Prefacexiii
Chapter1FUNDAMENTALSANDTERMINOLOGY1
ChapterObjectives1
Introduction2
InsuranceDefined2·FinancialDefinition3·LegalDefinition4·oss,ChanceofLoss,Peril,Hazard,andProximateCause5·Loss5·ChanceofLoss5·PerilandHazard6·ProximateCause6·Risk7·RiskManagement9·TheMathematicalBasisforInsurance9·AMathematicalExampleofanInsuranceSystem''sOperations10·BuildingBlocksofanInsurancePremium10·FourBasicComponents10·CashFlowUnderwriting11·TheBenefitsandCoststoSocietyofInsuranceSystems13·Costs13·Benefits13·Arson:WhoReallyPaysforInsuredLosses14·Summary16·ReviewTerms17·Review17·DiscussionQuestions18·ResearchAssignment18·SuggestionsforFurtherStudy18Chapter2INSURABLELOSSEXPOSURES21
ChapterObjectives21
Introduction22
GamblingandSpeculativeRisks22·IdeallyInsurableLossExposures23·
ALargeGroupofSimilarUnitsExposedtotheSamePeril s 23·LossesMustbe
AccidentalandBeyondtheInsured''sControl24·LossesMustbeDefinite,
Measurable,andofSufficientSeveritytoCauseEconomicHardship25·
CatastrophicLosses25·WhenOnlythePeopleMostExposedtoLossWant
Coverage,InsuranceBecomesUnfeasible29·RiskClassification31·
Subsidization31·AdverseSelection32·PrinciplesofRiskClassification33·
ImportantSocialIssues34·AIDS AcquiredImmuneDeficiencySyndrome 34·
AutomobileInsurance36·PensionBenefits37·Conclusion38·Branchesof
Insurance38·Summary40·ReviewTerms40·Review41·Discussion
Questions41·ResearchAssignment42·SuggestionsforFurtherStudy42
Chapter3RISKMANAGEMENT1:ESSENTIALS43
ChapterObjectives43
Introduction44
TheRiskManagementFunction44·RiskManagementStaff45·Statementof
ObjectivesandPrinciples45·TheRiskManagementProcess47·StepOne:
IdentificationandMeasurementofExposures47·DirectPropertyLosses48·
LossofIncome50·LiabilityLosses50·LossofKeyPersonnel51·Estimationof
MaximumLoss52·EmergencyPlanning--DisastorRecovery52·StepTwo:Loss
ControlandRiskFinancing53·LossControl53·RiskFinancing55·Step
Three:RegularReviewoftheRiskManagementProgram61·ChicagoTunnel
Collapse:ARiskManagementProblem63·Summary63·ReviewTerms65·
Review66·ResearchAssignment:CaseStudy66·SuggestionsforFurther
Study67·Appendix:PersonalRiskManagement67
Chapter4RISKMANAGEMENT2:ADVANCEDTOPICS71
ChapterObjectives71
Introduction72
RiskManagementInformationSystems RMIS 72·LossData72·Other
Information74·DeductiblesandPolicyLimits75·FinancialandOther
Considerations76·BritishPetroleum:ACaseStudy78·InternationalRisk
Management79·IdentificationandMeasurementofExposures80·Development
andImplementationofPlans81·RegularReviewandEvaluation81·Foreign
Insurance82·FinancialRiskManagement87·Summary89·Review
Terms90·Review90·DiscussionQuestions91·ResearchAssignment91·
SuggestionsforFurtherStudy91·CaseStudy:BlueStarAirlines92·
Introduction92·TheStory92·TheRiskManagementProcess93·Factsand
Assumptions94·Assignment95
Chapter5PRIVATEINSURANCECOMPANIES99
ChapterObjectives99
Introduction100
TwoDifferentTypesofInsuranceCompanies100·MutualInsurance
Companies101·StockInsuranceCompanies103·StockVersusMutual:A
Consumer''sViewpoint103·Demutualization103·Lloyd''sofLondon104·
Lloyd''sofLondonIsanInsuranceMarket104·Lloyd''sHistory105·Typical
Transaction106·Lloyd''sandtheRiskManagementFunction106·American
Lloyds107·OtherLegalFormsofInsuranceCompanies107·TheReciprocal
