INTRODUCTION

CHAPTER 2Insurance

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In this chapter, the law of insurance is presented. Insurance law contains elements of con-tract law because insurance is a contract. What makes up the offer, the acceptance, and theconsideration will be discussed. What the contract is about will be discussed, as well as whomay obtain the contract and how the contract is arranged. The chapter also deals with thetypes of insurance policies that are available, and the principles of life, health, automobile,home, and business insurance. Annuities are also covered.

PART 1: INSURANCE IN GENERAL

INSURANCE IN GENERAL

Insurance law is contract law because insurance is a contract between the insurer orunderwriter (the party assuming the risk in return for payment of a premium) and theinsured/assured or insuree (the person who obtains or is covered by the insurance on hisor her health, life, or property). Insurance covers the insured, but it may also cover anadditional insured—another person. For example, David takes out health insurance thatcovers not only himself but his wife Kristi and his son David, Jr. A contract exists betweenDavid and the health insurance company that the company will pay David the costs incurredas a result of his illness or the illness of his wife or child. Refer to Exhibit 2-1.

EXHIBIT 2-1 HOW INSURANCE IS A CONTRACT

Offer—Provideinsurance to

protect against atype of loss for

a price.

Acceptance—The person

seekinginsurance agrees

to the offer.

Consideration—The insurancepremiums are

paid for coverage.

Contract—The insurance

policy constitutesthe actual contract.

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PAYMENT OF THE PREMIUM

The insurer agrees to compensate the insured for loss of a specified subject or item causedby specified perils if the person seeking the insurance pays an insurance premium. Thepremium is a sum of money paid to the insurer or underwriter as consideration for the in-surance. In a single premium insurance policy, the insured makes only one premium

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EXHIBIT 2-2 NECESSARY ELEMENTS FOR AN INSURANCE POLICY TO APPLY

Insurable Interest—The person must have a real and substantial interest in the property.

Potential for Pecuniary Loss—The loss of money or something of monetary value if something happens to the property.

Insurable—The property must be capable of being insured against loss, damage, illness, or death.

Insurable Value—The value of the property or interest for insurance purposes must be determined.

Deductible—The part of the insured loss that must be paid or borne by the insured before he or sheis entitled to recover any amount must be determined.

+

+

+

+

payment; this single premium is enough to provide coverage, and no other premiums aredue. An example of a single premium insurance policy is air travel insurance, whichpays the beneficiary in the event that the insured is killed while on a specific flight. Theinsured buys the air travel insurance for one flight, pays the single premium, and the pol-icy is cancelled at the safe conclusion of the trip. However, if the plane crashed and theinsured were killed, the air travel insurance would pay the full value of the policy.

INSURABLE INTEREST

In order to obtain insurance, the person seeking the insurance must have an insurable in-terest, a real and substantial interest in the property. In order to have insurable interest, theperson must suffer a pecuniary loss—the loss of money or something of monetary value—if something happens to the property. Not only must there be an insurable interest, but theproperty or interest must also be insurable, that is, capable of being insured against loss,damage, illness, or death.

The amount of insurance a person can purchase is determined by the insurable value ofthe property or interest for insurance purposes. For example, Madge inherits an old vasefrom her mother’s estate. She has the vase appraised and discovers that it is worth over$4,000. Because she is the owner of the vase, she has an insurable interest in the vase: harmto or destruction of the vase would cause pecuniary loss. Madge could obtain up to $4000in insurance for the vase because that is its appraised value. However, if the policy has adeductible, the amount she can recover will be reduced by that deductible. A deductible isthe part of the insured loss that must be paid or borne by the insured before he or she is en-titled to recover any amount. If the insurance on the vase has a $500 deductible, then theamount recovered from the insurance company would be $3,500—$4,000 less the amountof the $500 deductible. The amount of the deductible is contained in the insurance policyin the deductible clause. Refer to Exhibit 2-2 for a summary of the requirements for in-surance to apply.

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INSURANCE COMPANIES

Insurance is purchased from an insurance company, whose business is to make and enterinto contracts of insurance. There are generally two types of insurance companies: mutualcompanies and stock companies. A mutual insurance company is a company whose fundfor the payment of losses consists not only of the company capital but also of premiumspaid by the insured. The people who become insured become members of the associationand contribute either cash or premium notes. A premium note is a promissory note givento the company by the insured for the entire amount of the premium or a part thereof. A par-ticipating policy may be issued by the mutual company. This is an insurance policy inwhich the insured participates in the profits by receiving dividends or rebates from futurepremiums.

