodic payments (Social Security), 218 Permanent life insurance (benefit-certain contracts), 249 Permissible loss ratio, 130 Permit bonds, 611, 613 Permitted disparity (integration), 325 Permitted Incidental Occupancies, 500 Personal Articles Floater, 471 Personal Automobile Policy (PAP), 529–531 conditions, 543–545 coverage, 532 covered auto, 532–533 eligibility, 530 endorsements, 545–548 exclusions, 533–535 extended nonowned coverage, 545 legal liability, 530 liability coverage, 531–536 provisions, 535–536 supplementary payments, 535 liability exclusion, 533–535, 547 liability insuring agreement, 531–533 liability limits, 536 premium increases, 548t miscellaneous type vehicle endorsement, 546–548 motor home endorsement, 547 named non-owner policy, 545–546k out of state coverage, 535–536 parts, 531 physical damage coverage, 547 physical damage deductible credits, 549t policy format, 530–531 provisions, 544–545 snowmobile endorsement, 547–548 Your Covered Auto, 546–547 Personal contract insurance, 172 rule, application, 172 Personal injury liability endorsements, 506–507 Personal Injury Protection (PIP) coverage, 521 Personal inland marine floaters, 471 Personal liability, 496 coverage, 496–503 endorsements, 506 insurance, cost, 506 Personal-producing general agent (PPGA), 82 Personal property coverage, 437–440, 466 property, exclusion, 438–439 dollar limits, 439–440, 440t flood insurance, 469 www.freebookslides.com I-16 Personal property (continued ) open-peril coverage, 457 replacement cost, 438 Personal Property of Others, 555 Personal Property Replacement Cost Endorsement, 438 Personal risks, management objectives, 182–183 steps, 183 Personal savings, retirement funding source, 335–337 Persons insured, 496–497 Persons with children, lifestyles, 188 Philadelphia Contributorship for the Insurance of Houses from Loss by Fire, 73 Physical damage coverage, 513, 539–543, 547, 549 exclusions, 541–542 insuring agreement, 539–541 provisions, 542–543 Physical hazard, Pittman v West American Insurance Company, 174 Plate glass coverage, 562 Plumbing/heating, freezing, 454 Point estimate, 37 Point-of-service (POS) plans, 368 Policy construction, 178 Policyholders runs, 293 surplus, 146, 151 treatment, 65 Policy reserves, 105 Pollutant cleanup/removal, 556 Pollution liability insurance coverage, 594–595 Pooling, 154 usage, 35–41 Pool of money concept, 404 Poor and Distressed Widows and Children of Presbyterian Ministers, 73 Portability, 379 provision, 194–195 Portfolio average method, 286 Portfolio liability coverages, 594–595 Portfolio program, 553 Position schedule bonds, 574 Post-loss objectives, 24 Post Office insurance coverages, 79 Postretirement death benefits, 325 Postselection underwriting, 135–136 restrictions, 136 Predictive analytics, 524 usage, 137 Preexisting condition exclusions, limits, 379 Preexisting Condition Insurance Plan (PCIP), 377 Preferred Provider Organizations (PPOs), 367–368 plans, 396 Preferred risk, classification, 133 Pre-loss objectives, 24 SUBJECT INDEX Premature death, 290 discounted income flows, 184 present value, 184 time value of money, 184 Premature death, risk, 182 identification, 183 management, 183–196 measurement, 183–193 Premises and Operations coverage, 586 Premises, ownership/maintenance, 585–586 Premium, 129 provision, disability waiver, 270–271 waiver, 272 Premium nonparticipating rates, protection/cash values, 290t Premium reserve See Unearned premium reserve Premium taxes, 130 credits, 382 imposition, 158 Prepaid insurance premiums, 147 Preretirement death benefits, 325 Prescription Drug Benefit, 398f Prescription Drug Coverage (Medicare Part D), 397–399 Prescription Drug Plans (PDPs), 395, 397–399 formulary, 398 Prescription drugs, health insurance policies, 376 Present interest, 196 Present value, 184 See also Inflation-adjusted future income needs examples, 185t, 186t Presumptive disability, 356 Price fixing, 85 Primary beneficiary, 255 Primary care physician (PCP), 367 Primary insurance amount (PIA), 207–208 computation, 207 Principal, 47, 610 Principles-based