Term
marketing is achieved by advertising through the mail, in
newspapers and magazines, on television and radio and the internet. If
someone is interested in the advertised products, he/she will respond to
the company for more information. Mass marketing is a cost effective
method of distribution and may achieve efficient market penetration. |
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Definition
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Term
Agents are appointed by insurers and solicit
applications on behalf of insurers. Agents may be either exclusive or
independent. The major of policies are sold using the agency
system. |
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Definition
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|
Term
is a variation of industrial life insurance.
Industrial life insurance policies are small policies essentially to cover a
person’s last expenses. The agent is responsible for servicing the policies
and must personally collect the premiums on a weekly or monthly basis
and provide the client with a written receipt. The major difference with
home service life is that the face amount is larger. It normally is written
for amounts of $10,000 or $15,000 and the premiums are either debited
from a bank account or mailed. |
|
Definition
| home service life insurance |
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Term
A life agent and a fire and casualty
broker/agent shall provide to all insureds or applicants at the time of application
or receipt of premium moneys the effective date of coverage, if known, or the
circumstances under which coverage will be effective if there exists conditions
precedent to coverage. This section applies only to coverage for personal lines
of insurance, such as private passenger automobile, homeowner and renter
insurance, personal liability, and individual disability and health insurance. |
|
Definition
| Effective date of coverage: |
|
|
Term
(a) Acting as agent for a non-admitted insurer in the transaction of
insurance business in this State.
(b) In any manner advertising a non-admitted insurer in this State.
(c) In any other manner aiding a non-admitted insurer to transact
insurance business in this State. (CIC 703) |
|
Definition
| aiding non admitted insurer to transact |
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|
Term
Any person may negotiate and effect insurance to protect
himself, herself, or itself against loss, damage, or liability with any non-admitted
insurer.
The rules limiting the insurance which may be place with non-admitted
insurers do not apply to:
(1) Reinsurance of the liability of an admitted insurer.
(2) Insurance against perils of navigation, transit or transportation upon
hulls, freights or disbursements, or other shipowner interests; upon
goods, wares, merchandise and all other personal property and
interests therein, in course of exportation from or importation into any
Chapter 23
Insurance Code
10
country, or transportation coastwise, including transportation by land
or water from point of origin to final destination and including war risks;
and marine builder’s risks, drydocks and marine railways, including
insurance of ship repairer’s liability, and protection and indemnity
insurance, but excluding insurance covering bridges and tunnels.
(3) Aircraft insurance.
(4) Insurance on property or operations of railroads engaged in interstate
commerce. |
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Definition
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Term
|
Definition
An applicant for an insurance license must submit (1)
the Department of Insurance application form, (2) fees, and (3) certificates
showing completion of the necessary course material. When applying as a lifeonly
agent or an accident and health agent, the candidate must complete 20
hours of the material applicable to the license as well as 12 hours on code and
ethics. If applying for a life-only/accident and health license, 40 hours of course
material must be completed in addition to the 12 hours on code and ethics. The
property/casualty (also called fire and casualty) agent, solicitor, and broker must
complete 40 hours of material regarding the lines of insurance they may sell as
well as 12 hours of code and ethics. |
|
|
Term
|
Definition
An application on a form prescribed by the
commissioner for the renewal of a license filed on or before the last day of the
period for which the previous license was issued, accompanied by the renewal
fee, shall entitle the applicant to continue operating under the existing license for
60 days after its specified expiration date or until notified by the department of
insurance that the renewal application is deficient. |
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Term
| Printing license number on documents and advertisements |
|
Definition
Every licensee shall prominently print his license number on business cards,
written price quotations for insurance products, and printed advertisements for
insurance products distributed exclusively in California. The license number
must be printed in the same size type as any telephone number, address, or fax
number. If the licensee maintains more than one organization license, one of the
organization license numbers is adequate for compliance. |
|
|
Term
|
Definition
A person who is licensed in this state as
an insurance agent or broker, advertises insurance on the Internet, and transacts
insurance in this state, shall identify all of the following information on the
Internet, regardless of whether the insurance agent or broker maintains his/her
Internet presence or if the presence is maintained on his/her behalf:
1. His/her name as it appears on his/her insurance license and any
fictitious name approved by the commissioner.
2. The state of his/her domicile and principal place of business.
3. His/her license number |
|
|
Term
|
Definition
Licensees are subject to continuing education
requirements. All licensees are required to complete 24 hours of continuing
education per two-year license term. An agent who holds both a life-only and/or
accident and health license and a property/casualty license needs only to
complete 24 hours of continuing education per two-year licensing period and may
take subjects relating to either license. (CIC 1749.3) A license year upon initial
licensing starts on the date the license is issued. After that, each license year
starts the first day of the month following the month in which the initial license
was issued. A license year ends the following calendar year on the last calendar
day of the month in which the initial license was issued. A license term is for two
years. (CIC 1629-1630) |
|
|
Term
|
Definition
The written instrument, in which a contract of insurance is set
forth, is the policy. |
|
|
Term
| Required contents: A policy shall specify |
|
Definition
(a) The parties between whom the contract is made.
(b) The property or life insured.
(c) The interest of the insured in property insured, if he is not the absolute
owner thereof.
(d) The risks insured against.
(e) The period during which the insurance is to continue.
(f) Either:
(1) A statement of the premium, or
(2) If the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis
and rates upon which the final premium is to be determined and paid. (CIC
381)
The financial rating of the insurer is not required to be specific in the insurance
policy. |
|
|
Term
the neglect to communicate that
which a party knows and ought to communicate. Whether or not concealment is
intentional or unintentional, the injured party has the right to rescind the
insurance contract. Rescission means the contract is made null and void. All
parties to a contract shall communicate in good faith all information believed to
be material to the contract.
Each party to the contract must: (1) communicate in good faith with one
another; (2) disclose all facts of which the party has knowledge and which are of
importance to the contract; and (3) identify all facts that the party cannot warranty
and of which the party has no means to ascertain. |
|
Definition
|
|
Term
to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the
proposed contract, or in making his inquiries. (CIC 334 |
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Definition
|
|
Term
is a statement to the best knowledge and
belief of the party making the statement. A representation can be written or oral.
The language of a representation is to be interpreted by the same rules as a
contract in general. A representation as to the future is a promise, unless it is
merely a statement of belief or an expectation. A representation cannot qualify
an express provision in a contract of insurance, but it may qualify an implied
warranty. A representation may be made at the time of, or before, issuance of
the policy. A representation may be altered or withdrawn before the insurance is
effected, but not afterwards. (CIC 355) The completion of the contract of
insurance is the time to which a representation must be presumed to refer. |
|
Definition
|
|
Term
Neither party to a contract of insurance is bound to communicate,
even upon inquiry, information of his own judgment upon the matters in question. |
|
Definition
|
|
Term
a false oral or written
statement made with the intent to defraud another. An insurer or an insurance
Chapter 23
Insurance Code
22
licensee shall not cause or permit to be issued, circulated or used, any
misrepresentation of the following:
(1) The terms of a policy issued by the insurer or sought to be
negotiated by the person making or permitting the
misrepresentation.
(2) The benefits or privileges promised thereunder;
(3) The future dividends, payable thereunder. (CIC 780) |
|
Definition
|
|
Term
A person shall not make any representation or comparison of insurers
or policies to an insured which is misleading, for the purpose of inducing or
tending to induce him to lapse, forfeit, change or surrender his insurance,
whether on a temporary or permanent plan. (CIC 781)
Any person violating the rules regarding misrepresentation or twisting may
be fined up to $25,000 or in a case in which the loss of the victim exceeds
$10,000, by a fine not exceeding three times the amount of the loss suffered by
the victim, by imprisonment in a county jail for a period not to exceed one year, or
by both a fine and imprisonment. |
|
Definition
|
|
Term
a guaranteed truth. Warranties are either express or
implied. A statement in a policy of a matter relating to the person or thing
insured, or to the risk, as a fact, is an express warranty thereof. An implied
warranty is a statement, not in writing, that insurable conditions exist. An implied
warranty is included in the policy even though not specifically stated in it. A
representation in an insurance contract qualifies as an implied warranty. |
|
Definition
|
|
Term
To rescind a contract is to terminate or void the contract. The
policy is considered null and void from the beginning and treated as if it had
never existed. As noted above, a wronged party has the right to rescind the
contract when there has been a material concealment whether intentional or
unintentional (CIC 331), an intentional and fraudulent omission proving the falsity
of a warranty (CIC 338), a material false representation (CIC 359), or a violation
of a material warranty or other material provision of a policy (CIC 447). |
|
Definition
|
|
Term
The insurance industry is subject to
the laws of California which apply to all types of business, including, but not
limited to, the Unruh Civil Rights Act, anti-trust, and unfair business practice laws.
The purpose of the rules regarding unfair practices is to define and regulate trade
practices in the business of insurance that are considered to be unfair, deceptive,
or misleading. These provisions apply to all types of insurers and to all
producers engaged in the insurance business. No one may engage in any
practice that is prohibited by law or that is considered to be an unfair method of
competition or an unfair or deceptive trade practice in the business of insurance. |
|
Definition
|
|
Term
-misrepresentation
-Untrue or deceptive information about a person engaged in
insurance
-Boycott, coercion, intimidation
-Filing false financial statement
-False entries
-Unfair discrimination
-Advertising membership in the state’s Guarantee Association
-Unfair claims practices |
|
Definition
|
|
Term
the termination of coverage by an insurer during a policy
period. It does not mean the termination of the contract at the request of the
policyholder. |
|
Definition
|
|
Term
refers to policy termination due to non-payment of the premium by
the policyholder. A policy will lapse at the end of the grace period, which is a
period of time after the premium due date, during which the policy remains in
force without penalty. |
|
Definition
|
|
Term
refers to continued coverage under the policy for an additional
period of time upon expiration of the current policy period. |
|
Definition
|
|
Term
|
Definition
refers to the giving of notice by the insurer to the policyholder
that the insurer is unwilling to renew a policy. |
|
|
Term
An insurance company or agent must
provide a notice of information practices to all applicants or policyholders (1)
when the policy is delivered if the only information to be used is collected from
the applicant, insured or public records or (2) at the time of application if personal
information will be collected from any source other than the applicant, insured or
public records.
The notice must be in writing and must state:
1. Whether personal information may be collected from persons other
than the applicant proposed for coverage.
2. The types of personal information that may be collected and the
types of sources and investigative techniques that may be used to
collect the information.
3. The circumstances under which the disclosures may be made
without prior authorization.
4. A description of the applicant’s rights and the manner in which
those rights may be exercised.
5. That information obtained from a report prepared by an insurance
support organization may be retained by the insurance support
organization and disclosed to other persons. |
|
Definition
| notice of information practices |
|
|
Term
forms or statements with which a person
authorizes personal or confidential information about him to be disclosed. This
authorization must:
1. Be written in plain language.
2. Be dated.
3. Specify the types of persons authorized to disclose information (i.e.
friends, neighbors, employer).
4. Specify the nature of the information authorized to be disclosed
(habits, personal traits).
5. Name the insurance institution or agent to whom the individual
authorizes information to be disclosed.
6. Specify the purposes for which the information is collected (e.g. to
underwrite an application for insurance).
7. Specify the length of time for which the disclosure authorization is
valid. The maximum length of time for life, health or disability
insurance is 30 months and one year for property and casualty
insurance.
8. Advise the individual that he is entitled to receive a copy of the
authorization form.
9. This section shall not be construed to require any authorization for
the receipt of personal or privileged information about an individual. |
|
Definition
| Disclosure authorizations |
|
|
Term
An individual
may request that the information be corrected, amended, or deleted. The
individual must provide the facts to support the request. Within 30 days of
receiving the request, the insurance company, agent, or insurance support
organization must (1) correct, amend or delete the portion of record information
in dispute or (2) notify the individual that it will not make the alteration in the
record, giving the reasons for that refusal and notify the individual of his right to
file a statement. |
|
Definition
|
|
Term
The commissioner has the right to examine and investigate
every insurance organization or agent doing business in the state to determine if
the privacy laws have been violated. If the commissioner has reason to believe
that the law is being violated, he may serve notice and conduct a hearing into the
allegation. An insurance support organization transacting business outside of the
state, which has an effect on a person residing in California, is deemed to have
appointed the commissioner to accept service of process on its behalf, provided
that the commissioner sends a copy of the service by registered mail to the
insurance support organization. |
|
Definition
|
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Term
The Financial Modernization Act of 1999,
know as the “Gramm-Leach-Bliley Act” or GLB Act, has provisions to protect
consumers’ personal financial information held by financial institutions. There
are three main parts to the privacy requirements. They are (1) the Financial
Privacy Rule, (2) Safeguard Rule, and (3) pretexting provisions. |
|
Definition
|
|
Term
The intent of this act is to afford greater privacy protections than those
Chapter 23
Insurance Code
30
provided by the GLBA (Gramm-Leach-Bliley Act). It unites the federal GLBA with
the Insurance Information Privacy and Protection Act (IPPA) contained in the
insurance code. Enacted in 2003, Cal-GLBA’s biggest impact is the required
implementation of greater “opt-out/opt-in” choices with enhanced privacy
requirements.
Selling or sharing information Opt-In Opt-Out
with outside company
Selling or sharing with affiliates Opt-Out No-Opt
and subsidiaries
Sharing between 2 financial Opt-Out No-Opt
institutions jointly offering a
financial product
Sharing to complete a transaction No-Opt No-Opt |
|
Definition
| California Financial Information Privacy Act |
|
|
Term
HIPAA was
enacted in 1996 and affects almost all healthcare providers. This law defines
that the information in client files belongs to the client and must be protected.
HIPAA has made sweeping changes in the way that medical information is
handled and protected.
HIPAA, in general, is designed to make health coverage more portable for
individuals who change jobs or health plans by limiting the coverage exclusions
that can be imposed when such a change occurs |
|
Definition
| Health Insurance Portability and Accountability Act (HIPAA) |
|
|
Term
A fiduciary is a person who is in a
position of financial trust.
1. All funds received by a person who holds any kind of insurance license
as agent, broker, or solicitor are received and held by that person in a
fiduciary capacity (position of trust).
2. A licensed person who receives fiduciary funds (a) must remit premiums,
minus commissions, and any return premiums received or held by him/her
to the insurer or entity entitled to get them or (b) must maintain the
fiduciary funds on California business in a trustee bank account or
depository in California separate from any other account, in an amount at
least equal to the premiums and return premiums, less commissions,
received by him which have not yet been paid to the persons entitled to
them.
3. Fiduciary funds which have not yet been remitted and which are not held
in a trust account can be invested in the following instruments:
U.S. government bonds and treasury certificates or other
obligations backed by the federal government.
Certificates of deposit of banks and savings and loan associations
licensed by the federal government or any state government.
Repurchase agreements collateralized by U.S. government
securities.
4. As a condition to maintaining the funds in one of the investment accounts,
a written agreement must be obtained from each and every insurer or
person entitled to the funds authorizing the maintenance and retention of
earnings which accrue on the funds.
5. Evidence of the funds must be maintained on California business by a
bank or savings and loan association in a trust account separate from any
other account or depository in an amount at least equal to the premiums
and return premiums, minus commissions, which have not yet been paid
to the insurer or entity entitled to them. The commissioner shall not have
jurisdiction over any disputes arising between parties concerning the
maintenance of fiduciary funds.
6. A managing general agent must comply with all regulations concerning
deposit, maintenance, and remittance of fiduciary funds. A managing
general agent is a licensed property and casualty broker/agent or life-only
and/or accident and health agent who has a written contract with one or
more admitted insurers to manage the production of its business in a
designated territory in California. A managing general agent:
Hires, supervises, and fire agents.
Accepts or declines risks.
Collects premiums from producing broker/agents and remits them
to insurers under an account current system.