Exchange107·FraternalInsurers108·SavingsBankLifeInsurance108·Blue
CrossandBlueShield108·HealthMaintenanceOrganizations HMOs and
PreferredProviderOrganizations PPOs 110·IndustrialOrganization112·
Insurancelndustry113·Summary114·ReviewTerms115·Review115·
DiscussionQuestions115·ResearchAssignment116·Suggestionsfor
FurtherStudy116·Appendix:InsuranceandPrivateEnterprise:ThePotential
forEasternEurope116·Introduction116·WhyInsurance 117·WhyPrivate
Insurance 117·CompetitionandEfficiency118·EssentialRequirementsoraFree
Enterprise Capitalist System119·TheRequirementsoraPrivateInsurance
System119·DifficultiesStartingaPrivateInsuranceSysteminEasternEurope120
·TheFuture122
Chapter6INSURANCEOCCUPATIONS123
ChapterObjectives123
Introduction124
InsuranceAgentsandBrokers124·AgencyLaw124·InsuranceBrokers126·
LicensingRequirements128·PropertyandLiabilityInsuranceAgentsand
Brokers128·LifeInsuranceAgentsandBrokers129·AnInsuranceAgent''s
Duties130·LossAdjuster131·Employees,IndependentAdjustment
Bureaus,andPublicAdjusters133·AdjustersAreAgents134·Underwriter135
·PropertyInsuranceUnderwriting137·LifeInsuranceUnderwriting138·
UnderwritingandPrivacy138·Actuary139·Attorney140·Finance140·
OtherOccupations141·Summary141·ReviewTerms142·Review142·
DiscussionQuestions143·ResearchAssignment143·Suggestionsfor
FurtherStudy143eAppendix:LegalIssuesInvolvingInsuranceAgentsand
Brokers144·CaseI144·Case2145·Appendix:TheEthicalChoice145·
Introduction145·Vocabulary146·EthicalNorms147·ThreePracticeCases149
·SuggestionsforFurtherStudy152
Chapter7THEINSURANCEMARKET:THEECONOMICPROBLEM153
ChapterObjectives153
Introduction154
EconomicTheory154·SupplyandDemand154·HistoricalProblems157·The
InsuranceConsumer158·TheConsumer''sChoice:Company,AgentorBroker,
Policy,Amount,andPrice159·ConsumerProtection:TheRoleoftheCourts,
theLaw,andtheInsuranceCommissioner164·TheCourts164·TheLaw165·
TheInsuranceCommissioner165·Summary166·ReviewTerms167·
Review167·DiscussionQuestions167·ResearchAssignment168·
SuggestionsforFurtherStudy168·Appendix:FurtherConsiderationof
SupplyandDemand168·Elasticityo/SupplyandDemand/orInsurance168·
ShiftingSupplyandDemandCurves170
Chapter8INSURANCEREGULATION171
ChapterObjectives171
Introduction172
InsuranceRegulation172·TheReasonsforInsuranceRegulation173·
Solvency173·UnequalKnowledgeandBargainingPower174·Prices174·
Promotiono/SocialGoals175·TheHistoryofInsuranceRegulation175·Paul
v.Virginia176·ArmstrongandMerrittInvestigations176·So,h-Eastern
UnderwritersAssociation SEUA 176·TheMcCarranAct177·StateorFederal
Regulation 177·StateInsuranceRegulation178·TheNationalAssociationof
InsuranceCommissioners NAIC 178·RepealofP.L.-15179·BothSidesofthe
Argument180''·RegulatedActivities182·LegalReservesandSurplus182·
RegularAudltsandSolvencyTesting185·GuarantyFunds187·Rate
Regulations187·InvestmentActivities188·PolicyFormApprovalandExpense
Limitations189·QualificationsorLicenses/orCompanies,Agents,Brokers,Loss
Adjusters,andCompanyOfficers189·ConsumerComplaints190·Taxation191·
Summary191·ReviewTerms192·Review192·DiscussionQuestions193·
ResearchAssignment193·SuggestionsforFurtherStudy193·Appendix:
TheMcCarranAct P.L.-15 194
Chapter9INSURANCECONTRACTS197
ChapterObjectives197
Introduction198