reserving (PBR) system, 151 Prior approval system, 110–111 Prior dishonesty clause, 576 Priority rankings, 29, 60 Privacy, Gramm-Leach-Bliley Act (GLBA) impact, 108–109 Privacy of Consumer Financial and Health Information Model Regulation (NAIC adoption), 109 Private Fee-for-Service (PFFS) plans, 396–397 Private insurance (voluntary insurance), 44–47 history, 72–74 Private insurers classification, 74–80 usage, 122 Private passenger automobiles, 530 Private retirement plans, federal regulation, 317–318 Probability determination, 36–38 distribution, 37 estimate, measures, 38–40 estimation, accuracy, 40 odds, 57–58 rankings, 29 Probability theory, 36–41 Processing floaters, 571 Production, 128, 133 Products and completed operations coverage, 586 Professional liability, 500 insurance, 507–508 Profit and contingencies, allowances, 88, 89 Profit-sharing contract, 134 Profit-sharing plans, retirement funding source, 335 Property and liability companies, federal income taxes, 159–160 Property and liability distribution systems, 82 Property and liability insurance insurable interest, 167 reinsurance, 153–154 Property and liability insurers, 147–150 combined ratio, 150 expenses incurred, 148 incurred losses, 147 investment, results, 149–150 loss reserves, 148 operations, 148–150 underwriting profitability, indicator, 150 Property Casualty Insurers Associaton of America, 87 Property Claim Services, 157 Property collapse, 442 Property Coverage Form, 573 Property damage, 504, 566–567 Property insurance, 45–47 coverage, tailoring, 476–477 form, selection, 476 pricing/cost considerations, 475–476 purchase, 475–477 Property owners, obligations, 486–488 Property rates, regulation, 110–112 Property removal, 441 Property risks, Proportional coverage, excess-of-loss coverage (difference), 615 Proportional reinsurance, 153 Proposition 103 See California Prospective payment system (PPS), 400 Protection, 291, 568 floor, 214 Prudential Insurance Company of America, 313 Public adjuster, difference, 138 Public benefit guarantee programs, 44 Public choice theory of regulation, 97 Public finance insurance, 615 Public guarantee insurance programs, 51 Public guarantee programs, usage, 52 Public Law 15 (McCarran-Ferguson Act), 101 repeal, pressure, 113 Public official bonds, 611, 613 www.freebookslides.com SUBJECT INDEX Punitive damages, 484 Purchasing groups, 69 Pure captives, 67 Pure life annuities, period-certain annuities (difference), 310 Pure no-fault proposals, 520 Pure premium, 129 Pure risk, 6–7 classifications, 7–8 number/variety, increase, 8–10 Qualified Disabled and Working Individual (QDWI), 399 Qualified Health Plans (QHPs), 383 Qualified Individual (QI), 399 Qualified Medicare Beneficiary (QMB), 399 Qualified pensions distributions, taxation, 327–328 retirement funding source, 335 Qualified preretirement survivor, 325 Qualified profit-sharing plan, 321 Qualified retirement plans, 317–328 contributions/benefits, limitations, 323–324 employee contributions, savers tax credit, 325 employer promise, importance, 319–320 overview, 317–318 permitted disparity, 325 qualification requirements, 318 requirements, 323–325 types, 318–323 Quality, insurance competition, 89 Quantitative performance standards, 29–30 Quarters of coverage, 205–206 Quota share treaty, 153 Railroad retirement programs, 49 Rain insurance, 565 Randomness, 42–43 Rate, 129 individual rates, 130–131 level, adjustment, 131–132 types, 130–133 Rated policies (extra risk policies), 134 Ratemaking, 128–133 actuarial precision, legend, 132–133 catastrophe modeling, relationship, 132 concepts, 129–130 Rating modification, 131 types, 130–131 Rating bureaus, 100 Ratio plan, 233 Reasonable and customary basis, 375 Reasonable expectations, 177–178 Reasonable Repairs Additional Coverage, 441 Rebating, 107 Reciprocals, 76–77 Redetermination provision, 285 Redlining, 120–121 Reduced amount provision, paid-up policy, 266 Reduction See Risk technique, 17 Reentry provision, 231 Reformation, 173–174 Refrigerated Property Coverage Endorsement, 458 Regulation See Insurance regulation