7. A property and casualty broker/agent, personal lines broker/agent,
or surplus lines broker can deduct any return premiums due an insured
from unpaid premiums the insured owes on the same or any other policy.
An insurer may pay return premiums to a fire and casualty broker/agent for
this purpose. |
|
Definition
| Fiduciary responsibilities |
|
|
Term
No insurer or the insurer’s employees, or agents, can be
sued for libel, slander, or any other relevant cause of tort action for providing,
without malice, any of the following:
Any information or reports relating to suspected fraudulent insurance
transaction furnished to law enforcement officials or licensing officials
governed by the Business and Professions Code.
Any reports or information relating to suspected fraudulent insurance
transactions furnished to other persons subject to this ruling.
Any information or reports required by the code or the commissioner
under the authority granted by the code |
|
Definition
|
|
Term
Every licensee’s claim files shall be subject to examination by the
commissioner. These files shall contain all documents, notes and work papers
(including copies of all correspondence) that reasonably pertain to each claim in
such detail that pertinent events and the dates of the events can be
reconstructed and the licensee’s actions pertaining to the claim can be
determined.
To assist in such examination all insurers shall:
1. Maintain claim data that are accessible, legible and retrievable for
examination so that an insurer shall be able to provide the claim number, line of
coverage, date of loss and date of payment of claim, date of acceptance, denial
or date closed without payment. This data must be available for all open and
closed files for the current year and the four preceding years.
Chapter 23
Insurance Code
36
2. Record in the file the date the licensee received, date(s) the licensee
processed and date the licensee transmitted or mailed every material and
relevant document in the file.
3. Maintain hard copy files or maintain claim files that are accessible,
legible and capable of duplication to hard copy; files shall be maintained for the
current year and the preceding four years. |
|
Definition
| File and Record Documentation |
|
|
Term
Any person who asserts a right of recovery under a surety
bond, an attorney, any person authorized by operation of law to represent
the claimant, or any of the following persons properly designated by the
claimant: an insurance adjuster, a public adjuster, or any member of the
claimant’s family. |
|
Definition
|
|
Term
Notice of an action commenced against the
insurer with respect to a claim, or notice of action against the insured
received by the insurer, or notice of action against the principal under a
bond, and includes any arbitration proceeding. (Title 10, CCR 2695.2(o |
|
Definition
|
|
Term
Any documentation in the claimant’s possession
submitted to the insurer that provides any evidence of the claim and that
supports the magnitude or the amount of the claimed loss |
|
Definition
|
|
Term
No insurer shall discriminate in its claims settlement practices
based upon the claimant’s age, race, gender, income, religion, language, sexual
orientation, ancestry, national origin, or physical disability, or upon the territory of
the property or person insured. (Title 10, CCR 2695.7(a) Upon receiving proof of
claim every insurer shall immediately, but in no event more than 40 calendar
days later, accept or deny the claim, in whole or in part. The amounts accepted
or denied shall be clearly documented in the claim file unless the claim has been
denied in its entirety. This time frame does not apply to disability insurance,
disability income insurance, mortgage guaranty insurance, or automobile repair
bills arising from collision and comprehensive claims. (Title 10, CCR 2695.7(b)
When an insurer denies or rejects an insured’s claim, in whole or in
part, it must do so in writing and contain the bases for such rejection or denial. If
a claimant believes that a claim has been wrongfully denied or rejected, he/she
may have the matter reviewed by the California Department of Insurance and the
insurer must inform the claimant of this fact as well as providing address and
telephone of the unit of the Department that reviews claim practices. |
|
Definition
| Standards for Prompt, Fair and Equitable Settlements |
|
|
Term
Insurance agents can be held legally liable for the consequences of any
errors or omissions they have made while conducting their business. For this
reason, insurance agents need to carry professional liability insurance which is
called errors and omissions insurance (E&O). E&O insurance provides coverage
for an act, error, or omission the agent makes in rendering or failing to render
professional services in the conduct of his/her insurance profession. |
|
Definition
| ERRORS AND OMISSIONS INSURANCE |
|
|
Term
any impairment of minimum “paid-in capital” required
of an insurer for the class(es) of insurance which it transacts. An insurer cannot
escape the condition of insolvency by being able to provide for all its liabilities
and for reinsurance of all outstanding risks. An insurer must also be possessed
of additional assets equivalent to such aggregate “paid-in capital” required by the
code after making provision for all such liabilities and for such reinsurance.
Paid-in capital is capital received from investors in exchange for stock as
distinguished from capital generated from earnings or donated. According to the
code, a foreign mutual insurer must have the value of its assets in excess of the
sum of its liabilities for losses reported, expenses, taxes, and all other
indebtedness and reinsurance of outstanding risks plus its paid-in capital must be
composed of available cash assets amounting to at least $200,000. In the case
of other insurers, they must possess the lower of the following amounts:
Chapter 23
Insurance Code
40
(1) The value of its assets in excess of the sum of its liabilities for
losses reported, expenses, taxes, and all other indebtedness and reinsurance of
outstanding risks.
(2) The aggregate par value of its issued shares of stock, including
treasury shares. (CIC 36) |
|
Definition
|
|
Term
the commissioner thinks an insurer can be saved
from insolvency. The commissioner may apply to the superior court of the county
in which the insurer has its principal office and become the conservator of the
business. The commissioner will take over the insurer’s assets, property, books,
and records and run the business. The following are grounds for the
commissioner to take over an insurer:
a. The company has refused to submit books, papers, or accounts to
the commissioner for inspection.
b. The company has neglected or refused a commissioner’s order to
make good any deficiency in its capital (stock company) or reserve
(mutual company).
c. Without getting the commissioner’s written consent, the company
transfers or tries to transfer all its property or business to another
person or consolidates its property and assets with another
business.
d. After an examination by the commissioner, the company is found to
be in such bad financial condition that continuing to conduct its
business is hazardous to the public, creditors, or policyholders.
e. The business entity has violated its charter or state law.
f. Any officer of the business refuses to be examined under oath
about the company’s affairs.
g. An officer or attorney in fact has wrongfully diverted or embezzled
any of the company’s assets.
h. A domestic insurer does not comply with the state’s requirements
for a certificate of authority or that the company’s certificate has
been revoke.
i. The insurer was found to be insolvent at its last examination by the
insurance department. (CIC 1011) |
|
Definition
|
|
Term
the commissioner feels it would be futile to proceed as
conservator of the insurer and applies to the court for an order to liquidate and
wind up the business of the insurer. (CIC 1016) |
|
Definition
|
|
Term
The purpose of the California Life and Health Insurance Guarantee
Association is to protect policyowners, insureds, and beneficiaries against loss
when a member company is financially impaired and cannot pay its contractual
obligations under life insurance, health insurance, and annuity contracts. To
provide this protection, an association of insurers is created to pay benefits and
members of the association are subject to assessment to provide funds. (CIC
1067.01) All admitted life and health insurers are obligated to join this
association. The association is managed by a board of directors and shall
consist of not less than 9 nor more than 13 member insurers. The members of
the board shall be selected by member insurers and approved by the
commissioner. |
|
Definition
| California Life and Health Insurance Guarantee Association |
|
|
Term
Insurers selling fire, marine, plate glass, liability, workers’ compensation,
common carrier liability, boiler and machinery, burglary, sprinkler, team and
vehicle, automobile, aircraft and miscellaneous insurance in California must
belong to the California Insurance Guarantee Association. This includes nearly
all types of property and casualty insurance except the ocean marine portion of
marine insurance, reinsurance, or fraternal fire insurance. (CIC 1063)
The purpose of the association is to protect the interests of policyholders
and beneficiaries against loss because an insolvent insurer is unable to pays its
contractual obligations under property and casualty insurance policies. The
association is managed by a board of nine member insurers who are appointed
by the commissioner. If a company becomes insolvent, each member company
is assessed money on a percentage basis to pay contractual obligations of the
insolvent insurer and necessary administrative expenses. The percentage for
any one company is determined by dividing the company’s premiums from that
line of business in California by all premiums for that line of business in the state. |
|
Definition
| California Insurance Guarantee Association |
|
|
Term
The prohibitions
regarding discrimination apply to policies in California other than automobile and
worker’s compensation. They include insurance against loss or damage to
residential real and personal property and coverage for the legal liability of a
natural person. Most of these provisions also apply to life and disability
insurance. |
|
Definition
| Certain property and liability insurance |
|
|
Term
Unless the insurance will
be issued by another insurer under the same management and control, an
insurance company cannot refuse to accept an application, issue a policy, or
cancel a policy because of a person’s marital status, sex, race, color, religion,
Chapter 23
Insurance Code
44
national origin, or ancestry. An insurer may not charge a higher premium for
insurance because of any of these reasons. |
|
Definition
| Failure or refusal to accept application |
|
|
Term
An
application or investigative report furnished by an insurer to its agents or
employees in the course of determining an applicant’s insurability, cannot carry
any identification as to the applicant’s race, color, religion, national origin, or
ancestry. If it is used only to identify the applicant and not as a basis for
discrimination, the insurer may ask where an applicant was born. |
|
Definition
| Application or report carrying identification |
|
|
Term
A licensed insurer may not refuse to accept
an application, issue, or cancel insurance or charge a higher premium because
of a person’s race, color, religion, national origin, ancestry, or sexual orientation.
In underwriting life and disability insurance, an insurer may not consider an
applicant’s sexual orientation or use marital status, living arrangements,
occupation, gender, beneficiary designation, or zip codes to establish an
applicant’s sexual orientation or to decide if the applicant should be tested for
HIV antibodies. The penalty for knowingly violating this provision can be a fine of
$1,000 up to $5,000 plus court costs. (CIC 10140)
The insurance code requires strict confidentiality of personal information
obtained through HIV testing and requires informed consent before any insurer
tests for HIV. (CIC 799 |
|
Definition
| practices based on race or color |
|
|
Term
An insurer may not refuse to issue, sell,
or renew a life or disability policy solely because the person to be insured carries
a gene which may cause a disability in the insured’s children but which causes
no ill effects to the carrier. Examples include sickle cell, Tay-Sachs, and X-linked
hemophilia. An insurer may not charge an applicant a higher premium (individual
or group) due to a person to be insured having these traits.
An insurer may not insert a condition or stipulation in a policy that the
insured person with such a trait, his/her heirs, or beneficiaries must accept less
than the full value of the policy in event of a claim. An insurer may not pay a
lower commission to an agent or broker for selling or renewing life or disability
policies on persons possessing these traits. |
|
Definition
| Genetic disability traits |
|
|
Term
An insurer who issues individual
or group life, annuity, or disability policies may not refuse to insure, continue to
insure, limit the amount or kind of coverage available, or charge a higher
premium for the same coverage to a physically or mentally impaired person
except where the refusal, limitation, or rate differential is based on sound
actuarial principles or is related to actual and reasonably anticipated experience.
Physical or mental impairment means any physical, sensory, or mental
impairment that substantially limits one or more of that person’s major life
activities. |
|
Definition
| Physically or mentally impaired |
|
|
Term
An insurer who issues individual
or group life, annuity, or disability policies may not refuse to insure, continue to
insure, limit the amount or kind of coverage available, or charge a higher
premium for the same coverage because an applicant is blind or partially blind. |
|
Definition
| Blindness or partial blindness |
|
|
Term
when the interviewer
does not reveal his true identity, pretends to be someone who he is not, or
misrepresents the true purpose of the interview. The insurance industry does not
want unscrupulous agents preying on senior citizens by selling them
unnecessary policies or policies that are over-priced.
Pretext interviews are legal when conducted by insurance adjusters when
there is sufficient evidence of fraud or material misrepresentation. |
|
Definition
|
|
Term
the rescinding, canceling,
or limiting of a policy or certificate due to the insurer’s failure to complete medical
underwriting and resolve all reasonable questions arising from written information
submitted on or with an application before issuing the policy or certificate.
Insurers cannot legally refuse to pay a claim which is not excluded by the
contract. As long as the applicant for insurance answered all questions on the
application form truthfully, the insurer must cover the claim. Of course, if the
applicant lied or concealed material information, the insurer would have the right
to refuse coverage or to rescind the policy.
The applications for Medicare supplement insurance and long-term care
insurance contain questions to elicit information concerning the applicant’s health
status. This is to make sure that there is not a problem in the future regarding
his/her coverage. |
|
Definition
|
|
Term
The insurance industry is regulated by the state government and the
federal government and through self-regulation. This self-regulation comes from
the NAIC as well as through company and individual memberships in a number
of professional organizations and trade associations.
These professional groups offer programs to their members to foster better
knowledge concerning insurance products, laws, and regulations in order to
improve the professional stature of their members. Each of these organizations
has developed a code of ethics. These codes usually will include placing the
insured’s interest first, adhering to laws and regulations, and educating the public
about insurance. |
|
Definition
CLU—Chartered Life Underwriters (life and disability agents who have
earned the CLU designation.
CPCU—Chartered Property and Casualty Underwriters (property and
casualty agents who have earned the CPCU designation)
PIA—Professional Insurance Agents
CIC—Certified Insurance Counselors
NAIFA—National Association of Insurance and Financial Advisors
IBA West—Insurance Brokers and Agents of the West
American Agents Alliance |
|
|
Term
|
Definition
In general, only licensed insurance agents with a current agency contract
can receive commissions. However, an heir of a licensed agent may receive
commission after the death of the agent. An agent also may service and
continue to receive renewal commissions for auto polices up to two years
following termination of the agent’s contract with the insurer.
An insurer may charge a policy fee to cover the administrative expense
involved in issuing the insurance contract. Only insurers are allowed to charge a
policy fee—not agents or brokers.
Chapter 24
Ethics
2
A licensed life agent may present a proposal for insurance to a
prospective policyholder on behalf of a life insurer for which the life agent is not
specifically appointed and may send an application for insurance to that insurer.
(Life agents cannot transmit an application to an insurer that only uses exclusive
agents.) If a policy of insurance is issued, the insurer is considered to have
authorized the agent to act on its behalf. The insurer must forward to the
commissioner a notice of appointment of the life agent not more than 14 days
after the life agent submits an application for insurance to the insurer for which
the insurer issues a policy. Any payment made by the prospective insured must
be made in the form of a draft, check, cashier’s check, traveler’s check, money
order, or similar instrument made payable to the insurer |
|
|
Term
| Premium Finance Considerations |
|
Definition
If an agent/broker is going to be
compensated for arranging, directing, or performing services in connection with a
premium financing agreement, he must disclose to the insured in writing the
amount of compensation he will receive from the premium financer before the
premium finance agreement is executed. The agent/broker must maintain
records regarding premium finance arrangements for three years and make
available to the commissioner a list of accounts in connection with which he has
accepted compensation. These requirements do not apply with respect to
interest paid to the broker/agent by the premium financer based upon delay in
payment of the premium due the insurer. |
|
|
Term
a transaction in which new life insurance or a new
annuity is purchased and it is known or should be known by the proposing agent,
broker, or insurer that as a result of the transaction existing life insurance or
annuity will be:
Chapter 24
Ethics
3
Lapsed, forfeited, surrendered or otherwise terminated.
Converted to reduced paid-up insurance, continued as extended term
insurance, or otherwise reduced in value by using non-forfeiture benefits
or other policy values.
Changed to effect either a reduction in benefits or in the length of time for
which coverage would remain in force or for which benefits would be paid.
Reissued with any reduction in cash value.
Pledged as collateral for a loan or subjected to total loans for an
aggregate amount exceeding 25% of the loan value. |
|
Definition
|
|
Term
| purpose of replacement rules |
|
Definition
applicable to all individual life insurance and
annuity policies are:
1. To regulate the activities of insurers and agents with respect to the
replacement of existing life insurance and annuities.