ContractTerminology198·Binder199·ConditionalReceipt199·Elementsof
ValidContract200·OfferandAcceptance200·Consideration200·
Capacity201·LegalPurpose201·DistinguishingCharacteristicsofInsurance
Contracts201··rincipleo/Indemnity202·InsurableInterest203·ActualCash
Value204·Subrogation205·Contracto/Adhesion207·ThePersonalFeature209
·UtmostGoodFaith Latin:UberrimaeFidei 210·TheEntireContractand
IncontestabilityClauses213·TheAleatoryFeature213·DischargeofInsurance
Contracts214·Summary215·ReviewTerms216·Review216·Research
Assignment217·SuggestionsforFurtherStudy217·Appendix:Casesfor
Discussion217·MaterialMisrepresentation217·ContractofAdhesion:The
MetpathCase218·BreachofWarranty:GeneralChickenCase219
Chapter10BASICPROPERTYANDLIABILITYINSURANCECONTRACTS221
ChapterObjectives221
Introduction222
StandardPolicies223·BasicPartsofanInsurancePolicy224·
Declarations224·InsuringAgreement224·Deductibles225oDefinitions226·
Exclusions226·Endorsements227·Conditions227·Fraud227·Suspensionof
Coverage229·Cancellation229·OtherInsurance230·DutiesAfteraLoss230·
Appraisal232·Salvage232·ClaimsPayment233·Conclusion233·
Summary233·ReviewTerms234·Review234·CaseforDiscussion:
VacancyClause235·ResearchAssignment235·SuggestionsforFurther
Study235
Chapter11HOMEOWNERSINSURANCE237
ChapterObjectives237
Introduction238
AGeneralDescriptionoftheHOInsurancePolicies239·Polic·vLayout239
·Declarations240·Definitions242·Section1.--PropertyCoverages243·
AdditionalCoverage''245·Section1--PerilsInsuredAgainstintheBroad
Form,HO-2246·SpecifiedPerils247·HO,2:Section1--Exclusions249·
Ordinance-or-LawExclusion250·OtherExclusions250·Section1-
Conditions251·LossSettlement251·ReplacementCostandCoinsurance251·
ReasonsfortheCoinsuranceRequirement253·MortgageClause254·Section
2--LiabilityCoverages255·Section2--Exclusions256·ClaimsNotCovered
ArisingfromBodilyInjuryorPropertyDamage256·Sections1and2--
Conditions258·Endorsements259·ReductionofInsuranceResultingfrom
PreviousLosses259·Summary259·ReviewTerms261·Review261·
PracticeQuestions262·ResearchAssignment263·SuggestionsforFurther
Study264·Appendix:BuyingHomeownersInsurance264
Chapter12THEPERSONALAUTOPOLICY267
ChapterObjectives267
Introduction268
TheTortLiabilitySystemandAutomobileInsurance:AReviewCase268·The
PersonalAutoPolicyLayout269·Definitions270·PartA--Liability271·Limit
ofLiability272·Insureds273·Exclusions273·PartB---MedicalPayments274·
PartC--UninsuredMotoristCoverage275·CoverageunderthePAP275·
ContactorNo-ContactRules276·TheState''sRespons·toUninsuredMotorists277·
UnderinsuredMotorists277·PartD--DamagetoYourAuto277·Loss
Settlement278·PartE--DutiesAfteranAccidentorLoss279·PartF--General
Provisions280·Summary280·ReviewTerms281·Review281·Practice
Questions282·ResearchAssignment283·SuggestionsforFurtherStudy283
Chapter13COMMERCIALPROPERTYINSURANCE285
ChapterObjectives285
Introduction286
CommercialInsurance286·CommercialandPersonalPropertyInsurance286·
PropertyandMarine Transportation Insurance286·CommercialPackagePolicy
287·TheInsuranceServicesOffice ISO 288·BuildingandPersonalProperty
Form288·PropertyCovered288·PropertyExcludedfromCoverage289·Perils
Covered289·FireInsuranceHistory290·DefinitionofFire290·ReportingForms
