Insurable Interest

Insurable interest is one wherein economic loss would be suffered from an adverse occurrence to the person(s) insured.

A person can only collect in property casualty if the insured has an insurable interest at the time of the loss. Many times a person can buy a valid contract but there is no insurable interest yet. Example is before buying a home you have to show up with a contract or a binder proving that the house is insured to receive the mortgage. Therefore you can actually insure property where there is not insurable interest but anticipated to be one. You can only collect at the time of loss IF an insurable interest exists at that time.

In life insruance you only need an insurable interest at the time you take out the policy. No continuing insurable interest is then needed. Contoversial areas include Corporate owned life insurance and investor owned life insurance and viatical settlements.

Contract of Indemnity

Property and liability insurance policies are said to be "contracts of indemnity" because the purpose of insurance is to indemnify the insured—that is, to make good a loss that the insured has suffered. The principle of indemnification is that the insured should not profit from the policy. This does not preclude that the insured will suffer some loss. In fact, many policies include a deductible which guarantees that the insured will pay part of each loss himself.

Contract of Adhesion

Property and liability insurance policies are said to be "contracts of adhesion" because the insurer and insured parties are generally of unequal bargaining power where the insured party cannot negotiate the terms of the contract and must take the offer of the insurer as made. The contract can be modified by endorsing the contract using pre-approved language. It also must be noted that the language in insurance contracts are generally approved by state law. And for life insurance, if the language does not meet insurance code minimums, the minimum is automatically read into the contract. Importantly, the rule of law regarding "contracts of adhesion" is that any ambiguities are resolved against the WRITER of the contract. The writer of the contract most of the time is the insurance company. However, large companies can write their own "manuscript" policies and place them in a broker's hands for bids. In this case ambiguities are construced against the writer - the insured in this case.

Unilateral Contract

Only one party is legally bound to contractual obligations after the premium is paid to the insurer. Only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract. However, in order for an insured to collect, the insured must perform according to the contract. If the insured does not perform then the insurance company does not have to perform. This is mainly covered in a section called "Duties after a loss" found in insurance contracts.

Conditional Contract

Property and liability insurance policies are said to be "conditional contracts" because the obligation of the insurer to perform is conditional upon an event happening. Compare this to entering into a contract to build a house. Both parties must perform. Build and payment. This is not conditional.

Personal Contract

Property and liability insurance policies cover persons and not property or operations. Although the terms "insured my house" or "insured my motorcycle" are used commonly, they are not technically correct. The contract between the insurer and the insured is a personal contract between an insuring entity and a person(s) based upon their financial, "insurable interest", in the object or liability being insured. In other words, the question of whether payment is due upon the occurrence of a contingency, and how such payment will be measured, depends upon economic loss suffered by the person(s). For example, if a person sells her home and gives a contract covering the home to the new owner and a loss occurs, the insurer will not pay the new owner since there is no privity of contract. The insurer will not pay the old owner because there is no insurable interest.

Insurance Contract Principles

A property or liability insurance policy is a "personal contract," a "conditional contract," a "unilateral contract," a "contract of adhesion," a "contract of indemnity," and a contract which requires that the person insured have an insurable interest at the time of the insured-against contingency.

Further: An Insurance Contract is one of Uberrima fides. This is a Latin phrase meaning "utmost good faith" (or translated literally, "most abundant faith"). It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in utmost good faith, making a full declaration of all material facts in the insurance proposal. Under utmost good faith contracts if there is a violation it is categorized as a material misrepresentation, a breach of a warranty, or a concealment. Insureds can also go after insurers for a breach of utmost good faith. Normal business contracts are "good faith contracts" and can result in contract enforcement, monetary damages or both. If the contract cannot be performed or is unconsionable, the contract can be set aside. This contrasts with the legal doctrine of caveat emptor (let the buyer beware). Caveat emptor does not come into play in insurance contracts. The buyer does have an obligation to read the contract and if is not understood to ask the sales agent to explain. It is best to get the explanations in writing.

Principles of insurance

From the point of view of the insurance company there are four general criteria for deciding whether to insure events or not. 1. there must be a larger number of similar objects so the financial outcome of insuring the pool of exposures is predictable. Therefore they can calculate a "fair" premium. 2. the losses have to be accidental and unintentional from the point of view of the insured. 3. the losses must be measurable, identifiable in location, time, and be definate. They also want the losses to cause economic hardship. That is, so the insured has an incentive to protect and preserve the property to minimize the probabilty that the losses occur. 4. the loss potential to the insurer must be non-catastropic. It cannot put the insurance company in financial jeopardy.

Losses must be uncertain.

The rate and distribution of losses must be predictable: To set premiums (prices) insurers must be able to estimate them accurately. This is done using the Law of Large Numbers which states that: The larger the number of homogenous exposures considered, the more closely the losses reported will equal the underlying probability of loss. If the coverage is unique, the insured will pay a correspondingly higher premium. Lloyd's of London often accepts unique coverages. (e.g., the insuring of Tina Turner's legs and Jennifer Lopez's buttocks)

The loss must be significant: The legal principle of De minimis dictates that trivial matters are not covered. Furthermore, rational insurance uses existing insurance when the transaction costs dictate that filing a claim is not rational. Actually, De minimis does not come into play here. The reality is that it costs too much to insure frequent and/or small losses. It is much more cost effective to not transfer small loss potential to insurance companies by taking the largest deductible that you can stand (given adequate price reduction). As for filing small claims, if the insurance company contractually should pay for it, you should file it. This is the difference between deciding before the contract the parameters and after following through.

The loss must not be catastrophic: If the insurer is insolvent, it will be unable to pay the insured. In the United States, there is a system of Guarantee Funds that run at the state level to reimburse insured people whose insurance companies have become insolvent. [1] This program is run by the National Association of Insurance Commissioners (NAIC). [2] To avoid catastrophic depletion of their own capital, insurers almost universally purchase reinsurance to protect them against excessively large accumulations of risk in a single area, and to protect them against large-scale catastrophes.

Additionally, “speculative risks” like those incurred through gambling or through the purchase of company stocks are uninsurable.

Homeowners insurance

Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.

Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.

Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility.

Choosing the right reverse mortgage?

I get many emails and calls about the differences in the different reverse mortgage programs. The usually want to see how the different programs work and how much money they can receive from each program.

When we do a free reverse mortgage analysis we will be able to see the results from all the solutions. At that point we can put together a page showing the different amount, fees, and interest. This form is great for people to compare the different options.

We noticed recently that the most common reverse mortgage has been the FHA HECM (Home Equity Conversion Mortgage) . This loan has been providing our clients with the highest payouts.

As FHA continues to add increased benefits and payouts to the HECM it will probably remain at the top for the near future. RTG Consultants will continue to monitor the different reverse mortgage products to bring our clients the best solutions.

I also added the links for the the FHA HECM and Fannie Mae HomeKeeper products. If you have any questions, please comment here or email me.
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Auto insurance

Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.

Auto insurance provides property, liability and medical coverage:

Property coverage pays for damage to or theft of your car.

Liability coverage pays for your legal responsibility to others for bodily injury or property damage.

Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you're financing a car, your lender may also have requirements.

Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium.
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