2. To protect the interests of life insurance and annuity purchasers by
establishing minimum standards of conduct to be observed in
replacement transactions by: (a) assuring that the purchaser receives
information with which a decision can be made in his best interest; (b)
reducing the opportunity for misrepresentation and incomplete
disclosures; and (c) establishing penalties for failure to comply with the
requirements of the code |
|
|
Term
| replacement rules-transactions excluded |
|
Definition
1) Credit life insurance.
2) Group life insurance or group annuities.
3) An application to the existing insurer to exercise a contractual change or
conversion privilege.
4) Life insurance to replace life insurance under a binding or conditional receipt
issued by the same insurer.
5) Transactions where the replacing insurer and the existing insurer are the
same or subsidiaries under common ownership and control as long as
replacing agents perform their required duties. These duties include to
provide and leave with the applicant a written statement containing
information relating to premiums, cash values, death benefits, and
outstanding indebtedness, and dividends and dividend accumulations, if any,
for the existing policy, both immediately before and after replacement, and for
the proposed life insurance or annuity. |
|
|
Term
| Duties of Agents in Replacement Transactions |
|
Definition
An agent must submit to the insurer with an application for insurance:
1. A statement signed by the applicant as to whether or not replacement of
existing life insurance or annuity is involved.
2. A statement signed by the agent as to whether the agent knows if
replacement is involved or not.
If replacement is involved, the agent must obtain two copies of a “Notice
Regarding Replacement of Life Insurance” signed by both the agent and the
applicant. One copy must be left with the applicant. The second copy must be
submitted to the replacing insurer with the application. The agent must also
submit a list of all existing life insurance or annuity policies to be replaced with
the name of the insurer, the insured, and the policy number for each. The agent
must leave with the applicant the original or a copy of all printed communications
used in his presentation.
The “Notice Regarding Replacement” states:
Chapter 24
Ethics
4
REPLACING YOUR LIFE INSURANCE OR ANNUITY?
Are you thinking about buying a new life insurance policy or
annuity and discontinuing or changing an existing one? If you are,
your decision could be a good one—or a mistake. You will not
know for sure unless you make a careful comparison of your
existing benefits and the proposed benefits.
Make sure you understand the facts. You should ask the
company or agent that sold you your existing policy to give you
information about it.
Hear both sides before you decide. This way you can be
sure you are making a decision that is in your best interest.
We are required by law to notify your existing company that
you may be replacing their policy. |
|
|
Term
|
Definition
Every life insurance company must:
1. Inform its field personnel of the requirements regarding
replacement transactions.
2. Require that agents submit, with every application for life insurance
or annuity, a statement signed by the applicant indicating if the
proposed policy will replace any existing life insurance or annuity. |
|
|
Term
| Duties of Life Insurers Using Agents |
|
Definition
A life insurer that uses agents must:
1. Require the agent to submit a signed statement as to whether he
knows if replacement is involved or not.
2. If replacement is involved, require the agent to submit a list of all
policies to be replaced with the names of insurers, insureds, and
contract numbers.
3. Within 3 working days after receiving the application, the replacing
insurer must send to an existing insurer a written notice of the
polices to be replaced and information about the replacement
Chapter 24
Ethics
5
policy. When the policy is delivered, the replacing insurer must
notify the policyholder that he is entitled to a 20-day free look.
4. An existing insurer or agent that tries to conserve the existing
business must give the policyholder a complete summary of the
existing policy within 20 days after being notified of the
replacement. If the replacing insurer asks for it, the existing insurer
must provide a copy of the policy summary or ledger statement
used in the conservation within 5 working days after the request is
received.
5. The replacing insurer must maintain evidence of the “notice
regarding replacement”, the policy summary, the contract summary,
and any ledger statements used. The existing insurer must
maintain evidence of policy summaries, contract summaries, or
ledger statements used in any conservation. Evidence that all
requirements were met shall be maintained for at least 3 years. |
|
|
Term
|
Definition
Although an insurer who markets on a direct response basis does not
propose replacement of any policies, if replacement is involved, the
company must send the applicant a “Notice Regarding Replacement of
Life Insurance”. If the insurer proposed the replacement, the insurance
company must:
1. Send the applicant a “Notice Regarding Replacement”.
2. Ask the applicant to provide with the application a list of all existing
life insurance or annuity policies to be replaced including the name
of the insured and insurer for each contract.
3. After the list of policies is received, notify an existing insurer of
policies to be replaced and information about the replacement
policy. |
|
|
Term
| Materially Inaccurate Presentations |
|
Definition
It is a violation if an agent or insurer recommends the replacement or
conservation of an existing policy by use of a materially inaccurate
presentation or comparison of an existing contract’s premiums and
benefits or dividends and values, if any.
Patterns of action by policyowners who purchase replacement policies
from the same agent after indicating on applications that replacement is
not involved, shall constitute a rebuttable presumption of the agent’s
knowledge that replacement was intended in connection with the sale of
Chapter 24
Ethics
6
those policies, and such patterns of action shall constitute a rebuttable
presumption of the agent’s intent to violate the insurance code. |
|
|
Term
| penalties: violating replacement rules |
|
Definition
An agent or other person or entity engaged in the business of insurance,
other than an insurer, who violates replacement rules is liable for
administrative penalties of no less than $1,000 for the first violation. If
there is a second or subsequent violation of these rules, the penalty is no
less than $5,000 and no more than $50,000 for each violation.
Any insurer who violates replacement rules is liable for administrative
penalties of no less than $10,000 for the first violation. Any insurer who
violates the rules with a frequency as to indicate a general business
practice or commits a knowing violation of the rules, is liable for
administrative penalties of no less than $30,000 and no more than
$300,000 for each violation. |
|
|
Term
Medicare Supplements
Requirements for Replacement of Coverage |
|
Definition
No insurer, broker, agent, or other person shall cause an insured to
replace a Medicare supplement insurance policy unnecessarily. In
recommending replacement of any Medicare supplement insurance, an
agent shall make reasonable efforts to determine the appropriateness to
the potential insured.
Application forms shall include the following statements and questions
designed to elicit information as to whether, as of the date of the
application, the applicant has other Medicare supplement insurance in
force, or whether the Medicare supplement policy or certificate is intended
to replace any other disability coverage presently in force.
Statements:
1. You do not need more than one Medicare supplement policy.
2. If you are 65 or older, you may be eligible for benefits under MediCal
or Medicaid and may not need a Medicare supplement policy.
3. Benefits and premiums under your Medicare supplement policy will
be suspended during your entitlement to Medi-Cal of Medicaid for
up to 24 months. You must request this suspension within 90 days
of becoming eligible for Medi-Cal or Medicaid. Once you are no
longer eligible for Medi-Cal or Medicaid, your insurance policy will
be reinstated if you request it within 90 days after losing
entitlement.
Chapter 24
Ethics
7
4. “If you want to discuss buying Medicare supplement insurance with
a trained insurance counselor, call the California Department of
Insurance’s toll-free number 1-800-927-HELP and ask how to
contact your local Health Insurance Counseling and Advocacy
Program (HICAP) office. HICAP is a service provided free of
charge by the state of California.”
Questions:
1. Do you have any other Medicare supplement insurance coverage,
including an HMO contract? If so, with what company?
2. Do you have any other health or disability insurance coverage? If
so, what company? What kind of policy? Would the benefits
duplicate the benefits in this Medicare supplement policy?
3. Do you intend to replace any health or disability insurance
coverage with this policy?
4. Are you eligible for or receiving benefits from Medi-Cal?
Each agent shall list on the same form any other disability insurance
policies he or his company has sold to the applicant. The list shall include
all policies that are still in force and all policies sold in the last five years
that may no longer be in force.
In the case of the direct response insurer, a copy of the application, signed
by the applicant and acknowledged by the insurer, shall be returned to the
applicant upon or before delivery of the policy.
Upon determining that a sale will involve replacement, an insurer or its agent,
shall furnish the applicant, prior to issuing or delivering the Medicare supplement
policy or certificate, a replacement notice. Direct response insurers shall deliver
the replacement notice along with the policy or certificate. One copy of the notice
signed by the applicant and the agent or insurer shall be provided to the
applicant and an additional signed copy shall be retained by the insurer. The
replacement notice shall be printed in no less than 10-point type in substantially
the following form: (CIC 10197)
(Insurer’s name and address)
NOTICE TO APPLICANT PLANNING TO REPLACE
MEDICARE SUPPLEMENT COVERAGE
SAVE THIS NOTICE! IT MAY BE IMPORTANT IN THE FUTURE.
If you intend to cancel or terminate existing Medicare supplement
insurance and replace it with coverage issued by (company name),
Chapter 24
Ethics
8
please review the new coverage carefully and replace the existing
coverage ONLY if the new coverage materially improves your
position. DO NOT CANCEL YOUR PRESENT COVERAGE UNTIL
YOU HAVE RECEIVED YOUR NEW POLICY AND ARE SURE
THAT YOU WANT TO KEEP IT.
If you decide to purchase the new coverage, you will have 30 days
after you receive the policy to return it to the insurer, for any
reason, and receive a refund of your money.
If you want to discuss buying Medicare supplement insurance with
a trained insurance counselor, call the California Department of
Insurance’s toll-free number 1-800-927-HELP, and ask how to
contact your local Health Insurance Counseling and Advocacy
Program (HICAP) office. HICAP is a service provided free of
charge by the state of California.
STATEMENT TO APPLICANT FROM THE INSURER AND
AGENT: I have reviewed your current health insurance coverage.
To the best of my knowledge, the replacement of insurance
involved in this transaction does not duplicate coverage. In
addition, the replacement coverage contains benefits that are
clearly and substantially greater than your current benefits for the
following reasons:
_____Additional benefits that are:_________________________
_____No change in benefits, but lower premiums.
_____Fewer benefits and lower premiums.
_____Other reasons specified here:________________________
DO NOT CANCEL YOUR PRESENT POLICY UNTIL YOU HAVE
RECEIVED YOUR NEW POLICY AND ARE SURE THAT YOU
WANT TO KEEP IT. |
|
|
Term
| standards for marketing medicare |
|
Definition
Every insurer marketing Medicare supplement insurance coverage in this state,
directly or through its producers, shall do all of the following:
1. Establish marketing procedures to assure that any comparison of policies
by its agents or other producers will be fair and accurate.
2. Establish marketing procedures to assure excessive insurance is not sold
or issued.
3. Establish marketing procedures which set forth a mechanism or formula
for determining whether a replacement policy or certificate contains
benefits that are of clearly and substantially greater benefit to the insured
than the replaced coverage, for purposes of triggering first-year
commissions.
4. Display prominently on the first page of the policy the following:
“Notice to buyer: This policy may not cover all of your medical costs.”
5. Inquire and otherwise make every reasonable effort to identify whether a
prospective purchaser for Medicare supplement insurance already has
insurance and the types and amounts of that insurance.
6. Establish auditable procedures for verifying compliance with the code.
In addition to other unfair trade practices identified in the code, the following acts
and practices are prohibited:
1. Twisting: Knowingly making any misleading representation or incomplete
or fraudulent comparison of any insurance policies of insurers for the
purpose of inducing, or tending to induce, any person to lapse, forfeit,
surrender, terminate, retain, pledge, assign, borrow on, or convert any
insurance policy or to take out a policy of insurance with another insurer.
2. High Pressure Tactics: Employing any method of marketing having the
affect of or tending to induce the purchase of insurance through force,
fright, threat whether explicit or implied, or undue pressure to purchase or
recommend the purchase of insurance.
3. Cold Lead Advertising: Making use directly or indirectly of any method of
marketing which fails to disclose in a conspicuous manner that a purpose
of the method of marketing is solicitation of insurance and that contact will
be made by an insurance agent or insurance company. |
|
|
Term
| Medicare: Multiple Policies or Certificates Prohibited |
|
Definition
Any sale of Medicare supplement coverage that will provide an individual more
than one Medicare supplement policy or certificate is prohibited. |
|
|
Term
| Medicare: Reporting multiple policies |
|
Definition
On or before March 1, every insurer providing Medicare supplement insurance
coverage in California shall report the following information for every individual
resident of this state for which the insurer has in force more than one Medicare
supplement insurance policy or certificate:
1. Policy and certificate number.
2. Date of issuance.
The items set forth above shall be grouped by individual policyholder. |
|
|
Term
|
Definition
All insurers, brokers, agents and other engaged in the business of selling longterm
care insurance owe a policyholder or a prospective policyholder a duty of
honesty, and a duty of good faith and fair dealing. (CIC 10234.8)
Cold leading advertising does not disclose in a conspicuous manner that the
purpose of the marketing is solicitation of insurance and that contact will be made
by agent or insurance company. An agent, broker, or other person who contacts
a consumer as a result of receiving information generated by a cold lead device
shall immediately disclose that fact to the consumer. (CIC 10234.9(c)
When a long-term care policy is replaced, the sales commission that is paid by
the insurer must be calculated based on the difference between the annual
premium of the replacement coverage and that of the original coverage. If the
premium on the replacement product is less than or equal to the premium for the
product being replaced, the sales commission is limited to the percentage of sale
normally paid for renewal of long-term care policies or certificates. Replacement
is contingent upon the insurer’s declaration that the replacement policy materially
improves the position of the insured. This provision does not apply to
replacement of group insurance. (CIC 10234.97(a)
For the purposes of this section, “commission or other compensation” includes
financial or non-financial remuneration of any kind relating to the sale or renewal
of the policy or certificate including, but not limited to, bonuses, gifts, prizes,
awards, and finder’s fees. |
|
|
Term
| Replacement of Long-Term Care |
|
Definition
No insurer, broker, agent, or other person shall cause a policyholder to replace a
long-term care insurance policy unnecessarily. Nothing in the code shall be
construed to allow an insurer, broker, agent, or other person to cause a
policyholder to replace a long-term care insurance policy that will result in a
decrease in benefits and an increase in premium.
It shall be presumed that any third or greater policy sold to a policyholder in any
12-month period is unnecessary. This does not apply to those instances in which
a policy is replaced solely for the purpose of consolidating policies with a single
insurer. (CIC 10234.85) |
|
|
Term
| Long-Term Care: Replacement of Existing Insurance: Notice |
|
Definition
Long-term care insurance application forms shall include a question designed to
elicit information as to whether the proposed insurance is intended to replace any
other accident and sickness or long-term care insurance presently in force. A
supplementary application or other form to be signed by the applicant containing
such a question may be used.
Upon determining that a sale will involve replacement, an insurer, other than an
insurer using direct response solicitation methods, or its agent shall furnish the
applicant, prior to issuance or delivery of a policy or certificate, a notice regarding
replacement of accident and sickness or long-term care coverage. One copy of
this notice shall be retained by the applicant and an additional copy signed by the
applicant shall be retained by the insurer. The required notice shall be provided
in the following form:
“NOTICE TO APPLICANT REGARDING REPLACEMENT OF ACCIDENT
AND SICKNESS OR LONG-TERM CARE INSURANCE
According to (your application) (information you have furnished),
you intend to lapse or otherwise terminate existing accident and
sickness or long-term care insurance coverage to be issued by
(company name) Insurance Company. Your new coverage
provides thirty (30) days within which you may decide, without cost,
whether you desire to keep the coverage. For your own information
and protection, you should be aware of and seriously consider
certain factors which may affect the insurance protection available
to you under the new coverage.
Health conditions which you may presently have (pre-existing
conditions), may not be immediately or fully covered under the new
coverage. This could result in denial or delay in payment of
benefits under the new coverage, whereas a similar claim might
have been payable under your present coverage.
Chapter 24
Ethics
12
You may wish to secure the advice of your present insurer or its
agent regarding the proposed replacement of your present
coverage. This is not only your right, but it is also in your best
interest to make sure you understand all the relevant factors
involved in replacing your present coverage.