Rehabilitation benefits, 219, 221, 356 Reinstatement (life insurance contracts), 257 Reinsurance, 105, 152–158 characteristic, 152–153 excess-of-loss treaty, 154 functions, 154–155 pooling, 154 pools, 518 property and liability insurance, 153–154 risk-financing alternatives, 155–158 treaties, types, 153 Reinsurance Association of America (RAA), 87 Relative frequency interpretation, 36 Remaindermen, 195 Removal bonds, 612 Renewable at the company’s option health insurance policy, 358 Renewable term life insurance net premiums, comparison, 227f policies, 230 Renewals, ownership, 82 Rental unit coverage, 457 Rental value, 563 Repetitive loss structure, 469 Replacement Cost Option, 555 Replacement Cost Settlement for Certain Non-Building Structures, 459 Replevin bonds, 612 Reporting forms, 561–562 Reputational risk, 15 Reserves, 146 accumulation (cash value policies), 248f regulation, 105 Residential property, limits (Federal Flood Insurance Program), 467t Residual disability benefit, 355–356 definitions, types, 355 partial disability, difference, 356 Residual-risk pools, 85–86 Res ipsa loquitur, 483–484 Resource-Based Relative Value Schedule (RBRVS), 393, 400 Respite care benefits, 392, 404 Respondeat superior, 485–486 Respondentia contracts, 72 Retention See Risk; Unemployment selection, considerations, 61–62 usage, 17 Retired lives reserve, 415 Retirement accumulation outliving, risk, 197 planning, 337, 341–343 I-17 aggregate need, estimation, 338–339 annuities, investment usage, 315–316 benefits, 207–208 distribution minimum option, 344 planning, 337, 343–346 requirement, 343–344 taxes, relationship, 339t example, 340–341 funding, sources, 335–337 inflation-adjusted retirement need projection, 341t inflation, effect, 340 joint-life annuities, 345 life annuities, installment distributions, 344 needs estimation, 337, 338–341 increase, expectations, 338–339 noncontributory plans, 317 pension maximization, 345–346 plan, construction, 337–346 planning process, overview, 334–337 resources, inventory, 339 single annuities, 345 unmet need, summarization, 339–340 variable annuity, variation, 344 variable distributions, 344–345 Retirement Equity Act of 1984, 326 Retirement plans, 317 See also Qualified retirement plans death benefits, 328 estate taxes, 328 income taxes, 327–328 installment distributions, 327 loan transactions, limitations, 328 lump-sum distributions, 327–328 Retirement risk, 196 alternatives, 334 causes, 334 impact, 361 overview, 333–337 transfer, usage, 334 types, 334 Retrospective premium, calculation, 141 Retrospective rating, 131 formula, 141–142 plans, 141 Return-of-cash-value policy, 282–283, 282f Return-of-premium policy, 282–283, 283f Revenue Ruling 2002-89, 68 Revenues, expenses (matching), 146 Reversionary annuity, 312 Reversionary life insurance policy, 312 Revocable beneficiary designation, 255 Riot/civil commotion, coverage, 452–453 Risk analysis questionnaires, 27 assumption, 488 avoidance, 18 burden, characteristics, 58–59 classifications, 5–8 concept, 1–8 control, 18 decision making, 55 www.freebookslides.com I-18 Risk (continued ) definition, 2–3 degree, 4–5 documents, analysis, 26–27 evaluation, 28–29, 30–31 managerial control, 30 exposures, identification, 25 failure, impact, financing, 18–20 cost, 62 decisions, tax considerations, 62 flowcharts, usage, 27 hazard, difference, identification techniques, 26–27 impact, 42 loss, 57 manager job, 22–23 term, usage, 13 peril, difference, priority ranking, severity basis, 28 probability/priority rankings, 29 quantitative performance standards, 30–31 reduction, 18 See also Unemployment pooling, usage, 35–41 special cases, 59 retention, 19 decision, implementation, 30 review, 30–31 managerial control, 30 sharing, 34–35 shift, 34 transfer, 19–20, 34–35 treatment device, selection, 29–30 uncertainty, relationship, Risk and Insurance Management Society (RIMS), 15 Risk-based capital (RBC) requirements, 103 standards, NAIC development, 104 Risk identification approaches, combination, 28 expert systems, usage, 28 internal communication