A stock insurance company may also issue a participating policy. A stock insurancecompany is one that is organized according to the laws governing business corporations,having sold shares of capital stock which, with current income and accumulated surplus,make up the fund that is used to pay the claims of the insured. Policyholders are not mem-bers of a stock insurance company and do not receive any dividends from any surplus un-less they own stock in the company.

INSURANCE AGENTS

In order to purchase insurance, a person may contact an insurance agent. An insuranceagent is an individual employed by an insurance company to solicit insurance business. Theagent does not represent the purchaser of the insurance; he or she represents the insurancecompany. (See Chapter 13 Agency, in the main text.)

An agent can be a general agent, one who has the general oversight of the company’sbusiness in a state or a large section of the country. An agent may also be a local agent, onewhose functions are limited to some particular locality. An agent can also be a solicitingagent, who has authority only to solicit insurance, submit the application to the company,and perform acts that are incidental to these powers.

A person seeking insurance may also contact an insurance broker, who is an interme-diary between the insured and the company. An insurance broker solicits insurance from thepublic under no employment agreement from any specific company and places orders ofinsurance with the company selected either by the insured or by the broker. The insurancebroker is an agent on behalf of the insured and can be an agent for the insurance company.See Exhibit 2-3 for a summary of insurance sellers.

EXHIBIT 2-3 SELLERS OF INSURANCE

General Agent – An agent who can sell insurance and has general oversight of a company’s business ina state or a large section of the country.

Local Agent – An agent whose functions are limited to some particular locality, for example, a city orpart of a state.

Soliciting Agent – An agent who has authority only to solicit insurance and submit the application to theinsurance company.

Insurance Broker – A person who is an intermediary between the insured and the company. An insur-ance broker solicits insurance from the public under no employment agreement from any specific com-pany and places orders of insurance with the company selected either by the insured or by the broker.

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BINDERS, RISKS, RATINGS, AND LOSSES

Upon receipt of an application for insurance, the insurance company may issue an insur-ance binder. This is a memorandum of the insurance coverage agreement giving temporaryprotection pending the issuance of the formal policy while the company is investigating therisks and setting the premium rates. For example, Hamish takes out insurance on himself.The company issues a binder that provides for temporary protection. If any event that iscovered by the insurance occurs, then the binder is the proof of the coverage. Once the fi-nal amount of the premium is determined, a permanent policy will be issued.

Risk is the danger or hazard of loss of the property that is insured, or the likelihood thatwhat is insured against will actually happen. After considering the risk, the amount of thepremium is set. This process is the determination of the insurance rating: How big a riskof loss is the individual or how big a risk is the property?

If the individual or property is a large enough risk, then hazardous insurance may be is-sued. Hazardous insurance is insurance on property that is in unusual or peculiar dangerof being destroyed by fire. For example, a couple builds their home at the edge of a forestthat has suffered ten forest fires in the past twenty years. Because of the frequency of inci-dents of forest fires, the home is considered a high-risk property, and hazardous insuranceis issued. Hazardous insurance also applies to people whose occupation exposes them tospecial or unusual danger, for example, police officers or firefighters.

If the risk of loss is too great to be paid by a single company, insurance companies maycombine to form an insurance pool, sharing premiums and losses so as to spread the riskamong them. One company will not have to pay any claim by itself; rather, several compa-nies will pay any claims.

Loss is the fact that the item has been lost or destroyed. Many types of loss can be suf-fered in insurance law. Actual loss results from the real and substantial destruction of theproperty insured. If a home is destroyed by a tornado, the actual loss is the loss of the homebecause it was destroyed by the tornado. A casualty loss is the complete or partial destruc-tion of property resulting from an identifiable event of a sudden, unexpected, or unusual na-ture. Casualty losses can be deducted from taxes.

A pecuniary loss is the loss of money or something that has monetary value, for exam-ple, a stock or bond. Consequential losses are those not directly caused by damage but aris-ing from the results of the disaster. For example, the cost of lodging after an individual’shome is destroyed in a fire is a consequential loss. The loss of the house is the actual loss;not having somewhere to live is the consequential loss.