If, after due consideration, you still wish to terminate your present
coverage and replace it with new coverage, be certain to truthfully
and completely answer all questions on the application concerning
your medical health history. Failure to include all material medical
information on an application may provide a basis for the company
to deny any future claims and to refund your premium as though
your coverage had never been in force. After the application has
been completed and before you sign it, re-read it carefully |
|
|
Term
| Advertising of Term Life Insurance |
|
Definition
There are rules to assure truthful and adequate disclosure of all material and
relevant information in the advertising of term life insurance that is directed at
individuals age 55 or older. Such advertisements shall:
Clearly distinguish basic life insurance benefits from supplemental benefits
such as accidental death benefits.
Prominently disclose any limitations, exceptions, or reductions affecting
each benefit.
Prominently disclose any condition affecting the insured’s continued
insurability. If term coverage ends at a stated age or end of a specified
period, that fact must be disclosed.
Prominently disclose any change in benefits resulting from aging of the
insured, policy duration, or any other factor.
Chapter 24
Ethics
16
Prominently disclose any change in premium due to aging of the insured,
policy duration, and any other factor. If the insurer has the right to modify
premiums in the future, that fact must be disclosed. |
|
|
Term
| Who is allowed to charge a policy fee? |
|
Definition
|
|
Term
|
Definition
Agents should maintain post sales contact with clients. This is especially true
when dealing with senior citizens. Elderly individuals might not understand their
policies’ coverage, might not understand the procedure for making a claim, or
might even forget they own a policy and have coverage. |
|
|
Term
|
Definition
Pretext interviews are illegal. A pretext interview is when the interviewer does
not reveal his true identity, pretends to be someone who he is not, or
misrepresents the true purpose of the interview. The insurance industry does not
want unscrupulous agents preying on senior citizens by selling them
unnecessary policies or policies that are over-priced.
Pretext interviews are legal when conducted by insurance adjusters when there
is sufficient evidence of fraud or material misrepresentation. (CIC 791.03) |
|
|
Term
| Under special circumstances, who can do a pretext interview? |
|
Definition
|
|
Term
|
Definition
No insurer issuing or providing any policy of disability insurance covering
hospital, medical, or surgical expenses shall engage in the practice of post
claims underwriting. Post claims underwriting means the rescinding, canceling,
or limiting of a policy or certificate due to the insurer’s failure to complete medical
underwriting and resolve all reasonable questions arising from written information
submitted on or with an application before issuing the policy or certificate. (CIC
10384)
Insurers cannot legally refuse to pay a claim which is not excluded by the
contract. As long as the applicant for insurance answered all questions on the
application form truthfully, the insurer must cover the claim. Of course, if the
applicant lied or concealed material information, the insurer would have the right
to refuse coverage or to rescind the policy.
The applications for Medicare supplement insurance and long-term care
insurance contain questions to elicit information concerning the applicant’s health
status. This is to make sure that there is not a problem in the future regarding
his/her coverage.
DISCLOSURE OF FEES
An insurance company can charge a policy fee to cover the expense of issuing
the policy. Only insurers are allowed to charge a policy fee.
It is against the law for any person to charge a fee for performing the services of
an agent. An example would be a broker in delivering a policy is doing a service
normally done by an agent. The broker cannot charge a fee for this service.
A broker does not represent an insurer. A broker represents his client in
insurance transactions and is paid for his services. The broker must have
a written agreement signed by the client for whom services are performed.
If an analyst sells a policy, he may not charge a fee for any activity usually
associated with the duties of an agent (e.g. servicing a policy). To charge
a fee, the licensee must have a written agreement signed by the party to
be charged. The agreement must include:
1. A statement that information and services about insurance
policies may be obtained directly from insurers without cost.
2. A statement outlining the services to be performed by the analyst
for which a fee is to be charged.
3. The fee to be charged.
Chapter 24
Ethics
21
4. A statement indicating that if the analyst also holds an insurance
license that he may receive commissions for the sale of products.
A copy of such agreement must be retained by the licensee for not less than
three years after the services have been fully performed. (CIC 1848) |
|
|
Term
Generally refers to (1) the amount of reduction in the value of an insured’s
property caused by an insured peril, (2) the amount sought through an insured’s claim or
(3) the amount paid on behalf of an insured under an insurance contract |
|
Definition
|
|
Term
The state of being subject to loss because of some hazard or contingency.
Also used as a measure of the rating units or the premium base of a risk. |
|
Definition
|
|
Term
The effective cause of loss or damage. It is an unbroken chain of
cause and effect between the occurrence of an insured peril or a negligent act and
resulting injury or damage |
|
Definition
|
|
Term
That portion of an insurance contract which
states the perils insured against, the persons and/or property covered, their locations
and the period of the contract. |
|
Definition
|
|
Term
A demand made by the insured or the insured’s beneficiary, for payment of the
benefits provided by the contract. |
|
Definition
|
|
Term
To restore the victim of a loss to the same position as before the loss
occurred. |
|
Definition
|
|
Term
A formal social device for reducing risk by transferring the risks of several
individual entities to an insurer. The insurer agrees, for a consideration, to assume, to a
specified extent, the losses suffered by the insured. |
|
Definition
|
|
Term
Any contingent or unkown event, whether past or future, which
may damnify a person having an insurable interest, or create a liability against him, may
be insured against, suject to the provisions of the code |
|
Definition
|
|
Term
To restore the victim of a loss to the same position as before the loss
occurred. |
|
Definition
|
|
Term
Uncertainty as to the outcome of an event when two or more possibilities exist.
2) A person or thing insured. There are two specific types of risk that are necessary to
understand:
1. Pure Risk: No chance of gain or profit, and ONLY chance of loss.
Example: The risk of crashing a car and needing to replace it.
2. Speculative Risk: A chance of BOTH a gain or a loss
Example: The risk of gambling at a casino. Someone might win or lose.
NOTE: Speculative risks are NOT insurable. |
|
Definition
|
|
Term
No chance of gain or profit, and ONLY chance of loss.
Example: The risk of crashing a car and needing to replace it. |
|
Definition
|
|
Term
A chance of BOTH a gain or a loss
Example: The risk of gambling at a casino. Someone might win or lose.
NOTE: Speculative risks are NOT insurable. |
|
Definition
|
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Term
|
Definition
• Sharing – pooling the risk with a variety of other people who share the same risk
• Transfer – such as buying insurance
• Avoidance – removing the possible cause of a loss
• Retention – keeping all or part of the financial risk of loss
• Reduction – reducing the chance of loss with safety techniques
In order for an insurance company to be able to accept premiums and pool money to pay for
particular types of losses, the insurance company has to have a large enough number of similar
risks. This is called the law of large numbers. This law makes it possible to statistically
predict the probability of loss within the group, and therefore how much premium to charge. |
|
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Term
|
Definition
• Losses to be insured must be definable
• Losses must be accidental
• Losses must be large enough to cause a hardship to the insured
• There must be a homogeneous group of risks large enough to make losses predictable
(Law of large numbers)
• Losses must not be catastrophic to many members of the group at the same time
• The insurance company must be able to determine a reasonable cost for the insurance
• The insurance company must be able to calculate the chance of loss |
|
|
Term
any interest a person has in a possible subject of
insurance, such as a car or home, of such a nature that if that property is damaged or lost, that
person will suffer a real financial loss. For property and casualty insurance, the insurable interest
must exist at the time the loss occurs. |
|
Definition
|
|
Term
when insureds select only those coverages
that are most likely to have losses |
|
Definition
|
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Term
| A licensed life agent submits an application to a company, and he/she is not appointed by that company. If the company issues a policy, it must appoint the life agent within how many days of receiving the application? |
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Definition
|
|
Term
When an offer made by one party has been accepted by the other, with
mutual understanding by both, an agreement exists. |
|
Definition
|
|
Term
For a contract to be valid it must not be for an illegal subject or
contrary to public policy. Insurance does not cover intentional loss or criminal acts for
this reason |
|
Definition
|
|
Term
The exchange of values on which a contract is based. In insurance,
the consideration offered by the insured is usually the premium and the statements
contained in the application. The consideration offered by the insurer is the promise to
pay in accordance with the terms of the contract. |
|
Definition
|
|
Term
| When replacement of a policy takes place, the insured is entitled to a free-look period of how many days? |
|
Definition
|
|
Term
| If an insurer who markets on a direct response basis does not propose replacement of any policies, if replacement is involved, the company must send the applicant |
|
Definition
| Notice Regarding Replacement of Life Insurance |
|
|
Term
This is one of the elements that must be present in order to have a legal
contract. It relates to the fitness or ability of either of the parties to the contract. An
example of incompetency would be a mental incapacity. |
|
Definition
|
|
Term
A contract in which the number of dollars to be given up by each party is
not equal. Insurance contracts are of this type, as the policyholder pays a premium and may
collect nothing from the insurer or may collect a great deal more than the amount of the
premium if a loss occurs |
|
Definition
|
|
Term
This is a characteristic of a unilateral contract which is offered on a
"take it or leave it" basis. Most insurance policies are contracts of "adhesion," because the terms
are drawn up by the insurer and the insured simply "adheres." For this reason ambiguous
provisions are often interpreted by courts in favor of the insured. |
|
Definition
|
|
Term
There are conditions which must be met by both parties before the
contract is legally enforceable. In an insurance contract conditions for both the insurer and
insured are spelled out in the policy form. |
|
Definition
|
|
Term
contract between two specific parties and generally cannot be
transferred to other parties, unless under conditions specified in the contract. Insurance policies
are usually not transferable unless the insurer agrees to do so. |
|
Definition
|
|
Term
|
Definition
A contract such as an insurance policy in which only one party to the
contract, the insurer, makes any enforceable promise. The insured does not make a promise but
pays a premium, which constitutes the insured's part of the consideration. |
|
|
Term
In insurance, it refers to a fact which is so important that the disclosure of it
would change the decision of an insurance company, either with respect to writing coverage,
settling a loss, or determining a premium. Usually, the misrepresentation of a material fact will
void a policy. |
|
Definition
|
|
Term
Deceipt, trickery or misrepresentation with the intent to induce another to part with
something of value or surrender a legal right. |
|
Definition
|
|
Term
The act of giving up or surrendering a right or privilege that is known to exist. In
property and liability fields, it may be effected by an agent, adjuster, company, employee, or
company official, and it can be done either orally or in writing. |
|
Definition
|
|
Term
The legal principle whereby a person loses the right to deny that a certain condition
exists by virtue of having acted in such a way as to persuade others that the condition does exist.
For example, if an insurer allows an insured to violate one of the conditions of the policy, the
insurer cannot at a later date void the policy because the condition was violated. The insurer has
acted in such a way as to lead the insured to believe that the violation did not void the coverage. |
|
Definition
|
|
Term
|
Definition
A statement made on an application for most kinds of insurance that is warranted
as true in all respects. If untrue in any respect, even though the untruth was not known to the
applicant, the contract may be voided without regard to the materiality of the statement. By
contrast, statements in life and health applications are not warranties except in cases of fraud,
and the trend in more recent court decisions in other lines has tended to modify the doctrine of
warranty to an application only when the statement is material to a risk or the circumstances of a
loss. |
|
|
Term
|
Definition
That portion of the insurance contract in which is stated such information as the
name and address of the insured, the property insured, its location and description, the policy
period, the amount of insurance coverage, applicable premiums, and supplemental
representations by the insured. |
|
|
Term
|
Definition
That portion of an insurance contract which states the
perils insured against, the persons and/or property covered, their locations, and the period of the
contract. |
|
|
Term
| Additional (or Supplementary) Coverage |
|
Definition
That portion of the policy adding coverages
to the major coverages defined in the insuring agreement, or adding back coverages at lower
liability limits that have been specifically excluded. |
|
|
Term
|
Definition
A form attached to the policy which alters provisions of the contract to make
it better fit the needs of the insured or the insurer for that particular risk. |
|
|
Term
|
Definition
The termination of an insurance contract by the insurer when material
misrepresentation has occurred. A contract may also be repudiated for failure to perform a duty. |
|
|
Term
| If a licensee violates any provision relating to twisting, concealment, or misrepresentation, he may be imprisoned for up to _____ months. |
|
Definition
|
|
Term
| A licensee misrepresents the financial condition of an insurer. This is an example of: |
|
Definition
|
|
Term
| Which of the following best describes an insurance agent? |
|
Definition
| One who is appointed by an insurer, transacts other than life or accident & health insurance, receives commissions, and transacts on behalf of the insurer. |
|
|
Term
| The commissioner may deny an application for a license without conducting a hearing for which of the following reasons: |
|
Definition
| The applicant has been convicted of a felony |
|
|
Term
| All of the following regarding disclosure of fees are correct EXCEPT? |
|
Definition
| A broker in delivering a policy is doing a service normally done by an agent. The broker can charge a fee for this service |
|
|
Term
| The main parts to the privacy requirements of the Gramm-Leach-Bliley Act are: |
|
Definition
| (1) the Financial Privacy Rule, (2) Safeguard Rule, and (3) pretexting provisions.. |
|
|
Term
| An agent may advertise that his insurance company is a member of a Guarantee Association. |
|
Definition
|
|
Term
| A person who makes a fraudulent claim or assists in making a fraudulent claim is guilty of a criminal act and may be imprisoned for how many years? |
|
Definition
|
|
Term
Which of the following may a licensee do with return premium on a cancelled policy?
Hold in a fiduciary account.
Remit it to the policyholder immediately. |
|
Definition
|
|
Term
| Concealment entitles the injured party to rescind the contract under which conditions? |
|
Definition
| When the concealed facts are material whether intentional or unintentional. |
|
|
Term
The written agreement of an insurance analyst must include:
The fee to be charged.
All of the choices.
The services to be performed for the fee to be charged.
Disclosure if the analyst also holds a life insurance license. |
|
Definition
|
|
Term
Which of the following is NOT considered by the commissioner in determining whether or not a settlement offer is unreasonably low:
The extent to which the insurer considered evidence submitted by the claimant to support the value of the claim.
The extent to which the insurer considered legal authority or evidence made known to it or reasonably available
The amount of money the insurer may lose paying a higher settlement
The procedures used by the insurer in determining the dollar amount of property damage. |
|
Definition
|
|
Term
|
Definition
The maximum amount for which an insurer is liable as set forth in the
contract. |
|
|
Term
|
Definition
Any limit of insurance which exists within another limit. For example, special classes
of property may be subject to a specified dollar limit per occurrence, even though the policy has
a higher overall limit. |
|
|
Term
|
Definition
The portion of an insured loss to be borne by the insured before any recovery may
be made from the insurer.
of property may be subject to a specified dollar limit per occurrence, even though the policy has
a higher overall limit. |
|
|
Term
| Unearned Premium vs. Earned Premium |
|
Definition
The unearned premium is the portion of an
insurance premium covering the unexpired term of the policy. Any premium paid in advance of
the current period is considered unearned premium; for instance, a policyholder pays an annual
premium. Earned premium is the premium paid for the expired or used portion of the policy. |
|
|
Term
|
Definition
| The insurer agrees to continue the policy in full beyond the expiration date |
|
|
Term
|
Definition
| The insurer decides NOT to continue the policy beyond the expiration date. |
|
|
Term
|
Definition
A policy which is cancelled upon its effective date. Usually under a flat
cancellation no premium charge is made. |
|
|
Term
|
Definition
The termination of an insurance contract or bond with the premium
charge being adjusted in proportion to the exact time the protection has been in force. |
|
|
Term
|
Definition
A cancellation procedure in which the premium returned to the
insured is not in direct proportion to the number of days remaining in the policy period. In effect,
the insured has paid more for each day of coverage than if the policy had remained in force for
the full term. |
|
|
Term
Insureds must comply with particular policy provisions if they want the insurer to pay claims.