system, usage, 27 tools, 27–28 Risk management, 10 audits, 31 business function, 20–23 decisions, 54–59 decision theory, impact, 55–57 defined, 16–17 history, 13–15 individual, relationship, 24 insurance management, difference, 20–21 misconceptions, 23 objectives, determination, 24 organization contribution, 21–22 policy, 25 sample, 26f primary objective, 25 problems, 291 process, 24–31 rules, 57 SUBJECT INDEX Risk Retention Act of 1986, 68–69, 112 Risk Retention Acts, provision, 67 Risk retention groups, 67, 68–69 formation, 112 Risk-sharing pools, 69 Rollovers (Section 1035 exchanges), 303–304 tax-free rollovers, 303 Roth IRA, 330–331 contributions, 324–325 distributions, 327–328 Rules-based system (life insurer regulation), 150–151 Safeco Insurance Company v Gonacha, 174 Sales floaters, 571 Sample statistic, 37 SAR-SEP plans, Roth contributions, 324–325 Savings incentive match plan for employees (SIMPLE) IRAs, distributions, 327 plans, 323 Savings plans, 321 Schedule bonds, 574 Scheduled Personal Property Endorsement, 438, 459, 471–472 Scheduled premium (planned premium), 275 Schedule rating, 130–131 Secondary dependencies, 564 Secondary guarantees, 276–277 Secondary market expansion, life insurance industry opposition, 300 Second-injury funds, 221 Second-surplus treaties, 153 Second-to-die policy, 280 Section 401(k) plans (cash plans) (deferred plans), 321 contributions, 336 Roth contributions, 324–325 Section 403(b) plans, 323 Roth contributions, 324–325 Section 457 plans, 322 Section 1035 exchanges (rollovers), 303–304 Securities and Exchange Commission (SEC) qualification requirements, 233 Rule 151A, 316 Securities Investor Protection Corporation (SIPC), 51 Securities Valuation Office (SVO), 105 Security-type law, 515 Self-directed annuities, 314 Self-employed persons, tax rate, 206 Self-insurance, 43–44, 66–67 disadvantages, 66–67 reasons, 66 Senior Professional Public Adjuster (SPPA), 138 Senior Protection in Annuity Transactions Model Regulation (NAIC), 316–317 Service-Disabled Veterans Insurance Program, 238 Servicemen’s and veterans’ life insurance, 79 Servicemen’s Group Life Insurance (SGLI), 238 Settlement options, 258–262 Seven-pay test, 284 Shared markets, 118 participation, 86 Short-term disability coverage, long-term disability coverage (difference), 350 Sickness, definition, 353 Sidecars, 157 Significant loss of earnings, 354 SIMPLE See Savings incentive match plan for employees Simplified employee pension (SEP) plans, 322 maximum employer contribution, 324 Single annuities, 345 Single Employer Pension Plan Amendments Act of 1986 (SEPPAA), 424 Single individual, lifestyles, 188 Single life annuities, joint life annuities (difference), 309–310 Single life, life income payments, 261t Single-premium annuities, installment annuities (difference), 309 Single-premium deferred annuity (SPDA), 311–312 Single-premium life policy, 283–284 Sinkhole collapse, 458 Skilled nursing facility care, 391 Small Business Administration (SBA) Surety Bond Guarantee Program, 79 Small Business Job Protection Act of 1996 (SBJPA), 323 Small-company deduction, IRC permission, 159 Small employer tax credit, 382 Smoke damage, coverage, 453 Snowmobile endorsements, 507, 547–548 Snowmobile Policy, 546 Social insurance, 47–50 coordination, 357 defined, 47–50 device, 48 insurance, qualification, 50 substitute rider, 357 supplement rider, 357 U.S programs, 49 Social pricing, 119 cost-based pricing, difference, 120 Social rating idea, 119 opposition, 119–120 Social Security, 204–205 Advisory Council on Social Security, report, 215–216 bailout plan, 213 beneficiaries, funding, 334 benefits www.freebookslides.com SUBJECT INDEX excess, 212 levels, changes (proposals), 214–215 reduction, 211 change, proposal, 214–215 contribution, 213 cost-of-living adjustments (COLAs), determination, 214–215 eligibility, 205–206 financing, changes (proposal), 214 freeze, 353 partial indemnity, 218 Pay-as-You-Go system, 213–214 periodic payments, 218 privatization, 215 program cost, 218 soundness, 212–216 qualification requirements, 205–206 