291·BusinessIncomeCoverage292·AdditionalForms293·PropertyInsurance
Rating293·Transportation-Insurance295·OceanMarineInsurance295·Inland
MarineInsurance297·AviationInsurance301·AutomobilePropertyInsurance
302·BusinessAutomobileInsurance302eSummary304·ReviewTerms304·
Review305·DiscussionQuestions306·ResearchAssignments306·
SuggestionsforFurtherStudy306
Chapter14GENERALLIABILITYINSURANCE307
ChapterObjectives307
Introduction308
LegalBackground308·CategoriesofTorts CivilWrongs 309·Negligence
Lawsuits310·EstablishingNegligenceandDamages310·DefensesinaNegligence
Suit314·TheRelationshipBetweenNegligenceandLegalLiabilityInsurance
315·QuestionsofFact315·LegalJudgements315·EthicsandLiabilityInsurance
316·SocialHostLiquorLiability:AnExample317·TheFacts317·Categories
ofLiabilityInsurance318·BusinessGeneralLiabilityInsurance318·Business
LiabilityUmbrellaPolicies321·AutomobileLiabilityInsurance322·Summary326·
ReviewTerms326·Review327·DiscussionQuestions328·Casefor
Discussion328·ResearchAssignment328·SuggestionsforFurtherStudy328
Chapter15SPECIALLIABILITYINSURANCE331
ChapterObjectives331
Introduction332
Claims-MadeandOccurrencePolicies332·Claims-MadePolicies332·Occurrence-
BasisPolicies333·EnvironmentalImpairmentLiability334·Insurance.History335
~RiskManagementStrategy337·InsurancePrinciplesandMILCoverage337·
ProductsLiabilityInsurance337·RiskManagementStrategy339·TheContinuing
Controversy339·ProfessionalLiabilityInsurance340·WhatIsaProfessional 340
~CoverageClause341·ClaimsSettlement341·TypesofProfessionalLiability
Coverage341·EmploymentPracticesLiability343·AmericanswithDisabilitiesAct
ADA 345·NuclearLiabilityInsurance345·Summary348·ReviewTerms349
~Review349·DiscussionQuestions350·ResearchAssignments350·
SuggestionsforFurtherStudy350·Appendix352·CaseStudy:Sexual
Harassment352·CaseStudy:AmericanswithDisabilitiesAct ADA 353
Chapter16BONDING,CRIMEINSURANCE,ANDREINSURANCE355
ChapterObjectives355
Introduction356
SuretyBonding356·IntroductoryTerminology356·TheReasonsforSurety
Bonding356·TheDifferenceBetweenSuretyshipandInsurance357·Underwriting
Bonds358·TypesofBonds359·CrimeInsurance360·Reinsurance361·
IntroductoryTerminology361·ReinsuranceArrangements361·Reinsurance
Coverage362·ReasonsforReinsurance364·ReinsuranceandRiskManagement
365·ProvidersofReinsurance365·ConcludingComments366·Summary366*
ReviewTerms367·Review367·DiscussionQuestions367·Research
Assignment368·SuggestionsforFurtherStudy368
Chapter17LIFEINSURANCEPOLICIES369
ChapterObjectives369
Introduction370
ThreeWaysLifeInsuranceIsDistributed370·GroupLifeInsurance371·
IndustrialLifeInsurance372·IndividualLifeInsurance372·TermInsurance374·
TypesofTermLifeInsurance374·UsesofTermLifeInsurance377·WholeLife
Insurance378·CashValues378·TypesofWholeLifePolicies379·TheUsesof
WholeLifeInsurance381·ReasonsforSavingwithLifeInsurance381·AWholeLife
LedgerSheet381·BuyTermandInvesttheDifference:TheConsumer''s
Viewpoint382·UniversalLifeInsurance384·UniversalLifeInsurancePolicies
384·UniversalLifeInsuranceDeathBenefits385·UsesofUniversalLifeInsurance
386·LedgerSheetforUniversalLifeInsurance386·VariableLifeInsurance387·
Summary388·ReviewTerms389·Review389·DiscussionQuestions390·
ResearchAssignment390·SuggestionsforFurtherStudy391·Appendix391·