These include: |
|
Definition
• Prompt notice of loss or damage
• Taking reasonable steps to protect property from further damage
• Submitting claims
• Notifying the police if the claim is for a theft
• Cooperating with the insurer after a loss. |
|
|
Term
|
Definition
A clause in property insurance policies that prohibits the insured from
abandoning partially damaged property to the insurer in order to claim a total loss |
|
|
Term
| Mortgage (or Mortgagee) Clause |
|
Definition
A provision attached to a property policy that covers
mortgaged property, specifying that the loss reimbursement shall be paid to the mortgagee as
the mortgagee's interest may appear, that the mortgagee's rights of recovery shall not be
defeated by any act or neglect of the insured, and giving the mortgagee other rights, privileges,
and duties. For instance, one duty is that the mortgagee must report to the insurer any change in
hazards that he becomes aware of. |
|
|
Term
|
Definition
A provision in property insurance contracts that authorizes payment to
persons other than the insured to the extent that they have an insurable interest in the property.
This clause may be used when there is a lien or loan on the property being insured, and it
protects the lender |
|
|
Term
|
Definition
A provision stating that the insured and the insurer will share all losses
covered by the policy in a proportion agreed upon in advance, i.e., 80-20 would mean that the
insurer would pay 80% and the insured would pay 20% of all losses. |
|
|
Term
Insurance companies must do several things as a result of the contract of insurance. These
include: |
|
Definition
• Pay for covered losses
• Provide a legal defense against liability claims
• Give advance notice of cancellation and return unused premiums |
|
|
Term
In California, the insurer must always include the required specifications for ALL insurance
policies (CIC 381): |
|
Definition
1. parties of the contract
2. item(s) of property or the name of the life being insured
3. insurable interest
4. risk being insured
5. term of the policy
6. consideration (premium)
a. a statement of the premium, or
b. if the insurance is the type where the exact premium can only be determined
upon termination of the contract, a statement of the basis and rates upon
which the final premium is calculated, determined, and paid (CIC 381)
NOTE: Property insurance policies contain many items EXCEPT the insured’s address (CIC 2071) |
|
|
Term
|
Definition
. A clause giving an insurer the right to pursue any course of action, in
its own name or the name of a policyowner, against a third party who is liable for a loss which
has been paid by the insurer. One of its purposes is to make sure that an insured does not make
any profit from his or her insurance. This clause prevents collecting from both the insurer and a
third party. |
|
|
Term
|
Definition
A clause in property insurance contracts which provides that if policy
or endorsement forms are broadened by legislation or ruling from rating authorities and no
additional premium is required, then all existing similar policies will be construed to include the
broadened coverage. |
|
|
Term
|
Definition
A provision found in almost every insurance policy stating what is
to be done in case any other contract of insurance covers the same property and/or hazards |
|
|
Term
|
Definition
| Property taken over by an insurer to reduce its loss. |
|
|
Term
|
Definition
| Actual cause of a possible loss (fire, theft, rain, etc.) |
|
|
Term
|
Definition
| Perils specifically covered on property insured. |
|
|
Term
|
Definition
Insurance against loss of or damage to property arising from any cause except
those that are specifically excluded. (Used to be referred to as “all-risk”) |
|
|
Term
|
Definition
A term that refers to situations where two or more perils act
together (concurrently) or in a sequence to cause a loss. |
|
|
Term
|
Definition
A loss which is a direct consequence of a particular peril. Fire
damage to a refrigerator would be a direct loss. |
|
|
Term
|
Definition
A loss not directly caused by a peril insured against,
such as spoilage of frozen foods caused by fire damage to the refrigeration equipment. |
|
|
Term
|
Definition
Funds a company is required by law to set aside to cover claims. It is the
amount equal to the losses that are due, but not yet payable; an estimate of losses that may
have incurred but not yet reported. |
|
|
Term
|
Definition
A specific situation that increases the probability of the occurrence of loss arising from a peril, or
that influences the extent of the loss (i.e. slippery floors, unsanitary conditions, congested traffic,
unguarded premises, uninspected boilers, etc). There are four main types of hazards.
-physical
-moral
-morale
-legal |
|
|
Term
|
Definition
Any hazard arising from the material, structural, or operational
features of the risk itself apart from the persons owning or managing it. |
|
|
Term
|
Definition
A condition of morals or habits that increases the probability of loss
from a peril. (i.e. An individual who previously burned his or her own property to collect
the insurance.) Some insurance companies use the terms moral and morale
interchangeably. |
|
|
Term
|
Definition
Hazard arising out of an insured's indifference to loss because of the
existence of insurance. (i.e. the attitude, "It's insured, so why worry.") If an insurer
concludes that a person poses a morale hazard risk, they might decline the application. |
|
|
Term
|
Definition
An increase in the likelihood that a loss will occur because of court
actions. |
|
|
Term
|
Definition
An amount equivalent to the replacement cost of lost or damaged
property at the time of the loss, less depreciation. With regard to buildings, there is a tendency
for the actual cash value to closely parallel the market value of the property. |
|
|
Term
|
Definition
The cost of replacing property without a reduction for depreciation. By
this method of determining value, damages for a claim would be the amount needed to replace
the property using new materials. |
|
|
Term
|
Definition
. The price for which something would sell, especially the value of certain types
of assets, such as stocks and bonds. It is based on what they would sell for under current market
conditions. |
|
|
Term
|
Definition
An agreed amount of insurance which is shown on the policy, and which will
be paid in the event of total loss regardless of the actual value of the property. |
|
|
Term
|
Definition
A policy which states that in the event of a total loss, a specific amount will be
paid, that being the amount stated in the policy. The effect is to eliminate the need for
determining the actual cash value of an item of property in the event of a total loss. It is
generally used with certain more valuable items, such as fine arts, antiques, and furs. |
|
|
Term
|
Definition
An open policy is one in which the value of the subject matter is not agreed
upon, but is left to be ascertained in case of loss. |
|
|
Term
|
Definition
Under this clause, the insured and the insurer agree that the
amount of insurance carried will automatically satisfy the coinsurance clause. The effect is to
eliminate the necessity of determining whether or not the amount carried is equal to the stated
percentage of the actual cash value indicated in the coinsurance clause. |
|
|
Term
|
Definition
A form of property insurance that covers, in a single contract, either
multiple types of property at a single location or one or more types of property at multiple
locations |
|
|
Term
|
Definition
A policy which describes specifically the property to be covered. This is in
contrast to a policy which covers on a blanket basis all property at one or more locations without
specific definitions. In the case of overlapping coverages, specific insurance is considered the
primary one. |
|
|
Term
|
Definition
The majority of personal liability cases involve unintentional torts.
The basis for unintentional torts is usually negligence, so we had better have a working definition
of negligence. In order for negligence to exist, four elements must be present:
• Duty to act. The duty to act in a reasonably prudent manner toward another
(such as driving the insured’s car safely down the street in a manner that
avoids hitting other cars or pedestrians).
• Breach of the duty to act. The tortfeasor does not act in the prudent manner
described above.
• Occurrence of injury or damage. Another party actually must suffer an injury
or damage.
• Negligence . The proximate cause of the injury or damage. The tortfeasor’s
breach of duty is actually what caused the injury or damage.
If any of these elements is absent from an event, negligence does not exist and the insured will
not be held liable due to negligence. But when the required elements are present, the injured
party usually has a valid claim for damages based on negligence |
|
|
Term
|
Definition
When someone is
held liable for injury or property damage to another, that person can be required to pay
compensation to the injured parties. For these types of claims, we need to be concerned with
two broad types of damages:
• Compensatory damages—which simply means compensation for the loss
incurred. These may include specific damages (the documentable, actual
expenses incurred by the injured party, such as medical bills, wages lost and
property replacement costs) and general damages (monetary awards for more
subjective, less quantifiable aspects of the loss, such as pain and suffering, or
loss of consortium).
• Punitive damages—these are damages that the court can compel the
tortfeasor to pay in addition to the compensatory damages awarded. Punitive
damages represent a fine, or punishment, for outrageous, severe or intentional |
|
|
Term
|
Definition
Failure to use that degree of care which an ordinary person of reasonable
Comparative Negligence. In some states the negligence of both parties to an accident is
established in proportion to the degree of their contribution to the accident. Several states have
comparative negligence laws, and each one varies somewhat from the others.
• Comparative Negligence. In some states the negligence of both parties to an
accident is established in proportion to the degree of their contribution to the
accident. Several states have comparative negligence laws, and each one varies
somewhat from the others.
• Contributory Negligence. If an injured party fails to exercise proper care and in
some way contributes to his or her injury, the doctrine of contributory negligence will
probably negate or defeat the claim, even though the other party is also negligent.
Contrast with Comparative Negligence |
|
|
Term
|
Definition
Generally, a personal umbrella policy will not cover business liability. However,
some business exposures may be covered by personal liability policies. For example, an umbrella
policy may cover certain home office exposures |
|
|
Term
|
Definition
Liability under the law as opposed to liability arising from contracts or
agreements. In insurance, it is most often used to refer to the liability that an individual has if he
or she should negligently injure another party. For example, an owner of an automobile may be
held legally liable if he or she is negligent in the operation of the automobile and injures another
person or damages another person's property as a result of that negligence. |
|
|
Term
|
Definition
. A type of liability that arises from extremely dangerous operations. An
example would be in the use of explosives: A contractor would almost certainly be liable for
damages caused by vibrations of the earth following an explosive detonation. With absolute
liability it is usually not necessary for a claimant to establish that the operation is dangerous. |
|
|
Term
|
Definition
Usually used when referring to products coverage. The liability that
manufacturers and merchandisers may be subject to for defective products sold by them,
regardless of fault or negligence. A claimant must prove that the product is defective and
therefore unreasonably dangerous. |
|
|
Term
|
Definition
The law says that under certain circumstances a person is liable for the
acts of someone else. For example, in matters related to an automobile a parent might be held
responsible for the negligent acts of a child. In such a case the parent would be vicariously liable. |
|
|
Term
The four main business
functions of an insurance company are |
|
Definition
1. Actuarial,
2. Sales & Marketing,
3. Underwriting, and
4. Claims handling |
|
|
Term
|
Definition
Direct marketers don’t use agents or brokers to sell their insurance; they sell
through direct mail and telemarketing. Since they eliminate a sales staff—and a commission
structure—these companies usually offer cheaper premium. The problem is: Some of those
companies handle claims the same way they sell policies. In other words, the price break usually
comes at the cost of service. |
|
|
Term
|
Definition
the application of actuarial guidelines to specific individuals and companies.
It’s the process by which premiums are determined…and insureds are judged to be preferred,
standard, substandard or uninsurable.
Preferred risks are entitled to premium discounts, while substandard risks may be declined, or
they may have to pay an extra premium for the policy or have a policy issued with a rider
omitting some element of the coverage.
Agents play an important role in gathering the information that a company’s underwriters will use
to make these determinations. In some cases, the agent will also be trusted to make some
preliminary underwriting judgments in the field. |
|
|
Term
|
Definition
covers the entire process of evaluating and paying claims made under
policies. This is the part of the insurance company that often draws the most attention from
consumers, politicians and media outlets.
In some cases, the insurance company’s customer service operations will fall under the
supervision of the claims managers. |
|
|
Term
| Reciprocal Insurance Exchange |
|
Definition
An unincorporated group of individuals, called
subscribers, who mutually insure one another, each separately assuming his or her share of each
risk. Its chief administrator is an attorney in fact. |
|
|
Term
|
Definition
Liability insurance companies owned by their policyholders.
Membership is limited to people in the same business or activity which exposes them to similar
liability risks. The purpose is to assume and spread liability exposure to group members and to
provide an alternative risk financing mechanism for liability. |
|
|
Term
|
Definition
. A type of insurance that involves acceptance by an insurer, called the
reinsurer, of all or a part of the risk of loss covered by another insurer, called the ceding
company. It is a way for an insurer to avoid having to pay for large or catastrophic losses. |
|
|
Term
|
Definition
An insurer authorized by the state to transact business in that state for
specific types of insurance. |
|
|
Term
|
Definition
A technician trained in evaluating risks and determining rates and coverages for
them. The term derives from the practice at Lloyd's of each person willing to accept a portion of
the risk writing his or her name under the description of the risk. |
|
|
Term
|
Definition
A representative of the insurer who seeks to determine the extent of the
firm's liability for loss when a claim is submitted. |
|
|
Term
|
Definition
The cost of a given unit of insurance. For property insurance, the rate per $100 of value
to be insured. The premium, then, is the rate multiplied by the number of units of insurance
purchased. There are different types “rating systems” some of the most commonly used are:
1. Judgment Rating: the individual risk is considered. The underwriter
determines the premium using their intuition and experience instead of a rating
manual.
2. Merit Rating: rates that begin with a class or manual rate, which is then
modified, based on loss experience or other unique characteristics. Lower
premiums are given to those insureds that have few or minimal losses.
3. Manual Rating: the underwriter simply refers to a rating plan or manual
produced by the insurer to determine the premium.
4. Retrospective Rating: premiums are based on the actual losses that occurred
during the policy term, and may be assessed or credited back at the end of the
policy term.
5. Experience Rating: the rate is based off actual loss history |
|
|
Term
|
Definition
In recent years, new laws and public demand have pushed the industry to
adopt new methods of insurance rating. The ISO has developed the “loss cost rating”, whereby
prospective loss costs are developed based on losses or loss adjustment expenses, but not other
typical components of the final rate. (i.e. insurer’s general expenses and profit). Insurers arrive
at the final rates by applying modifications and a lost cost multiplier, to take into account the
individual expenses, underwriting profit and contingencies. |
|
|
Term
|
Definition
The Department of Insurance regulates rates to make sure they are
reasonable and adequate. There are three methods used to obtain this objective:
1. Prior Approval: Rates must be approved by the state before it can be used.
EXAMPLE: rates for auto and homeowners policies.
2. File and Use: Under this method, once the rate is filed with the state, it may
be used. The state reviews the rate and determines if the rate is acceptable or
not. If not, it would be rejected and it would no longer be used.
3. Mandatory: These rates are mandated by either the state or the federal
government. EXAMPLE: rates for the National Flood Insurance Program |
|
|
Term
|
Definition
The losses divided by the premiums paid. The numerator (losses) can be losses
incurred or losses paid, and the denominator (premium) can be earned premiums or written
premiums, depending on what use is going to be made of the loss ratio |
|
|
Term
| self insurance/ self funding |
|
Definition
In addition to buying an insurance policy, risk may be
managed by self-insuring or self-funding. These plans include employee medical benefits paid
out of employer business revenue instead of being insured by an insurance policy. |
|
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Term
|
Definition
“Lloyd’s” is not an insurance company as such, but a market composed of
individuals exposed to unlimited personal liability. In other words, it is a group of high-net worth
individuals who share in the risk of the insured. Each group of individuals, known as syndicates,
are responsible for the amount of insurance they write on different classifications of risk. |
|
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Term
| independent agency system |
|
Definition
An insurance distribution system within which independent
contractors, known as agents, sell and service property liability insurance solely on a commission
or fee basis under contract with one or more insurers that recognize the agent's ownership, use,
and control of policy records and expiration data. |
|
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Term
|
Definition
An insurance distribution system within which agents sell and
service insurance contracts that limit representation to one insurer and which reserve to the
insurer the ownership, use, and control of policy records and expiration date. |
|
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Term
|
Definition
One who sells insurance for only one company as opposed to an agent who
represents several companies. |
|
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Term
|
Definition
A distribution system within which an insurer deals directly with its
insureds through its own employees. This definition applies typically to property and liability
insurance business. Included are mail-order insurance and the sale of insurance from vending
machines at airport booths and elsewhere. |
|
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Term
| agency contract or agreement |
|
Definition
The document which establishes the legal relationship
between an agent and an insurer. |
|
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Term
|
Definition
. Authority of an agent that is specifically granted by the insurer in the
agency contract or agreement. |
|
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Term
|
Definition
Authority of an agent that the public may reasonably believe the agent to
have. If the authority to collect and remit premiums is not expressly granted in the agency
contract, but the agent does so on a regular basis and the insurer accepts, the agent has implied
authority to do so. |
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Term
|
Definition
Authority of an agent that is created when the agent oversteps actual
authority, and when inaction by the insurer does nothing to counter the public impression that
such authority exists. |
|
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Term
|
Definition
An illegal practice which occurs when an agent mixes personal funds with the
insured's or insurer's funds. |
|
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Term
|
Definition
The California Insurance Code (CIC) consists of statutes written and passed
by the state legislature. The governor signs these statutes into law. The insurance
code is changed by the legislature passing a new statute that amends or repeals
an existing statute. The code originally consisted of six divisions, but two divisions
have been repealed. The remaining four divisions are (1) general rules governing
insurance, (2) classes of insurance, (3) the insurance commissioner, and (4)
insurance adjusters. Each division is further broken down into parts, chapters, and
articles.