retirement benefits, 317 funding source, 335 self-supporting program, 212–213 strengthening, commission, 216 Social Security Act of 1935, 200, 389 Title XIX, 371–372 Social Security Trust Funds, 401 Solvency Modernization Initiative (SMI), 102 Solvency regulation, 102–107 South-Eastern Underwriters Association (SEUA) case, 101, 113 Special Computer Coverage Endorsement, 459 Special damages, 484 Specialized annuities, 311–315 Specialized life contracts, 279–286 Specific-account coverage, whole-turnover coverage (difference), 614–615 Specific insurance, 561 Specific stop-loss, 416 Specified Low-income Medicare Beneficiary (SLMB), 399 Speculative risk, 6–7 Spendthrift clause, 273–274 Split-dollar plan, 428–429 Split funding, 421 Spoilage Coverage, 558 Spoilage damage, 567 Spousal impoverishment restrictions, 408–409 Spouses, benefits, 208 SR-21, 515 Standard and Poor’s 500 (S&P500) index, 312 Standard annuity payments, 345t Standard Flood Insurance Policy, Dwelling Form, 468 Standard Nonforfeiture Law, 265 Standard Property Policy, 562 Standard terminations, 424 Standard Valuation Law (NAIC), 150–151 Standard Voluntary Compensation and Employers Liability Coverage Endorsement, 585 State average weekly wage (SAWW), 220 State Children’s Health Insurance Program (state CHIP), 372 State compulsory temporary disability funds, 50 State Farm Mutual Automobile Insurance Company v Campbell, 485 State financial responsibility limits, 516 State health insurance plans, 87 State insolvency funds, 106 State insurance regulation continuation, 115 federal insurance regulation, difference, 113–116 modernization, NAIC effort, 115–116 public choice, 116 support, arguments, 114 State insurer insolvency funds, 52 Statement of Financial Accounting Standards (SFAS) No 158, 425 State premium tax, 158–159 State private (voluntary) insurance programs, 80 State Public Guarantee Insurance Programs, 52 States of nature, 55 State unemployment insurance programs, 200 State unemployment laws, benefits, 201 State workers compensation laws, 218–221 Static risk, 5–6 Statutory accounting admitted assets, nonadmitted assets (difference), 145 assets, valuation, 145–146 GAAP, difference, 145–146 policyholder’s surplus, 146 requirements, 144–146 reserves, 146 revenues, expenses (matching), 146 system, 144 terminology, 146 Statutory benefits, 502 Statutory profit/loss (underwriting results), 148–149 Stipulated authority (express authority), 164 Stop-loss insurance, 416 Storage floaters, 571 Straight life income option, 260 Straight whole life insurance, 231 Stranger-owned life insurance (STOLI), 299–300 Strategic risk, 15 Structured finance insurance, 615–616 Structures, exclusions, 451–452 Subjective interpretation, 36 Subrogation, 167, 171–172, 446 clause, 171 Subsidies, income redistribution effects, 122 Substandard risks, 134 Sudden/accidental damage, coverage, 454 Sudden/accidental tearing, coverage, 454 Suicide clause, 258 I-19 Suitability in Annuity Transactions Model Regulation (NAIC), 317 Superannuation, 181, 290 Supplemental Security Income (SSI), 372 Supplementary contracts, reserves, 151 Supplementary Medical Insurance (Medicare Part B) (SMI), 389, 392–393 Trust Fund, 401 Supply contract bond, 611 Surety, 610 Surety bonds, 610–614 risk transfer device, 47 Suretyship, insurance (difference), 610–611 Surplus line treaty, 153–154 Surrender cost index, 296 importance, 297 Surrender provisions cash option, 265–266 extended term insurance, 266–267 operation, 265–266 paid-up reduced amount, 266 Survivor income benefit insurance (SIBI), 415 Survivors benefits, 205 death benefits, 219 Survivorship annuities, 312 Survivorship whole life policy (second-to-die policy), 280 Sustainable Growth Rate (SGR), 400 Systemically important financial institutions (SIFIs), 107 Systemic risk, Taxable estate, 194, 195 Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 418–419 top-heavy plans, 419–420 Taxes health care costs, relationship, 377 retirement distributions, relationship, 339t Tax-free exchanges, 303 Tax-free rollovers, 303 Tax-qualified long-term