A direct loss results immediately from an occurrence. It is not a remote loss because ofsome of the consequences or effects of the loss. If one’s home is destroyed by fire, the di-rect loss is the loss of the home. Anything else that happens, such as the cost of anotherplace to live while the home is being rebuilt, is a consequence of the direct loss. A con-structive loss results from injuries to the property, without its destruction, that renders itvalueless to the insured, or loss that prevents its restoration to the original condition excepta cost exceeding the value of the item. The item is not totally destroyed and may still retainsome value, but it has become useless to the person who owns it. For example, a car iswrecked so badly that it cannot be driven again. It has lost use to the owner, but may stillbe used for parts, so it has value to someone else. A constructive total loss occurs whenthe insured item of property has lost its total usefulness and the insured is deprived of itsbenefits totally. The item may not be totally destroyed, but it has become useless to anyone.

A partial loss is the loss of a part of a thing or part of its value or damage to the item thatis not the actual or constructive total loss. The damage done is not enough to amount to atotal loss. A disaster loss is the loss suffered in an area that has been declared a disaster areaby the President of the United States. See Exhibit 2-4 for a summary of the types of lossesa person can suffer.

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EXHIBIT 2-4 TYPES OF LOSSES

Loss – An item has been lost or destroyed.Actual Loss – The loss resulting from the real and substantial destruction of the property insured.Casualty Loss – The complete or partial destruction of property resulting from an identifiable event of a

sudden, unexpected, or unusual nature.Pecuniary Loss – The loss of money or something that has monetary value (e.g., a stock or bond).Consequential Loss – The loss is not directly caused by damage, but arises as a result of a disaster.Direct Loss – A loss resulting immediately from an occurrence; it is not a remote loss because of some of

the consequences or effects of the loss. Constructive Loss – The item is not totally destroyed, but it has become useless to the person owning it. It

may still have value.Constructive Total Loss – The insured item of property has lost its total usefulness and the insured is de-

prived of its benefits totally. The item is not totally destroyed, but it has become useless to anyone.Partial Loss – A loss of a part of a thing or part of its value or damage to the item that is not the actual

or constructive total loss.Disaster Loss – The loss suffered in an area that has been declared a disaster area by the President of

the United States.

PROOF OF LOSS AND ADJUSTERS

In order to collect from an insurance company, the insured will have to submit proof of loss,a formal statement that gives the company enough information to enable it to determine theextent of its liability under a policy. Once the company receives a report of a loss, it willappoint an insurance adjuster who will determine and report the actual loss and settle theclaim against the insurer. Either the insurance company or the insured may hire the adjuster.

POLICY OF INSURANCE

GENERAL PRINCIPLES

The policy of insurance is the written instrument that sets out the contract of insurance.The insurance policy and will states that the insurer, because of the consideration paid (thepremium), will indemnify the other party (the insured) for losses insured against. To in-demnify the insured is to restore the person in whole or in part by payment, repair, or re-placement of the item that was destroyed. The policyholder is the person who owns thepolicy of insurance, whether he or she is the insured or not. For example, a parent can pur-chase a life insurance policy for the life of his or her child. The child is the insured but theparent is the actual policyholder because he or she owns the policy as a result of his or herpaying the premiums for it.

TYPES OF INSURANCE POLICIES IN GENERAL

There are many types of insurance policies and terms contained in them. An assessable pol-icy is one under which the policyholder may be held liable for the losses of the insurancecompany beyond the company’s policy reserves. A policy reserve is the funds held by the

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insurance company specifically to meet its policy obligations. If this reserve is exhausted,then the company may attempt to collect the amount it had to pay over its policy reservefrom the policy holders.

In an interest policy, the insured has a real, substantial, and assignable interest in thething insured. For example, Corlas has a real interest in her home; she is the owner. Thepolicy she would purchase would be an interest policy. In contrast, a wager policy is onefor which the insured has no real interest in the subject matter; the insured could not sus-tain any possible loss by the harm suffered by the item. Such policies are generally illegaland are not generally written because the insured does not have an insurable interest. Forexample, if Gavin took out an insurance policy on his friend Nestor’s home—a home inwhich he has no interest—this would be a wager policy.

An open policy is one in which the value of the subject matter that is insured is not fixedor agreed upon in the policy, but will be estimated in case of loss. Quint takes out an openpolicy on his house that is then destroyed by fire. There is no amount specified in the pol-icy, so the amount Quint would receive for the loss is the assessed value of the home whenit was destroyed by the fire. In a value policy, the value of the subject matter insured isfixed for the purposes of the insurance and is stated on the face of the policy. For example,Monette insures her home for $150,000, and this is stated in the policy. See Exhibit 2-5 fora summary of the different types of insurance policies.