The Insurance Commissioner is elected by the people to serve a four-year
term in the same general election in which the governor is elected. If a vacancy
should occur during the term of the office, the governor shall appoint a replacement
subject to approval by the legislature. (CIC 12900) The commissioner shall
perform all duties imposed upon him by provisions of the insurance code and other
laws regulating the business of insurance in this State, and he shall enforce the
execution of such provisions and laws. (CIC 12921)
The California Code of Regulations (CCR) is made up of rules issued by the
commissioner. The regulations may be changed or withdrawn by the
commissioner. The CCRs are needed in order to administer the code. Although
the commissioner does not write the code, he is responsible for enforcing the code.
Even though the CCRs are not law, they carry the same weight as law. A person
who violates a regulation is subject to the same penalty as someone who violates
the code.
An insurance professional should have knowledge of the California
Insurance Code and the Code of Regulations. These documents identify many
unethical and illegal practices. However, they are not a complete guide to ethical
behavior. |
|
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Term
| Classes of insurance (divided into 20) |
|
Definition
1. Life – Life includes annuities.
2. Fire – Fire includes homeowners, commercial property, and dwelling
policies.
3. Marine – Marine includes both inland and ocean marine
4. Title – Protects owner of loss if problems relating to possession of
property occur.
5. Surety – Guarantee of payment of one party for the fulfillment of an
obligation of a second party; a bond.
6. Disability (includes all forms of health insurance and disability
income) – Coverage of the event of illness, injury, or death, for those
who are unable to work.
7. Plate glass – Coverage of the breaking of glass, frames, lettering, etc.
8. Liability – Protects against loss where policy holder is responsible for
injury or malpractice to person or property.
9. Workers compensation – Payment of compensation to those injured
or sick while under employment.
10. Common carrier liability - Insures against loss while property is in the
care of a common carrier.
11. Boiler and machinery - Protection against injury or damages to person
or property caused from the explosion or breakdown of a boiler or other
machinery.
12. Burglary – Covers property of loss or damage occurring from theft or
burglary.
13. Credit – Insurance for losses against the repayment of loans. Can also
cover the risk of payment in the delivery of belongings.
14. Sprinkler – Coverage of liability or damages to person or property
occurring through the malfunction, leaks or breaks, of sprinklers, water
pipes or pumps, or other devices in place to extinguish fires
3
15. Team and vehicle – Protection against liability or damages caused by
teams (horse drawn vehicles), or vehicles other than ships or boats.
This does cover Trucker Insurance.
16. Automobile – Covers the policy holder of the dangers that occur in the
operation or use of the maintenance of the vehicle. Protects against
liability or damages of the vehicle or its parts.
17. Mortgage – Insurance that assures the mortgage lender that the amount
owed to the lender will be paid.
18. Aircraft - Coverage of the operation, maintenance, and ownership of
an aircraft. This does not include any coverage of damages or injury of
a person or property because of an accidents.
19. Mortgage guaranty (includes insolvency insurance and legal
insurance) – If the insurance company providing coverage goes
insolvent, this still guarantees payment to the lender.
20. Miscellaneous – Coverage against loss occurring through earthquake,
tornado, etc. |
|
|
Term
|
Definition
An insurer who offers rates for insurance coverage to
insureds who have an average or better than average loss exposure |
|
|
Term
|
Definition
A personal lines licensee is a person
authorized to transact automobile insurance, as defined in Section 660, including
insurance for recreational vehicles used for noncommercial purposes, personal
watercraft insurance, residential property insurance, as defined in Section 10087,
including earthquake and flood insurance, inland marine insurance covering
personal property, and umbrella or excess liability insurance providing coverage
when written over one or more underlying automobile or residential property
insurance policies, and a personal lines broker-agent license is a license to so act. |
|
|
Term
| Managing General Agent (MGA): |
|
Definition
Any person, firm, association, partnership, or corporation who negotiates and
binds ceding reinsurance contracts on behalf of an insurer or manages all or part
of the insurance business of an insurer (including the management of a separate
division, department or underwriting office).
An MGA acts as an agent for that insurer and produces and underwrites an
amount of gross direct written premium equal to or more than 5 % of the
policyholder surplus as reported in the last annual statement of: (CIC 769.81[c])
(1) adjusts or pays claims in excess of an amount determined by the
commissioner, or (2) negotiates reinsurance on behalf of the insurer. |
|
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Term
| Managing General Agent (MGA) Fiduciary responsibility |
|
Definition
A managing general agent must comply with all regulations concerning
deposit, maintenance, and remittance of fiduciary funds. A managing general
agent is a licensed property and casualty broker/agent or life-only and/or accident
and health agent who has a written contract with one or more admitted insurers to
manage the production of its business in a designated territory in California. A
managing general agent:
Hires, supervises, and fire agents.
Accepts or declines risks.
Collects premiums from producing broker/agents and remits them to
insurers under an account current system. |
|
|
Term
|
Definition
An adjuster is a licensed person, other than a private
investigator, who for a fee or other consideration, investigates and collects
information for the purpose of adjusting or disposing of a claim under an insurance
policy. It is most often a property and casualty policy. The requirements are as
follows:
Age 18 or older.
Must not have committed any acts or violations of law for which a license
could be denied.
Must have at least two years of experience (or the equivalent) in adjusting
insurance claims.
Must meet any other qualifications established by the commissioner.
Must pay the required license fee. |
|
|
Term
| public insurance adjuster |
|
Definition
A public insurance adjuster is a licensed
individual who, for compensation, works on behalf of an insured in settling a claim
for loss or damage under a policy covering real or personal property. |
|
|
Term
|
Definition
corporations organized for the purpose of making a
profit for their stockholders. A stock company raises money by selling shares of
stock; the stockholders are the owners of the company; and the affairs of the
company are handled by a board of directors elected by the stockholders. The
type of policy issued by stock companies is called non-participating (non-par) as
the policyholders do not share in the company’s profits. When declared, dividends
are paid to the stockholders |
|
|
Term
|
Definition
corporations owned by the policyowners. When a
person buys an insurance policy from a mutual insurer that person is becoming an
owner in the company as well as a policyholder. As an owner, the policyholder
votes for the board of directors. The policies issued by mutual insurers are referred
to as participating (par) policies as any surplus is returned to the policyowner in
the form of a dividend. Surplus can be defined as excess earned or saved by the
insurance company. Earned surplus is generated by:
Mortality-----fewer people die than expected
Interest------company earns more interest than assumed
Expenses---company overhead is less than projected
Dividends are regarded by the federal government as a return to the policyowners of excess premiums charged for
the insurance coverage. As such, dividends paid by mutual insurers are not taxable income. However, it also should
be noted that dividends cannot be guaranteed as surplus will vary from year to year.
An incorporated mutual insurer may be converted into an incorporated stock
insurer. The process whereby a mutual insurer becomes a stock insurer is known
as demutualization or conversion. (CIC 11535) |
|
|
Term
|
Definition
life
insurance carriers that are social organizations that normally are involved in
charitable activities. Fraternal societies usually are incorporated without capital
stock. To be considered a fraternal, the organization must be nonprofit, must have
a lodge system with a ritualistic form of work involved, and have an elective form
of government. Fraternal society insurance provides benefits for sickness,
accident and death and such insurance may be sold only to members of the society
for the benefit of its members and their families. |
|
|
Term
|
Definition
An application on a form prescribed by the
commissioner for the renewal of a license filed on or before the last day of the
period for which the previous license was issued, accompanied by the renewal fee,
shall entitle the applicant to continue operating under the existing license for 60
days after its specified expiration date or until notified by the department of
insurance that the renewal application is deficient. |
|
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Term
|
Definition
A reciprocal insurer is an unincorporated company
consisting of subscribers managed by an attorney in fact. The California State
Automobile Association (CSAA) is a reciprocal insurer. |
|
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Term
| Insurance Information and Privacy Protection Act (IPPA): |
|
Definition
The purpose of this article is to establish standards for the collection, use, and
disclosure of information gathered in connection with insurance transactions by
insurance institutions, agents or insurance-support organizations; to maintain a
balance between the need for information by those conducting the business of
insurance and the public’s need for fairness in insurance information practices,
including the need to minimize intrusiveness; to establish a regulatory mechanism
to enable persons to ascertain what information is being or has been collected
about them in connection with insurance transactions and to have access to such
information for the purpose of verifying or disputing its accuracy; to limit the
disclosure of information collected in connection with insurance transactions; and
to enable insurance applicants and policyholders to obtain the reasons for any
adverse underwriting decision |
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Term
| HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA) |
|
Definition
HIPAA was enacted in 1996 and affects almost all healthcare providers.
This law defines that the information in client files belongs to the client and must
be protected. HIPAA has made sweeping changes in the way that medical
information is handled and protected.
HIPAA, in general, is designed to make health coverage more portable for
individuals who change jobs or health plans by limiting the coverage exclusions
that can be imposed when such a change occurs. |
|
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Term
|
Definition
means the commissioner thinks an insurer can be saved
from insolvency. The commissioner may apply to the superior court of the county
in which the insurer has its principal office and become the conservator of the
business. The commissioner will take over the insurer’s assets, property, books,
and records and run the business. The following are grounds for the commissioner
to take over an insurer:
a. The company has refused to submit books, papers, or accounts to
the commissioner for inspection.
b. The company has neglected or refused a commissioner’s order to
make good any deficiency in its capital (stock company) or reserve
(mutual company).
c. Without getting the commissioner’s written consent, the company
transfers or tries to transfer all its property or business to another
person or consolidates its property and assets with another
business.
d. After an examination by the commissioner, the company is found to
be in such bad financial condition that continuing to conduct its
business is hazardous to the public, creditors, or policyholders.
e. The business entity has violated its charter or state law.
f. Any officer of the business refuses to be examined under oath about
the company’s affairs.
g. An officer or attorney in fact has wrongfully diverted or embezzled
any of the company’s assets.
h. A domestic insurer does not comply with the state’s requirements for
a certificate of authority or that the company’s certificate has been
revoke.
30
i. The insurer was found to be insolvent at its last examination by the
insurance department. (CIC 1011) |
|
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Term
|
Definition
means the commissioner feels it would be futile to proceed as
conservator of the insurer and applies to the court for an order to liquidate and
wind up the business of the insurer. |
|
|
Term
|
Definition
Any person who asserts a right of recovery under a surety bond,
an attorney, any person authorized by operation of law to represent the
claimant, or any of the following persons properly designated by the
claimant: an insurance adjuster, a public adjuster, or any member of the
claimant’s family. |
|
|
Term
|
Definition
Notice of an action commenced against the
insurer with respect to a claim, or notice of action against the insured
received by the insurer, or notice of action against the principal under a
bond, and includes any arbitration proceeding. |
|
|
Term
|
Definition
Sometimes referred to as “covering notes”, these provide temporary
insurance pending issuance of the insurance contract. A binder includes all the
usual policy terms and endorsements and expires when the policy is issued. |
|
|
Term
|
Definition
Sometimes referred to as “covering notes”, these provide temporary
insurance pending issuance of the insurance contract. A binder includes all the
usual policy terms and endorsements and expires when the policy is issued. |
|
|
Term
|
Definition
A lost policy release is an agreement, signed by the
policyholder that relieves the insurer from liability under an insurance contract
that has been lost, misplaced, or is otherwise unavailable. The lost policy release
form is used to fulfill the requirement that a policy be returned when the insured
requests that coverage be cancelled. |
|
|
Term
| The McCarren-Ferguson Act (1945) -( |
|
Definition
This law recognized that state regulation of insurance was in the public’s best
interest and thus exempted the insurance industry from the federal regulation
required for most interstate commerce industries. However, it did give the federal
government the right to apply antitrust laws “to the extent that such business
(insurance) is not regulated by the state level.” To avoid federal intervention,
each state has revised its insurance laws to conform to these requirements. |
|
|
Term
| Under the Personal Auto Policy (PAP) an insured is: |
|
Definition
1. A resident spouse and any family members residing with the insured for the
ownership, maintenance, or use of any auto or trailer.
2. Anyone driving the car with permission or a responsible belief that they are entitled
to drive the car.
3. Any organization the driver represents. |
|
|
Term
In accordance to the California Vehicle Code, all drivers and all owners of motor vehicle shall at
all times be able to establish financial responsibility (16020). This law protects the parties
involved in an automobile accident by establishing a method for repayment of any damage,
including bodily injury or death, due to the accident. The proof must be in the vehicle and
revealed to law enforcement or shown to the DMV when registering the vehicle. There are three
ways to prove financial responsibility: |
|
Definition
1. Purchase a “named operator policy”, which includes California’s law for minimum
liability coverage: a) $15,000 bodily injury per person and $30,000 per
occurrence, b) $5,000 of property damage per occurrence.
2. Self-insure by depositing $35,000 cash per vehicle with the DMV
3. Post a bond for $35,000 per vehicle
Some of the most common instances that the proof of financial responsibility is needed include:
1. Accidents causing more than $750 in property damage
2. Any accident causing bodily injury
3. Registering a vehicle or renewing registration
4. Failure to pay fines or judgments from a previous accident
5. Serious motor vehicle convictions (i.e. DUI, hit and run, etc) |
|
|
Term
| private passenger vehicles |
|
Definition
To be considered a private passenger auto, the vehicle must, have four wheels. (Threewheeled
Morgans would be an exception to this rule, but they’d probably be covered by a classic
car policy, anyway.)
Coupes, convertibles, sedans and station wagons qualify as private passenger autos for coverage
under a Personal Auto Policy. Pickup trucks, panel trucks and vans also may be considered
private passenger autos and may be eligible for coverage if they satisfy the following
requirements:
•they must be owned by insured persons;
•they must have a Gross Vehicle Weight of less than 10,000 pounds; and
•they must not be used in a freight or delivery business.
So, vans, pickups and panel trucks are eligible when they’re used only for personal
transportation, or used in farming and ranching, or used in any business except a freight or
delivery business.
However, the same restriction does not apply to other private passenger autos. Coupes,
convertibles, sedans and station wagons are eligible for coverage as long as they are not:
•used as a public or livery conveyance for passengers for a fee (such as a taxi or
limousine service); or
•rented to others.
In other words, cars can be used in a freight or delivery business, but only if they are
transporting cargo (products, materials or packages)—not humans—for a fee. This is a loophole
that’s likely to be closed at some point. |
|
|
Term
|
Definition
To be eligible, a vehicle must be owned by one of the
following:
• an individual;
• a husband and wife who are residents of the same household;
• two or more relatives other than a husband and wife, or two or more unrelated
people in the same household—as long as both names are listed on the
registration (and some insurers may refuse to offer this type of coverage.);
• a farm family co-partnership or farm family corporation.