EndowmentLifeInsurance391
Chapter18ANNUITIES393
ChapterObjectives393
Introduction394
Definitions394·ClassificationofAnnuities396·MethodofPremium
Payment396·BeginningofBenefits396·PromisesPurchased398·Numberof
Annuitants400·DeterminationofAnnuityBenefits400·Usesof
Annuities401·TypesofBenefits401·TaxationofAnnuities402·Withdrawal
beforeLiquidation403·WithdrawalsinLiquidation403·Summary404·Review
Terms404·Review405·DiscussionQuestions405·Research
Assignment405·SuggestionsforFurtherStudy406
Chapter19LIFEINSURANCEPLANNING407
ChapterObjectives407
Introduction408
TheEconomicValueoftheHumanLife408·TheNeeds-BasedPurchaseof
LifeInsurance409·LifeinsurancePlanning410·PlanningProcess410·The
EarlyAdultYears411·LifeInsurancePlanning:ACaseStudy412·Insurancefor
Wives,Children,andCollegeStudents413·LifeInsurancePlanning:TheMiddle
Years417·LifeInsurancePlanning:TheLaterYears418·Wills418·Federal
EstateTax418·BusinessUsesofLifeInsurance420·FundingBusiness
ContinuationAgreementswithLifeInsurance421·TheTaxationofLife
Insurance422·DeathProceeds422·LivingBenefits:Dividends,Savings,and
AcceleratedDeathBenefits423·Summary423·ReviewTerms424·
Review424·DiscussionQuestions425·ResearchAssignment425·Factsand
Data426·SuggestionsforFurtherStudy426
Chapter20STANDARDLIFEINSURANCECONTRACTPROVISIONS
ANDOPTIONS429
ChapterObjectives429
Introduction430
Insured,Owner,andBeneficiary430·BeneficiaryDesignation430·General
LifeInsurancePolicyProvisions431·GracePeriod432·TheReinstatement
Provision433·TheIncontestableClause433·TheEntire-ContractProvision434·The
Misstatement-of-AgeProvision434·AnnualApportionmentofDivisibleSurplus434·
TheSuicideClauseandOtherRestrictiveClauses436·FourOptionsProvidingthe
InsuredwithChoices437·DividendOptions437·Nonforfeiture.Options437·
PolicyholderLoans438·SettlementOptions439·AvailableRidersandOptions440
·TheGuaranteed-InsurabilityOption441·TheWaiver-of-PremiumOption441·The
Double-IndemnityOption441·Summary442·ReviewTerms443·Review443·
DiscussionQuestions444·ResearchAssignment445·SuggestionsforFurther
Study445
Chapter21SIMPLIFIEDLIFEINSURANCEMATHEMATICS447
ChapterObjectives447
Introduction448
MortalityTables448·The1980CSO448·OtherMortalityTables453·Interpretation
ofMortalityTables453·SomeSimplifyingAssumptions453·Single-Premium,
One-YearTermInsurance454·Single-Premium,Five-YearTermInsurance454·
Single-Premium,WholeLifeInsurance459·LevelingtheWholeLifePremium463·
TheCostofLifeInsuranceandSalesIllustrations465·AComplexIssue465·
TraditionalCalculation466·Interest-AdjustedMethod466·TheSalesIllustration
Controversy467·Summary468·ReviewTerms468·Review468·Research
Assignment469·SuggestionsforFurtherStudy469
Chapter22MEDICALEXPENSEAND.DISABILITYINSURANCE471
ChapterObjectives471
Introduction472
BackgroundInformation473·IncreasingHealthCareCosts473·Medical
Inflation474·CostContainment475·CommonContractProvisions476·Entire
Contract476·GracePeriod477·Reinstatement477·IncontestableClause477·
Claims477PhysicalExamandAutopsy477·LegalAction477·Changeof
Beneficiary478·OptionalContractProvisions478·DefinitionsandExclusions478·
FiveKindsofHealthInsuranceCoverage479·BasicMedicalExpense
Insurance479MajorMedicalInsurance480·DisabilityIncomeInsurance481·