care insurance (TQ-LTCI), 406 Tax Reform Act of 1976 (TRA-76), 194 Tax Reform Act of 1986 (TRA-86), 159–160, 284, 311 Tax Reform Act of 1997 (TRA-97), 328 Teachers Insurance and Annuity Association of America (TIAA), 313 Technical and Miscellaneous Revenue Act of 1988 (TAMRA), 284 Technical Mapping Advisory Council, creation, 471 Technical provisions, 105 Telematics, 524–525 Temporary life annuity, 308 Terminal reserve, 247 Termination As to Any Employee policy condition, 575–576 www.freebookslides.com I-20 Term life insurance, 225, 230–231 advantages/disadvantages, 231 cash value insurance, difference (reasons), 226 conversion privileges, 231 extended term insurance, 266–267 purchase, 290–291 pure insurance protection, 226 renewal, variations, 231 Term to expectancy, 230 Testamentary trust, 195 Theft, coverage, 453, 455–456 Third-party administrator (TPA), retention, 416 Third-party coverage, 495 Thrift plans, 321 Time clause (disaster clause), 273 Time value of money, 184 Title insurance, 477–478 Too big to fail (TBTF), 106–107 Top-heavy plans, 418, 419–420 requirement, 420 Torrens system, 478 Tort, 481 Tort actions, survival, 490 Tort feasor, 481 Tortious behavior, 481–490 Tort system, changes, 490–492, 519–524 Total disability, payments, 355–356 Total permanent disability, 219, 220 Total temporary disability, 219–220 Trade association insurance companies (TAICs), 67 Trade credit insurance, 46, 614–616 Trade profit, 150 Traditional IRAs, 329–330 Traditional risk management, 16 Trailer interchange, 601 Transfer See Risk usage, 17, 334 Transfer or Surrender of Property exclusion, 577 Transportation coverages, 568–572 ocean marine insurance, 568–569 periods insured, 568 valuation, 568–569 Transportation expense, 543 Transportation insurance, 553 Transportation/Moving Endorsement, 466 Travelers Insurance Company, 73 Trend factor, 132 Trespassers, 487 TRICARE programs, 372–373 Trucking, 600–602 leasing, 601 Trust estates, bonds, 612 Trust fund plans, 421–422 Trusts, 195–196 corpus, 195 Twisting, 108 Two-tier annuity, 312 Uberrimae fidei (utmost good faith), legal principle, 173 Umbrella, 604 SUBJECT INDEX Umbrella liability coverage, 604–607 policy, 508–510, 605–607 cost, 510 coverage, 606 exclusions, 509 Unallocated funding instruments, 422 Unbundling, 67 Uncertainty, risk (relationship), Underinsured motorist coverage, 539 Underwriting, 128, 133–137 agents information, 135 role, 134 application, 135 broker information, 135 credit information, usage (regulation), 137 credit scoring, 136–137 disability income insurance, 351 external agency information, 135 Fair Isaac Corporation (FICO) scores, 136 physical examinations/inspections, 135 policy, 134 postselection underwriting, 135–136 restrictions, 136 predictive analytics, usage, 137 process, 134–135 profitability, indicator (combined ratio), 150 results (statutory profit/loss), 148–149 trade profit, 150 Underwriting syndicates, 83 Unearned Income Medicare Contribution Tax, 206 Unearned premium reserve, 105, 147 Unemployment benefits, eligibility, 200–201 insurance, 49 programs See State unemployment insurance programs programs, 49 retention, 201 risk management, 200–201 risk reduction, 201 Unfair Trade Practices Act, 107–108 Uniform Accident and Sickness Policy Provisoin Law (UPPL) (NAIC), 358 Uniform Simultaneous Death Act, 273 Unilateral contract, insurance, 172 Unimportant risks, 28 Uninsured boaters coverage, 475 Uninsured locations, 504–505 Uninsured Motorist Coverage, 550 payment limitations, 538 Uninsured Motorist Property Damage (UMPD), 537 Uninsured motorists coverage, 513, 537–539 persons, insurance, 538 settlement, basis, 538–539 Uninsured motorists exclusions, 538 Uninsured motorists insuring agreement, 537–539 Uninsured premises, exclusions, 500–501 Unintentional torts, 481 United States health insurance, historical development, 366–368 insurance, 73–74 life insurance, existence, 237t monoline organization, 74 social insurance programs, 49 total life insurance, existence, 237 United States Postal Service (USPS), insurance sale, 79 Unit-owner’s