A leased auto usually is treated as if it were owned, and may be covered under a Personal
Auto Policy |
|
|
Term
|
Definition
As stipulated under Proposition 103 in 1988, individuals in California may qualify for 20% Good
Driver Discount based on the following rating factors:
1. Driving Record
2. Annual Miles Driven
3. Years of Driving Experience
4. Other factors having a “significant relationship to the risk” (e.g. location, etc)
A driver is eligible for the 20% Good Driver Discount, if they have not been involved with
any of the following in the past 3 years:
1. More than one minor violation
2. Principally at fault in an accident that resulted in bodily injury or death
3. Conviction for driving with a blood alcohol level of .05 or more while under age 18
4. More than 1 dismissal of a traffic citation |
|
|
Term
|
Definition
a direct financial loss of value as a result of situations that are
covered by the policy. |
|
|
Term
|
Definition
is used throughout the policy to refer to the specific car or cars
listed on the Declarations Page. A car has to be listed—usually by vehicle
identification number—in order to be considered a “covered auto.” (This is why
it’s important to actually read the Declarations Page—to be sure all the autos
the insured thinks are covered really are.) |
|
|
Term
| other than collision insurance (otc) |
|
Definition
| Hitting an animal. Not covered under collision. Stolen cars. |
|
|
Term
|
Definition
the insured will need to know that the phrase covered auto applies to several sets of
circumstances. If the insured sells a car and buy a replacement vehicle during the policy period,
the replacement is automatically a covered auto for liability purposes until the end of the policy
period. However, physical damage coverage will apply to newly acquired vehicles (whether
they are replacement cars or additional vehicles) only if the insured requests the coverage within
30 days. The reason: Physical damage rates and premiums are more dependent upon the value
of the vehicle than are rates and premiums for other coverages—like, say, liability. (While the
insured may think a beat-up 1987 Toyota poses a greater liability threat than a new Bentley,
insurance companies don’t see it quite that way.) |
|
|
Term
|
Definition
In California, some specific rules apply to coverage for newly acquired autos:
a newly acquired auto will have the broadest coverage provided for any vehicle shown on
the Declarations page, except for collision coverage;
if the insured has collision coverage on at least one auto listed on the Declarations page,
collision coverage on a newly acquired auto begins on the date the insured becomes the
owner. The insured must notify the insurer within 14 days;
if the insured does not have collision coverage on at least one auto listed on the
Declarations page, collision coverage on a newly acquired auto begins on the date the
insured becomes the owner, but the insured must request collision coverage within 4
days; and a $500 deductible applies.
if a newly acquired auto is in addition to any vehicle shown on the Declarations page, the
insured must notify the insurer within 14 days. |
|
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Term
|
Definition
| such as a medical bill or the cost to repair a damaged vehicle) |
|
|
Term
|
Definition
|
|
Term
|
Definition
1. $250 maximum for bail bonds
2. Post judgment interest
3. Premiums on appeal bonds or bonds to release attachments
4. Up to $200/day loss of earnings due to attendance at hearings or trials at the
company’s request
5. Other reasonable expenses incurred by the insured at the company’s request. |
|
|
Term
|
Definition
In split limit, coverage is divided into sections and can only be used as scheduled.
For example 15/30/5 means that the maximum the policy will pay is $15,000 per person for BI,
$30,000 for all BI per accident, and $5,000 for all PD per accident. The “per accident” limit only
applies to bodily injury and property damage. |
|
|
Term
|
Definition
In single limit, coverage is a lump sum, which can be used for any or all bodily
injury and personal damage in any one claim. This is similar to blanket coverage and is more
flexible than split limit, but not usually available and more expensive |
|
|
Term
| out-of-state coverage provisions |
|
Definition
The standard Personal Auto Policy will automatically provide the minimum amounts and
types of coverage needed in the other state with no additional premium. |
|
|
Term
| reasonable medical expenses |
|
Definition
Medical payments coverage is an optional part of auto insurance. The coverage pays
reasonable medical expenses incurred by you, members of the insured’s family and
passengers for bodily injuries sustained while riding in the insured’s car. (The insurance company
will have its own ideas about what is or isn’t reasonable.)
This coverage also applies to the insured and the insured’s family members when you’re riding in
another automobile, or if you’re injured as pedestrians by an automobile.
Medical payments coverage allows immediate payment to the insured or other covered
persons, regardless of who was at fault in the accident.
Both the insured and the insurance company benefit from this aspect of the coverage. A quick
settlement of a claim for medical expenses resulting from an injury is a big help if you’re paying
the bills out of pocket, since the insured doesn’t have to wait around until all the finger-pointing
(and lawyer-calling) is done. The insurance company likes this quick-pay plan, too, because it
hopes paying the insured right away will prevent the insured from filing a liability claim later for
additional damages. |
|
|
Term
The following is a sample of typical Part B Medical payment exclusions in the standard policy
wording. |
|
Definition
“We” do not provide Medical Payments Coverage for any person for “bodily injury”:
1. Sustained while “occupying” any motorized vehicle having fewer than four wheels.
2. Sustained while “occupying” “your covered auto” when it is being used to carry persons
or property for a fee.
This exclusion (2.) does not apply to a share the expense car pool.
3. Sustained while “occupying” any vehicle located for use as a residence or premises.
4. Occurring during the course of employment if workers’ compensation benefits are
required or available for the “bodily injury”.
5. Sustained while “occupying” or when struck by, any vehicle other than “your covered
auto” which is:
a. owned by “you”; or
b. furnished or available for “your” regular use.
6. Sustained while “occupying” or when struck by, any vehicle other than “your covered
auto” which is:
a. owned by any “family member”; or
b. furnished or available for the regular use of any “family member”.
However, this exclusion (6.) does not apply to “you”.
7. Sustained while “occupying” a vehicle without a reasonable belief that a person is entitled
do to so.
8. Arising out of the use of any vehicle in the operation of a business for the purpose
of delivering property from the business to the consumer. By way of example, and not
limitation, we do not cover food delivery, flower delivery, or document delivery.
9. Caused by or as a consequence of:
a. discharge of a nuclear weapon (even if accidental);
b. war (declared or undeclared);
c. civil war;
d. insurrection; or
e. rebellion or revolution.
10. From, or as a consequence of, the following, whether controlled or uncontrolled or
however caused:
a. nuclear reaction;
b. radiation; or
c. radioactive contamination |
|
|
Term
|
Definition
coverage is designed to protect the insured for bodily injuries
when those injuries are caused by another driver who either has no liability insurance or has
coverage that is less than the minimum requirements of state law. UM coverage also protects the
insured for bodily injury when caused by a hit-and-run driver who cannot be identified. |
|
|
Term
| Underinsured motorists coverage |
|
Definition
It applies when another driver
who causes an accident has liability insurance, but the insurance is inadequate to cover resulting
injuries.
For example: The insured carries $50,000 of underinsured motorists coverage. Another driver
swerves onto the wrong side of the street and hits the insured’s car head-on. The insured needs
$45,000 to cover the insured’s injuries. The other driver only has $30,000 of bodily injury liability
coverage and cannot personally pay the additional damages. The other driver’s insurance
company would pay the insured $30,000, and the underinsured motorists component of the
insured’s coverage would pay the additional $15,000.
Underinsured motorists coverage is often linked directly with uninsured motorists coverage in
a standard policy. Whether or not they’re linked, it’s usually a good idea to purchase coverage
limits in line with the other personal property coverage in the policy. |
|
|
Term
|
Definition
re a part of the physical damage coverage, and expenses are
reimbursed if an auto is inoperable because of a covered Comprehensive or Collision loss. Based
on the 1998 Personal Auto Policy, the limit is $20/day with a maximum of $600. |
|
|
Term
| Special Policy Options: in addition to car insurance |
|
Definition
• Funeral benefit. If the insured or a family member die in an auto accident,
this coverage pays up to $2,500. The cost is nominal. Nationwide, for instance,
charges 40 cents per year for $1,500 worth of coverage (although it costs
considerably more to be buried in most parts of the United States).
• Gap insurance. This coverage pays the difference between what the insured
owes on a car and what the actual values is in the event that the value is lower
than the pay off if the car is stolen or totaled. This coverage has become more
common since leasing cars has become more popular.
• Income loss. If injuries from an accident keep the insured from working, this
coverage pays the amount of the insured’s take-home pay. Payments will
usually last only a limited time. But they are made without regard to whether
the insured has other disability insurance coverage—although any other
disability insurance the insured has will probably not kick in until this coverage
ends.
• Rental car replacement. This coverage pays a set amount (usually about
$15 per day, to a maximum of $450) for a rental car if the insured’s car is being
repaired because of an accident.
• Towing and labor costs. This coverage pays for towing and road service,
such as jump-starting the insured’s car or changing a flat tire. It can be used
any time the insured’s car breaks down, not just when it’s involved in an
accident. This coverage shouldn’t cost very much—usually less than $5 a year.
• Stacking. This coverage allows the insured to multiply the amount of
uninsured or underinsured motorist coverage the insured has by the number of
vehicles on the insured’s policy—or by the number of vehicles in the insured’s
household, if they are covered under separate policies. Because people
sometimes abuse stacking to inflate claims, some states don’t allow this
practice—and even the ones that do add a number of provisions. |
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Term
| Miscellaneous Type Vehicle Endorsement |
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Definition
waives the standard 4-wheel vehicle and/or
vehicle weight less than 10,000 pound limitation and allows the policy to cover motorhomes,
dune buggies, golf carts, motorcycles, or all-terrain vehicles (ATV’s). The coverage provided is
the broadest coverage contained in the insured’s PAP |
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Term
| Named Non-owner Policy Endorsement |
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Definition
provides coverage for a person who doesn’t
own a vehicle, but drives borrowed or rented cars. |
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Term
| Named Non-owner Policy Endorsement |
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Definition
provides coverage for a person who doesn’t
own a vehicle, but drives borrowed or rented cars. |
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Term
| Extended Non-owner Liability Coverage Endorsement |
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Definition
deletes the exclusions for
driving non-owned autos that are furnished or available for the insured’s regular use. (i.e.
company car) |
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Term
| Optional Physical Damage Endorsement |
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Definition
Coverage for Audio, Visual and Data
Electronic Equipment and Tapes, Records, Discs, and Other Media Endorsement allows
equipment normally excluded, including radios, CD players, tape decks not permanently installed,
car phones, and CB radios, etc. to be covered. The maximum coverage is $200. |
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Term
| Towing and Labor Coverage Endorsement |
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Definition
is shown on the Declarations Page and
applies toward towing and labor costs when a covered auto is disabled. However, the labor costs
are covered only when the labor is performed at the place of disablement (such as on the side
of the road where the car stopped running—not later at a garage). This coverage usually is
written for a prearranged, limited amount. |
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Term
| Extended Transportation Endorsement i |
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Definition
increases the limits of coverage for
transportation expenses claims from $20/day and $600 total to $30/day and $900 total for a
vehicle stated in the Declarations. |
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Term
| Joint Ownership Endorsement. |
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Definition
An endorsement attached to a standard personal auto
policy that insures vehicles normally ineligible under the standard ownership rules. Joint
ownership is defined as an auto owned by relatives other than husband and wife, or an auto
owned by unrelated individuals who reside together, |
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Term
|
Definition
An endorsement attached to a standard personal auto policy that
insures vehicles normally ineligible under the standard ownership rules. A trust is defined as A
legal arrangement whereby property is held and managed by a trustee for the benefit of
beneficiaries. |
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Term
| California Automobile Assigned Risk Plan (CAARP) |
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Definition
The CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN (CAARP) was created in 1947 by the state
legislature with the essential purpose to provide automobile liability insurance to those who "in
good faith" are entitled to but are unable to procure such insurance through ordinary methods.
The statute indicates a legislative intent to encourage drivers to seek insurance in the voluntary
market using the assigned risk plan only as a last resort.
The assigned risk plan is not an insurance company. Its rates are recommended by CAARP's
Advisory Committee and approved by the Department of Insurance.
Who is Eligible: To be eligible for CAARP, an applicant must have tried and failed to
obtain insurance through voluntary markets in the 60 days before their application to
CAARP. Applicants who failed to pay auto premiums in the year before or do not have
a drivers license are ineligible for CAARP.
Eligibility Requirements: CAARP eligibility requirements include (1) California
residents, (2) nonresidents who own a vehicle registered in California, or (3) members
of the military stationed in California.
Coverages and Limits: CAARP must provide the following minimum limits of
coverage:
o $15,000/$30,000 for Bodily Injury Liability and Uninsured Motorists
o $5,000 Property Damage Liability
o $1,000 Medical Payments
Whether Coverage May Be Bound: Coverage may be bound by CAARP, but not an
agent or broker. CAARP will normally bind coverage at 12:01 a.m. on the day
following receipt of an application.
Commercial Vehicles: Commercial risks that have not been able to obtain liability
insurance are also eligible for coverage through CAARP. These risks purchase the
amount necessary to meet their financial responsibility limit required by law (which
can exceed $1,000,000) depending on their ICC or PUC filings. The CAARP
established the Commercial Automobile Insurance Procedure or CAIP to make
coverage for risks common to commercial operations. It is a pooling agreement run
by CAARP, which most big commercial risks are assigned to an insurance company for
management and all insurance companies share the losses and expenses. |
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Term
| Non-Standard physical damage coverage |
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Definition
Non-Standard physical damage coverage applies to insureds that are considered a higher risk by
the insurer due to driving record, age, etc. This coverage may provide for higher deductibles,
require that only individuals specifically named in the policy declarations are insured drivers, and
generally be less liberal in policy coverage. It is often used when the insured purchases liability
coverage through the California Automobile Assigned Risk Plan (CAARP) and needs a separate
policy for physical damage. CAARP coverage is discussed in detail, later in the chapter. |
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Term
|
Definition
Low cost automobile insurance is an outreach program devised in 1999, to focus on the California
counties in which have the highest number of uninsured drivers or the highest percentage of
uninsured drivers or the highest percentage of low-income individuals. (CIC 11629.7b)
What is the Cost?
The annual rate offered under the program shall be established by the commissioner. A
surcharge, as a percentage of the base rate, shall be added to the base rate and that percentage
shall also be determined by discretion of the commissioner.
Who is Eligible?
To be eligible for the program a person:
1. shall be in a household with a gross annual household income that does not
exceed 250% of the federal poverty level
2. shall be no less than 19 years of age and has been continuously licensed to drive
an automobile for the previous 3 years
3. shall not have had a) “at-fault” property damage accident or b) a point for
a moving violation
4. shall not have felony or misdemeanor conviction for a violation of the Vehicle
Code
5. shall not be a college student claimed as a dependant |
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Term
| Low cost auto insurance: coverage and cancellation |
|
Definition
Cancellation and Renewal Procedures
Insurers may refuse to renew low cost policies for the same reasons that insurers are permitted
to non-renew other auto policies under California Insurance Code Sections 671 and 1861.03 (c).
You may be refused renewal only if:
There is a substantial increase in the hazard insured against, or
You no longer meet the program’s eligibility requirements. Under the law,
CAARP will certify your eligibility the first year; your carrier must re-certify you
annually after that.
Three other possible reasons for cancellation apply only to low cost policies.
Under the new law, low cost auto policyholders are not allowed to
purchase additional automobile liability insurance coverage (buying
additional, non-liability coverage – such as collision or uninsured motorist – at
additional cost outside the program is allowed).
In addition, a low cost auto policyholder cannot purchase liability insurance from
outside the program to cover any additional vehicle in the same household.
Qualified households are limited to no more than two policies.
Coverages and Limits Available
The policy shall offer coverage in the amounts of:
$10,000 for bodily injury per person
$20,000 bodily injury per occurrence
$3,000 for damaged property |
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Term
|
Definition
There are all sorts of land-bound motorized vehicles that typically aren’t thought of as cars—and
that may not be best insured (or even possible to insure) under a personal automobile policy.
