This document outlines various types of insurance including life, health, property, and casualty insurance, highlighting their roles and coverage. It details the essential components of an insurance contract such as declarations, definitions, insuring agreements, exclusions, conditions, deductibles, and provisions like coinsurance and other-insurance clauses. The text explains the purpose of these elements in managing risks, determining policy limits, and preventing abuse of insurance benefits.

1. Insurance And Procedure
Chapter Two:
Insurance Contract
By: Marya Sholevar

2. Insurance
 Life insurance:
Can provide a financial payment to your family and
loved ones upon your death.
 Health insurance help you:
-pay for services that your regular health care plan
does not cover
-supplement your income if you suffer a major illness
or severe injury
-pay for your medical expenses if you become ill
while on vacation.

3. Insrance
 Property and Casualty Insurance:
Property insurance can provide coverage for loss or
damage to:
• your home or personal possessions
• your car
• your business.
Casualty insurance can provide coverage against legal
liability for losses caused by:
• injury to other people
• damage to the property of others.

4. The Basics Parts of an Insurance Contract
1.Declarations
2.Definitions
3.Insuring Agreement
4.Exclusions
5.Conditions
6.Deductibles
7.Miscellaneous Provisions
8.Insured
9.Rider And Endorsement

5. The Basics Parts of an Insurance Contract
Declarations:
Statements about the property or life to be insured.
Definitions:
Section of the policy in which the insurer explains the
meaning of key words or phases in the contract.
Insuring Agreement:
Part of the insurance contract that states the major
promises of the insurer.Two basic forms are named
peril coverage and all-risks coverage

6. The Basics Parts of an Insurance Contract
Exclusions:
Listing of perils, losses, and property that are not
covered under the insurance contract.
Conditions:
Provisions that qualify or place limitations on the
insurer’s promise to perform.
Deductibles
Amount of your claim that you agree to pay before the
insurer pays the rest.

7. The Basics Parts of an Insurance Contract
Miscellaneous Provisions:
General provisions common to insurance contracts that
address the relationship between the insurer and the
insured, and the responsibilities of the insurer toward
third parties.
Insured:
Person(s) protected by the insurance policy.
Rider And Endorsement:
Clause or term added to your insurance policy to
provide protection, for an additional cost, for risks not
covered in a basic policy.

8. Why Exclusions?
 Some perils considered unisurable
 Presence of extraordinary hazards
 Coverage provided by other contract
 Moral hazard problems
 Coverage not needed by typical insureds

9. Purposes of Deductibles
 Reduce the number of small claims
 Reduce premiums
 reduce moral and attitudinal (morale) hazard

10. Deductibles In Health Insurance
And Property Insurance
Deductibles In Health Insurance :
Calendar-year Deductible
Corridor Deductible
Elimination Period
Deductibles In Property Insurance :
Straight Deductible
Aggregate Deductible

11. DEFINITION OF “INSURED”
An insurance contract must identify the person or
parties who are insured under the policy
Named insured
First named insured
Other insureds
Additional insureds

12. COINSURANCE
Coinsurance is a contractual provision that often
appears in property insurance contracts.
Nature of Coinsurance:
A coinsurance clause in a property insurance contract
encourages the insured to insure the property to a
stated percentage of its insurable value.The insurable
value of the property is the actual cash value,
replacement cost, or some other value described in the
valuation clause of the policy.

13. COINSURANCE
A coinsurance formula is used to determine the
amount paid for a covered loss. The coinsurance for-mula
is as follows:
(Amount of insurance carried/Amount of insurance required) * Loss
= Amount of recovery

14. Notice
When applying the coinsurance formula, two additional points
should be kept in mind.
First, the amount paid can never exceed the amount of the
actual loss even though the coinsurance formula produces such
a result.
Second, the maximum amount paid for any loss is limited to
the face amount of insurance.

15. Purpose of Coinsurance
The fundamental purpose of coinsurance is to achieve
equity in rating . Most property insurance losses are
partial rather than total losses. But if everyone insures
only for the partial loss rather than for the total loss,
the premium rate for each $100 of insurance would be
higher.
If the coinsurance requirement is met, the insured
receives a rate discount.
In property insurance, a coinsurance rate of 80
percent is typically used. However, the premium rate
decreases as the coinsurance percentage increases.

16. Coinsurance Problems
 Inflation can result in a serious coinsurance penalty
if the amount of insurance is not periodically
increased for inflation.
 The insured may incur a coinsurance penalty if
property values fluctuate widely during the policy
period.
Solution:
 Agreed value coverage: insurer agrees in advance
that the amount of insurance carried meets the
coinsurance requirement.
 Reporting form: property values are periodically
reported to the insurer.

17. COINSURANCE IN HEALTH
INSURANCE
Coinsurance clause in health insurance contracts,
requires the insured to pay a specified percentage of
covered medical expenses in excess of the
deductible .A typical plan requires the insured to pay
20, 25, or 30 percent of covered expenses in excess of
the deductible up to a maximum annual limit.
The purposes of coinsurance in health insurance are
(1) to reduce premiums and (2) to prevent
overutilization of policy benefits .

18. OTHER-INSURANCE
PROVISIONS
Other-insurance provisions typically are present in
property and casualty insurance and health
insurance contracts. These provisions apply when more
than one contract covers the same loss. The purpose of
these provisions is to prevent profiting from insurance
and violation of the principle of indemnity .

19. Some Important other-insurance
provisions
 The pro rata liability clause
 Contribution by equal shares
 Primary and excess insurance

20. Some Important other-insurance
provisions
 Pro rata liability applies when two or more policies
of the same type cover the same insurable interest in
the property.
 Contribution by equal shares often appears in
liability insurance contracts. Each insurer shares
equally in the loss until the share paid by each
insurer equals the lowest limit of liability under any
policy, or until the full amount of the loss is paid.

21. Some Important other-insurance
provisions
 Primary and excess insurance
The primary insurer pays first, and the excess insurer
pays only after the policy limits under the primary
policy are exhausted.
 Auto insurance and the coordination-of-benefits
provision in group health insurance are example of
primary and excess coverage.
Some rules of coordination-of-benefits provision:
 Coverage as an employee is usually primary to
coverage as a dependent .
 the birthday rule applies to dependentsv in families