MedicareSupplementInsurance483·Long-TermCareInsurance484·
Demographics484·TheFinancialProblem484·Long-TermCarePolicy
Development485·TheContinuingDebate486·HealthInsuranceProviders487·
Summary489·ReviewTerms489·Review490·DiscussionQuestions490·
ResearchAssigmnent491·SuggestionsforFurtherStudy491
Chapter23EMPLOYEEBENEFITS493
ChapterObjectives493
Introduction494
TheGoalsoftheGovernment,Employer,andEmployee495·TheGovernment
495·TheEmployer497·The.Employee497·InsuredEmployeeBenefits498·
QualificationRules498·GeneralFeatures498·GroupLifeInsurance499·Group
DisabilityIncomeInsurance501·Long-TermDisability501·GroupHealth
Insurance502·SocialProblems502·HedlthInsuranceProviders503·Health
InsuranceContracts503·GeneralProvisionsofGroupHealthInsuranceContracts505
·TwoFederalRegulations506·InsuredPensionPlans507·Introduction507·
RequirementsforQualifiedPlans508·FederalRegulationofPensionPlans508·The
RoleofInsuranceinPensionPlans509·Profit-Sharing,401 k ,403 b ,Keogh,and
CafeteriaPlans511·Profit-SharingPlans511·401 k Plans511·403 b Plansor
Tax-DeferredAnnuities TDAs 511·KeoghPlans511·CafeteriaPlans512.·
IndividualRetirementAccount IRA 512·EligibiUtyforDeductibleContributions
512·InvestmentAlternative513·Rollovers513·Taxation514·Summary514·
ReviewTerms515·Review515·DiscusSionQuestions516·Research
Assignment516·SuggestionsforFurtherStudy516·Appendix:TaxDeferral
517·TheAdvantages.ofTaxDeferral519
Chapter24SOCIALSECURITY521
ChapterObjectives521
introduction522
SocialInsuranceBackground522·TheHistoryandPhilosophyoftheAmericanSocial
SecuritySystem524·SocialSecurityIsNotaPublicAssistanceProgram524·Social
SecurityandPrivateInsuranceAreDifferent525·SocialSecurityIsanInsuranceSystem
525·TheOperationoftheSocialSecurityProgram526·TheProgramIs
CompulsoryforAlmostEveryWorker526·ATaxonWagesIstheMainSourceofFunds
526·BenefitsAreNotFullyFunded527·InsuredStatusandEligibilityforBenefits527
·QuartersofCoverage527·CalculationofBenefits528·CategoriesofBenefits528·
RetirementBenefits529·SurvivorBenefits530·DisabilityBenefits531·Medicare
HealthInsurancefortheAgedandDisabled 533·SomeCurrentIssuesFacingthe
SocialSecuritySystem535·WillSocialSecurityBeThereforYoungandMiddle-
AgedAmericans 535·TheSocialSecuritySurplusandtheFederalDeficit536·Other
Criticism536·Summary537·ReviewTerms537·Review538·Discussion
Questions539·ResearchAssignment539·SuggestionsforFurtherStudy539
Chapter25UNEMPLOYMENTANDWORKERS''COMPENSATIONINSURANCE541
ChapterObjectives·541
Introduction542
UnemploymentInsurance542·SomeBackgroundInformation543·Operations
oftheUnemploymentInsuranceProgram544·IsUnemploymentInsuranceReally
Insurance 545·GeneralProvisionsofStatePrograms546·Summary--
UnemploymentInsurance546·Workers''Compensation547·TheProblem547·
TheSolution548·ThePurposesofWorkers''CompensationLaws550·Operationsof
Workers''CompensationSystems55t·CurrentConcernsAboutWorkers''
Compensation552·Summary--Worker''sCompensation554·ReviewTerms555
·Review555·DiscussionQuestions556·ResearchAssignment556·
SuggestionsforFurtherStudy556
Glossary557
AppendixA:Homeowner''sInsurancePolicy569
AppendixB:PersonalAutoPolicy587
AppendixC:SampleWholeLifeInsurancePolicyandApplication599
Index615
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