EXHIBIT 2-5 SUMMARY OF THE DIFFERENT TYPES OF POLICIES

Assessable Policy – A policy under which the policyholder may be held liable for the losses of the insur-ance company beyond the company’s policy reserves, which are the funds held by the insurance com-pany specifically to meet its policy obligations. If this reserve is exhausted, then the company mayattempt to collect the amount it had to pay over its policy reserve from the policy holders.

Interest Policy – The insured has a real, substantial, and assignable interest in the item insured.Wager Policy – A policy in which the insured has no real interest in the subject matter; the insured could

not sustain any possible loss by the harm suffered by the item. Such policies are generally illegal andare not generally written because the insured does not have an insurable interest.

Open Policy – The value of the subject matter that is insured is not fixed or agreed upon in the policy,but will be estimated in case of loss.

Value Policy – A policy in which the value of the subject matter insured is fixed for the purposes of theinsurance and is stated on the face of the policy.

Policy value is the amount of cash available to the policyholder upon surrender or can-cellation of the insurance policy. If the insurance policy is cancelled, this is the amount ofmoney the policyholder will receive. The policy year begins with the date of the com-mencement or anniversary of the insurance policy. For example, Hattie purchases insuranceon September 16, 2005. The policy year would start on September 16, 2005, the date thepolicy was purchased.

GENERAL TYPES OF INSURANCE

INTRODUCTION

Certain words and phrases are used to describe broad categories of insurance that are avail-able, the sorts of claims that are covered, how claims are paid, and the purposes of the in-surance. These terms may also apply to more specific types of insurance. Such terms aremore descriptive and can apply to life, health, accident, auto, or fire insurance.

INSURANCE 7INSURANCE 7

RISK INSURANCE AND ANNUITIES

Accident insurance is a form of insurance that indemnifies the insured against expenses,loss of time, and suffering that result from accidents that cause physical injury. If the poli-cyholder is hurt or injured, this type of insurance will provide him or her payments forlosses caused by injury. Accident insurance is also known as indemnity insurance. All riskinsurance is a type of policy that ordinarily covers every loss that may happen, except byfraudulent acts on the part of the insured. This is also known as comprehensive insurance.First party insurance applies to the insured’s own person or property. A consumer insureshis or her car or house with first party insurance.

Annuity insurance provides periodic payments to the insured for either a stated periodor for life. These payments can be into a retirement account or an account that providesmonthly payments for a period of years. An annuity is the right to receive a fixed, periodicpayment either for life or for a set number of years.

ASSESSMENT AND OLD LINE INSURANCE

Assessment insurance is a type of mutual insurance in which the policyholders are as-sessed as losses are incurred. Payments to the insured are not fixed, but rather are de-pendent on the collection of assessments necessary to pay the amounts insured. The moreclaims that are filed, the higher the assessed amount will be because the company has topay the claims made. The fewer claims that are paid, the lower the amounts that are as-sessed will be.

Old line insurance sets definite premiums and fixes the insurer’s liability. The policy-holder knows the amount of premiums he or she will pay for the amount of insurance pur-chased. These amounts are set out in the agreement.

CASUALTY INSURANCE

Casualty insurance is concerned with the losses caused by injuries to persons and the le-gal liability imposed upon the insured for the injury or damages caused to the property ofothers. If the policyholder hurts someone or damages another’s property, casualty insurancewill pay for the harm caused. Casualty insurance does not pay for any loss suffered by thepolicyholder because of an accident; rather, it is intended to pay others for the damagescaused by an accident that is the policyholder’s fault. Casualty insurance is also known asliability insurance because it covers the liability incurred by the policyholder. For exam-ple, Bebe takes out a policy of casualty insurance to pay the claims of customers who mightbe injured in her store. A customer slips and falls in Bebe’s store; the insurance will pay thecustomer for the harm caused by the slip and fall.

CONCURRENT INSURANCE

Concurrent insurance is insurance coverage under two or more similar insurance poli-cies of varying dates and amounts. One insurance policy is supplemented by the other: thesecond covers the costs that the first policy does not. A potential policyholder of concur-rent insurance should look for an excess clause, which limits the liability of the insurer tothe amount the other insurance did not pay. For example, Karyn’s first health insurancepolicy paid all but $200 of her medical bills. The other insurance policy will pay only upto $200—the amount the first insurance did not pay. The person insured cannot collectmore than the actual cost of the loss. An umbrella policy is a type of insurance protection

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against losses in excess of the amounts covered by other liability or casualty insurancecompanies.