Insurance companies use the terms specialty vehicles and recreational vehicles to refer to these
machines, which include motorcycles, mini-bikes, dirt bikes, mopeds, motorhomes, camper
trailers, three- or four-wheeled all-terrain vehicles (ATVs), electric or gas-powered golf carts,
snowmobiles and dune buggies. |
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Term
| standard fire policy covered perils |
|
Definition
The SFP only covered direct loss from the perils of fire, lightning, and removal from premises.
The following is a brief description of each of the perils covered under the Standard Fire Policy.
Fire: defined as combustion sufficient to produce a spark, flame, glow or incandescence.
There are two different types of fire, described by the courts:
1. Hostile Fire: a fire becomes hostile when it was not started intentionally, or
has escaped from the confines in which it was intended.
Example: An ember from a fireplace starts a living room on fire
2. Friendly Fire: a fire that is intentionally started and burns within the confines
for which it is intended.
Example: A fire burning in the fireplace
NOTE: ONLY HOSTILE FIRE IS INSURABLE
Lightning: defined as the natural discharge of electricity from the atmosphere and does
not include artificially generated electricity such as from an electrical power surge.
Removal: this provides insurance to property while it is removed from the residence
premises to protect it from a covered peril. For instance, if furniture wasn’t damaged in
a home fire and was stored at a neighbor’s garage, then stolen from the garage, the
insurance will apply to the insured’s property due to theft. |
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Term
|
Definition
An insured is entitled to a return of premium if the policy is rescinded,
canceled, declined or surrender as follows:
1. The whole premium if the insured is not exposed to any risk of loss
2. If the policy is for a definite time period and the insured surrenders the policy the premium
will be returned for the unused period of time, after deducting from the whole premium any
claim for loss or damage under the policy
3. When the policy is voidable due to fraud or misrepresentation of the insurer
4. When by any default of the insured other than actual fraud and the insurer did not incur any
liability under the policy |
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Term
|
Definition
residential purposes. Some incidental business ―occupancies,‖ such as a studio or office, are
permitted. However, if the insured operates a business from the insured’s home, the insured
probably will need a separate business policy—or at least an endorsement, which is an addon
that provides expanded coverage to the insured’s basic homeowners insurance.
A homeowners policy cannot be issued to cover any property situated on premises used for
farming purposes.
An insurance company can issue homeowners form HO-2 or HO-3 to the insured if the insured
qualifies as any of the following:
• an owner-occupant of a dwelling;
• the intended owner-occupant of a dwelling in the course of construction;
• one co-owner of a duplex, when each distinct portion of a two-family dwelling
is occupied by separate co-owners;
• a purchaser-occupant when the seller retains title under an installment
contract until payments are completed; and
• an occupant of a dwelling under a life estate arrangement, when dwelling
coverage is at least 80 percent of the current replacement cost.
If the insured is a co-owner, a purchaser-occupant or an occupant under a life estate, the owner
or remaining co-owner also will have what the insurance companies call an insurable interest
in the dwelling, other structures, premises liability and medical payments coverage. This interest
can be insured by attaching an Additional Insured Endorsement to the insured’s policy. However,
that co-owner’s personal property will have to be insured separately, on another policy.
Mobile homes also qualify for coverage under an HO-2 or HO-3 form, but only when a
mobile home endorsement is attached to the policy, which alters certain provisions. To be
eligible, a mobile home must be designed for year-round living, and it must be at least 10 feet
wide and at least 40 feet long. Mobile homes also may be covered with separate, stand-alone
insurance policies.
Typically, homeowners form HO-4 is used for renters, form HO-5 provides open perils coverage
on both building and contents, and form HO-6 is used to insure a co-op or condominium. Form
HO-8 is a variation on HO-1 that is available in some states. In the rest of this chapter, we will
focus on the typical homeowners policies: HO-2 and HO-3.
Insured Location and Residence Premises
Residence premises
Newly acquired residence
Secondary residence described in the Declarations
Nonowned temporary residence (vacation home)
Vacant land (other than farm land) the insured owns or rents
Land in the course of construction of a residence intended for the insured
Insured’s cemetery plot
Premises occasionally rented by insured for a non-business purpose (social event at a
local hotel, for example)
3-5 |
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Term
HO Property Coverage:
A homeowners policy includes a number of different coverages, which provide a sort of loose
checklist of the kinds of exposures the insured may face:
• Coverage A |
|
Definition
Dwelling coverage is the most significant. This coverage
applies to the house itself, attached structures (such as an attached garage), and
materials and supplies on or adjacent to the premises. This includes materials used
for repair or construction.
A homeowners policy will show a specific amount of insurance for the dwelling. This will
be an amount separate from liability or property coverage.
Dwelling coverage also is sold separately. Because these stand-alone policies don’t cover
liability or other risks, they are best used in addition to a standard homeowners policy—for
second homes, vacation condos, etc. Note: Some state-run home insurance plans are
dwelling-only coverage. |
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Term
| HO Coverage B - Other structures coverage |
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Definition
Other structures coverage is also included. It applies to
buildings on the premises that are separated from the house by a clear space, or
connected only by a fence, utility line or similar connection (such as a detached
garage or work shed, or even a guest house). The standard amount of insurance
for other structures is 10 percent of the amount written for the dwelling
coverage, and it is provided as an additional amount of insurance. (In other
words, if the insured have a $200,000 policy for the dwelling, the insured
automatically get an additional $20,000 of coverage for other structures.)
If 10 percent isn’t enough, the insured can buy more other structures coverage |
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Term
| HO Coverage C - Personal Property Coverage |
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Definition
Personal property coverage is another key component of a
homeowners policy. Personal property means just about any household possession
that’s financially valuable—from an earring to a refrigerator.
This coverage applies to personal property owned or used by the insured or
anyone else covered under the insured’s policy while it is anywhere in the world. It
also includes coverage for theft. At the insured’s request, other people’s personal
property also may be covered while it is on the insured’s premises. This coverage
usually is an additional amount of insurance—above the policy’s face—50
percent of the amount written for the dwelling. If that’s not enough, the insured
can increase the limit—and the insured also can choose to decrease.
Personal Property coverage applies in many situations—including when things are stolen
from the insured’s car while the insured is traveling. This is the type of protection that
people sometimes overlook or forget about. Make sure the insured don’t: Personal property
coverage is one of the primary reasons to buy a comprehensive homeowners policy. |
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Term
| HO Coverage D—Loss of use of living space |
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Definition
Loss of use of living space coverage will kick in if a covered
loss makes the insured’s home uninhabitable. Most homeowners policies cover
either additional living expenses related to maintaining the insured’s normal
standard of living or the fair rental value of the part of the residence where the
insured lives (it’s the insured’s choice). |
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Term
| HO Coverage E—Liability coverage |
|
Definition
Liability coverage under a homeowners policy is designed to
protect the insured’s assets if the insured is sued. It covers injuries or damage
caused by the insured, a member of the insured’s family or a pet. It applies to
injuries that occur on the insured’s property or anywhere in the world. We’ll
consider this coverage later in this chapter. This coverage has a limit separate from
the dwelling limit. |
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Term
| Ho Coverage F—Medical payments |
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Definition
Medical payments coverage also is included in a homeowners
policy. It covers necessary medical expenses incurred by others (not members of
the insured’s household) within three years of an accident that causes bodily injury.
(An accident is covered only if it occurs during the policy period.) Medical expenses
include reasonable charges for medical, surgical and dental care, X-rays, ambulance
service, hospital bills, professional nursing, prosthetic devices and funeral services.
This coverage does not apply to medical expenses related to the insured’s own injuries—or
those of anyone who lives with the insured, except the insured’s employees. This coverage
often has a $1,000 limit. |
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Term
|
Definition
Real property includes buildings and structures, but not the land on which they are located. While
land usually is part of the purchase price of real property, it is not subject to loss or destruction in
the same way buildings are, so it is not covered by insurance in the same way.
One way to calculate the value of the structures on the insured’s property is to use local tax
assessment values. But the most common way people estimate how much insurance they
need is by covering at least the amount of any mortgage or other loans on the property.
One caveat here: The amount outstanding on the insured’s home loan—or even the original
full amount of that loan—may not be enough to rebuild the insured’s house if it’s destroyed. |
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Term
|
Definition
Personal property includes all forms of property other than real property. On a
homeowners policy, personal property coverage protects household goods, indoor and outdoor
furniture, most appliances (but not built-ins), linens, drapes, clothing and other personal
belongings, which may range from toys to home computers and small boats.
Insurance companies don’t consider all types of personal property equal. Some items—
particularly those with a high value—will have separate sub-limits under a homeowners policy. |
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Term
| Personal articles floater |
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Definition
The personal articles floater (PAF) is used to insure certain classes of personal property on an
itemized and scheduled basis. It is almost identical to the scheduled personal property
endorsement which may be attached to a homeowners policy.
The PAF usually contains a schedule which lists the following types of insurable property:
• jewelry;
• furs;
• cameras;
• musical instruments;
• silverware;
• golf equipment;
• fine art;
• stamps; and
• coins (coins include paper money and bank notes owned by or in the custody or control
of the insured).
For each class of property covered, an amount of insurance must be shown and the article(s)
must be described. |
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Term
| Endorsements for the Homeowners Policy: Personal Property Replacement Cost Loss Settlement |
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Definition
This allows for personal
property losses to be settled at replacement cost value, as is the building. There is no
deduction for depreciation when this endorsement is attached to the homeowners policy.
Only certain types of property are eligible for this coverage , such as carpeting and
household appliances, and including scheduled property. Certain types of property are
specifically not eligible for this coverage, including fine arts, antiques, and memorabilia. |
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Term
| Endorsements for the Homeowners Policy: Inflation Guard |
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Definition
Inflation protection increases the insured’s dwelling coverage
automatically each year. The increase is amount agreed to by the insurer and insured, and
applies over the 12 month policy period on a pro rata basis, increasing the limits day by
day. |
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Term
| Endorsements for the Homeowners Policy: Schedules Personal Property |
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Definition
This endorsement is important when the limits of
coverage for specific personal items aren’t adequate to provide complete protection. Items
for which the insured wants more coverage are scheduled or listed. Items which are
typically scheduled include jewelry, furs, cameras, musical instruments, silverware, golfing
equipment, fine arts, and stamps and coins. Scheduling personal items provides coverage
at their actual appraised value. (The insured will have to provide the appraisal, and keep
updating it as the items appreciate or depreciate, and as new items are purchased.) A
scheduled item also is protected for things that typically are not covered under a
homeowners policy, such as lost or misplaced items and gemstones lost from a piece of
jewelry because of a loose or damaged setting. Also, depreciation is not subtracted from a
claim if the item is scheduled. |
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Term
| Endorsements for the Homeowners Policy:Earthquake |
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Definition
This endorsement will cover any loss to the insured’s home and its contents
caused by an earthquake, tremors or aftershocks. Earthquake coverage carries its own
deductible, which is usually a percentage of the Coverage A limit, such as 5%. An
earthquake endorsement does not cover damages directly or indirectly caused by a flood
due to an earthquake. |
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Term
| Endorsements for the Homeowners Policy: Additional Insured Residence Premises |
|
Definition
This endorsement provides coverage
when there is more than one homeowner when either both owners live in the home or only
one owner lives in the home. This endorsement would be important to provide coverage for
an unmarried couple who live together in a home they jointly own. It would also serve to
provide coverage for siblings who inherit their parents’ home, but where only one sibling
actually occupies the home. The endorsement is intended to cover individuals who are not
insureds under the homeowners policy but who have a financial or legal interest in the
home. |
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Term
| Endorsements for the Homeowners Policy:Other members of your household |
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Definition
This endorsement provides coverage for
nonrelatives living in the same home, such as an unmarried couple living together.
Coverage is provided as if each had his or her own policy. |
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Term
| Endorsements for the Homeowners Policy: Assisted Living Care Coverage |
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Definition
This endorsement provides coverage for an
insured’s relative who lives in an assisted living facility. It primarily provides special limits of
liability for the insured’s personal property such as hearing aids, eyeglasses, wheelchairs,
etc. In addition, it provides an additional living expense in the event that the residence
facility is uninhabitable (coverage is provided for a maximum period of 12 months). |
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Term
| Endorsements for the Homeowners Policy: Workers Compensation - Residence Employees |
|
Definition
his endorsement is
mandatory in California. If a residence employee is injured, the insured is considered their
employer if the worker is self-employed and they have worked a minimum number of hours
or were paid a minimum amount of compensation |
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Term
| Endorsements for the Homeowners Policy: Personal Injury Endorsements |
|
Definition
This coverage is added by endorsement and amends
the definition of bodily injury to include loss due to personal injury. Personal injury includes
the following: false arrest, libel,slander, defamation of character, and invasion of privacy. |
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Term
| Endorsements for the Homeowners Policy: Other Structures - Increased Limit Endorsements |
|
Definition
This attachment increases
coverage for other structures above the standard amount (10% of the dwelling limit.) |
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Term
| Endorsements for the Homeowners Policy: Additional Residence Rented to Others |
|
Definition
This endorsement extends liability coverage to
a rental dwelling owned by the insured. Unpaid rents are not covered. |
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Term
|
Definition
In some cases, the insured’s insurance needs may not be as broad as the coverages that the
standard homeowners insurance package offers. The insured may not need liability or personal
property insurance—especially if the insured is insuring a second home or certain kinds of
investment real estate. In these situations, the insured may prefer to buy the more limited—and
less expensive—dwelling insurance.
The insured also may need dwelling insurance simply because the insured can’t get a
homeowners policy for the insured’s home. As we have seen before, some dwellings are ineligible
for homeowners coverage because of the structure’s age, location or value, but they may still
qualify for dwelling insurance. |
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Term
| Dwelling Policy Eligibility |
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Definition
To qualify as a dwelling, a building must be a principally residential structure that contains no
more than four apartments or is occupied by no more than five roomers or boarders. Singlefamily
homes, duplexes and triplexes are eligible for coverage on dwelling forms. Townhouses or
row houses also are eligible, if each building does not contain more than four units.
Dwellings in the course of construction also are eligible for dwelling coverage. Permanently
located mobile homes are eligible, but they can only be insured under the basic coverage form.
Farm dwellings are not eligible. (Coverage for farm houses must be written on separate farm
forms.) |
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Term
|
Definition
A personal umbrella policy (as opposed to a business umbrella policy) offers coverage above and
beyond the liability coverage the insured has on homeowners or car insurance policies. And some
personal umbrella policies also offer coverage for boats and Jet Skis—either with or without an
underlying boat or specialty vehicle policy.
For many people, a personal umbrella policy is well worth the extra $200 or $300 a year—
especially if the insured can save that much on homeowners and automobile policies by
reducing liability limits. |
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Term
| Split limits of coverage vs. smoothed limits |
|
Definition
| a certain amount of coverage for each policy vs the total amount of coverage used for anything |
|
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Term
| Broader Coverage: often called drop down coverages |
|
Definition
of these include:
•Personal injury coverage. The typical underlying homeowners policy provides
liability coverage for accidental bodily injury (meaning physical injury or death), but
not for events involving libel, slander, false arrest and the like. The personal
umbrella does cover the insured for liability arising out of these events.
•Regularly furnished autos. The standard Personal Auto Policy contains
language that precludes liability coverage for the use of vehicles that the insured
does not own but that are made available for the insured’s regular use (such as a
company car). The personal umbrella does not exclude such coverage.
•Contractual liability. The standard homeowners policy severely limits coverage
for liability assumed by contract. So, if the insured signs an easement agreement to
build a shared access road with the insured’s neighbor—and he sues the insured
because the road is never completed—the umbrella will cover the insured .
•Damage to property of others. The standard homeowners policy excludes
coverage for damage to property of others left in the insured’s care, custody or
control. The personal umbrella does not exclude coverage for damage to such
property. |
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