building items, open-peril coverage, 457 Universal life (UL) insurance, 225, 232 amount, changes, 275 applicable percentage, 276 benchmarks, 301–302, 302f costs, factors, 301 death benefit options, 276f death benefit provision, 275–276 development, 293 interest, 301 loading, 301 mortality, 301 policy provisions, 274–277 provision, premium/cost, 274–275 purchase, 301–302 secondary guarantees, 276–277 Unlicensed insurer (nonadmitted insurer), 74–75 Unmet disability income needs, 199 Unpaid claims, reserves, 151 Unrated bonds (junk bonds), 293 Unsatisfied judgment funds, 52 Unscheduled premium, 275 Untaxed earnings, accumulation, 292 Unwritten law, 177 Upside-down life insurance, 307–308 Urgency deficit, countering, 337 U.S Longshoremen’s and Harbor Workers’ Compensation Act (LHWCA), 585 Usual, customary, and reasonable (UCR) charges, 373 Utility function, 55 Utility interruption, 567 Utility theory, 55 Utmost good faith (insurance), 173 Vacant land, 501 Valued policies (insurance contracts), 169 Valued policy laws, 170 Value maximization objectives, 24–25 Value papers insurance, 572 Vandalism/malicious mischief, coverage, 453 Variable annuities, 309, 312–315 function, 314 guaranteed benefits, 315 history, 313 operation, 313–314 variation, 344 Variable Annuity Life Insurance Company (VALIC), formation, 313 www.freebookslides.com SUBJECT INDEX Variable life insurance, 225, 232–233 benchmarks, 301–302, 302f costs, factors, 301 interest, 301 loading, 301 mortality, 301 purchase, 301–302 ratio plan, 233 Variable premium life insurance, 285 Variable universal life (VUL) insurance, 225, 233 Vehicles, coverage, 453 Verbal threshold, usage, 522 Vested-in-the-public rationale, 98 Vesting minimum standards, 323t requirements, 323 Veterans’ Group Life Insurance (VGLI), 238 Veterans’ Life Insurance, 238 Veterans’ Mortgage Life Insurance Program, 238 Viatical settlement, 299 Viatication, 407–408 Vicarious liability, 485–486 automobile, 513–514 Voidable contract, 166 Voidable, term (usage), 166 Void, term (usage), 166 Volcanic Eruption coverage, 454 provision, 445 Voluntary Compensation Insurance, 585 Voluntary insurance (private insurance), 44–47 Waiver or Change-of-Policy Provisions, 445 Waivers, 176–177 War clause, 258 Warehouse-to-warehouse clause, 569 Warranties, 175–176 Water Back and Sump Overflow, 458–459 Water Back Up and Sump Discharge or Overflow endorsement, 450 Watercraft endorsements, 507 insurance, 474 liability, 474–475, 498 Water exclusion, revision, 449–450 Weak no-fault states, 523 Whole-life insurance, 225, 231–232 graded-premium whole life insurance, 283 modified whole life insurance, 283 net premiums, comparison, 227f policy payment, 248 reserve, increase, 228f I-21 Widows/widowers, benefits, 208–209 Windstorm/hail, coverage, 452 Wisconsin State Life Insurance Fund, 238 Without Extra Expense form, 563–564 Workers compensation, 49, 216–221, 495, 553, 583–585 assigned-risk pools, 85 benefits, 219–221 bond, 613–614 common-law defenses, severity (softening), 217 disability provision, 357 historical background, 216–217 injuries, coverage, 219 insurance, 46, 583–584 laws passage, 217 rationale, 217 liability, determination, 217–218 principles, 216, 218–219 state laws, 218–221 statutory benefits, 502, 503 Write-Your-Own Program, 466 Written contracts, interpretation, 177 Yearly price per $1000 of protection (YPT), 301–302 Your Business Personal Property, definition, 555 Your Covered Auto, redefinition, 546–547 ... Definition of Risk Uncertainty and Its Relationship to Risk The Degree of Risk Risk Distinguished from Peril and Hazard Classifications of Risk The Burden of Risk The Growing Number and Variety of Pure... OF THE SUBJECT As the title indicates, Fundamentals of Risk and Insurance is about risk and about insurance Its objective is to summarize the pervasive nature of pure risk on the individual and. .. the insurance product and the use of insurance within the risk management framework The traditional fields of life insurance, health insurance, property and liability insurance, and social insurance