FLOATER INSURANCE AND BLANKET POLICIES

Floater insurance (or a floater policy) is a type of insurance that applies to moveableproperty whatever its location if the property is within the territorial limits established bythe policy. Any loss to the property that happens within the territorial limits will be cov-ered by the policy. For example, Mike insures his boat and there is a territorial limit set.As long as the boat is within the territory established by the policy, any loss to the boatis covered. But if the loss happens outside the territorial limit set, then there is no cover-age. A blanket policy covers more than one type of property in one location, or one ormore types of property in more than one location. For example, a homeowner’s policycovers the loss of the home, all of its contents, and any other property damaged that islocated in or on the home. Refer to Exhibit 2-6 for a summary of the different types ofinsurance.

EXHIBIT 2-6 SUMMARY OF THE DIFFERENT TYPES OF INSURANCE

Accident Insurance – Insurance that indemnifies the insured against expenses, loss of time, and sufferingthat result from accidents causing physical injury; also known as indemnity insurance.

All Risk Insurance – A type of policy that ordinarily covers every loss that may happen, except by fraud-ulent acts on the part of the insured. This is also known as comprehensive insurance.

First Party Insurance – Insurance that applies to the insured’s own person or property.Assessment Insurance – A type of mutual insurance where the policyholders are assessed as losses are

incurred. Payments to the insured are not fixed, but are dependent on the collection of assessmentsnecessary to pay the amounts insured.

Old Line Insurance – Sets definite premiums and fixes the insurer’s liability.Casualty Insurance – Insurance that covers the losses caused by injuries to persons and the legal liabil-

ity imposed upon the insured for the injury or damages caused to the property of others.Concurrent Insurance – Insurance coverage under two or more similar insurance policies of varying dates

and amounts.Umbrella Policy – A type of insurance protection against losses in excess of the amounts covered by other

liability or casualty insurance companies. An umbrella insurance policy covers the losses not coveredby the other insurance policies.

Floater Insurance – Insurance that applies to moveable property whatever its location if the property iswithin the territorial limits established by the policy.

Blanket Policy – A policy that covers more than one type of property in one location, or one or moretypes of property in more than one location.

EXCESS INSURANCE, UNDERINSURANCE, AND MUTUAL INSURANCE

Excess insurance is coverage against losses in excess of a stated amount or in excess ofcoverage provided under another insurance contract or policy. Underinsurance is insur-ance coverage for less than the value of the property. For example, if a house is worth$100,000 and is insured for $110,000, it has excess insurance. If it is insured for $90,000,then it is underinsured.

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Mutual insurance covers groups of people. Mutual insurance is of three varieties: cooper-ative insurance, fraternal insurance, and group insurance. Cooperative insurance is a formof mutual insurance in which the policyholders are the owners. The policyholders may be as-sessed for losses in part or in their entirety. Cooperative insurance may also be nonassessable.

Fraternal insurance is a form of life or accident insurance provided by a fraternal or ben-eficial association. A member of such an organization, or the member’s heirs, in case ofdeath, is paid a stipulated sum of money out of funds raised for that purpose by the paymentof dues or assessments by all other members of the association. Group insurance is a formof insurance where groups of people—usually employees—are offered insurance in consid-eration of a flat periodical premium either totally paid by the employer or partly by the em-ployer and partly by the employees. The members of the group are covered either by a singlemaster policy or individual policies. In group insurance, the single insurance policy that cov-ers all of the insured is the master policy. The individuals who are covered by this policy willreceive a certificate indicating they are participating in the group insurance. See Exhibit 2-7.

EXHIBIT 2-7 GROUP INSURANCE

Cooperative Insurance – A form of mutual insurance in which the policyholders are the owners. The pol-icyholders may be assessed for losses in part or in whole. Alternatively, the insurance may benonassessable.

Fraternal Insurance – A form of life or accident insurance provided by a fraternal or beneficial associa-tion. A member of such an organization (or his or her heirs in case of death) is paid a stipulated sumof money out of funds raised for that purpose by the payment of dues or assessments by all membersof the association.

Group Insurance – Groups of people—usually employees—who are offered insurance in considerationof a flat periodical premium either totally paid by the employer or partly by the employer and partlyby employees. The members of the group are covered either by a single master policy or by individ-ual policies.

CROP INSURANCE

Government is responsible for the issuance of several types of insurance policies. One typeof government insurance is crop insurance, which is coverage against financial loss due tothe destruction of agricultural products from rain, hail, and other elements of nature. TheFederal Crop Insurance Corporation, a federal agency, sponsors crop insurance.

FDIC

Another type of government insurance is provided by the Federal Deposit Insurance Cor-poration (FDIC), which is an independent agency of the executive branch of governmentthat provides deposit insurance. (See Chapter 6, Administrative Law, in the main text.)This insurance covers, up to the statutory limit, deposits in qualified banks and savings andloans. If a depositor loses his or her money because a bank that is FDIC-insured fails, thenthe amount that the person loses is insured up to the current statutory limit of $100,000. Theperson can recover the amount of his or her loss up to $100,000.

GOVERNMENT INSURANCE

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LIFE, WAR, CRIME, AND FLOOD INSURANCE

National service life insurance is life insurance that is underwritten and offered by thefederal government to war veterans. If one is not a veteran of a war, he or she is not eligi-ble for this type of insurance. War risk insurance is offered by the federal government toprotect persons against wartime loss of vessels and property on the high seas. Shipownerswho lose their vessels because of an act of war may file a claim against war risk insurance.

Crime insurance protects the insured from losses resulting from criminal activity againstthe insured, such as burglary or theft. The federal government sponsors crime insurance forpeople who live in high crime areas. Flood insurance indemnifies someone because of losscaused by flood; it is required by lenders in areas designated as potential flood areas. Thistype of insurance is privately issued, but it is subsidized by the federal government.

SOCIAL INSURANCE

Social insurance is a comprehensive social welfare plan established by law and based onprograms that spread the cost of the benefits among the total population rather than on in-dividual recipients. The basic federal and state social insurances currently used are old age,survivors, and disability insurance, Medicare, Medicaid, unemployment insurance, andworker’s compensation insurance. Unemployment insurance is a form of taxation col-lected from businesses to fund unemployment payments and benefits. Unemployment in-surance is intended primarily for people who find themselves unemployed through no faultof their own. Worker’s compensation insurance is purchased by employers to cover pay-ments to employees who are injured in accidents arising out of their employment. (SeeChapter 18, Labor and Employment Law, in the main text.)

If a beneficiary wants to make sure he receives the maximum benefit from insurance, heor she can arrange for an insurance trust. An insurance trust is an agreement between theinsured and a trustee that the proceeds of a policy will be paid directly to the trustee, whois to invest and distribute the proceeds to the beneficiary in a manner and at such time asdirected in the trust agreement.

PART 2: SPECIFIC TYPES OF INSURANCE

LIFE INSURANCE IN GENERAL

The first type of specific insurance that will be discussed here is life insurance. In general, lifeinsurance is a contract between the holder of the policy and the insurance company in whichthe company agrees, in return for payment of premiums, to pay a specified sum—the facevalue of the policy—to a designated beneficiary upon the death of the insured. Generallysomeone takes out a life insurance policy to benefit someone else—not himself or herself.

WHOLE LIFE INSURANCE

There are two broad types of life insurance: whole life and term life. In whole or straightlife insurance, premiums are paid for as long as the insured is alive. The premium remainsthe same, and the insurance builds up cash reserves. Because of these cash reserves, the

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whole life policy is an asset that can be borrowed against. If the insured receives an advanceon the value of the policy, but does not have to pay it back, this is a policy loan. The valueof the policy is reduced by the amount that was advanced to the insured. The face value ofthe policy never goes down unless there is a policy loan.

TERM LIFE INSURANCE

In term life insurance or a term policy, premiums are paid for a specified or limited pe-riod of time. Such a policy is renewable from term to term (it can be cancelled at the expi-ration of a term); the premiums may increase as the policy holder gets older because therisk increases; it has no cash surrender value; and it does not build up cash reserves. A termlife insurance policy is not an asset that can be borrowed against. Also, the amount that aperson can receive under the policy may decrease depending on the terms of the policy. SeeExhibit 2-8 for the differences between whole life and term insurance.

EXHIBIT 2-8 WHOLE LIFE INSURANCE OR TERM LIFE INSURANCE

WHOLE LIFE INSURANCE

1. Premiums are paid as long as the insured is alive.2. Premiums stay the same.3. Policy builds up cash surrender value.4. Policy is an asset that can be borrowed against.5. Face value never decreases.

TERM LIFE INSURANCE

1. Premiums are paid for a set period of time.2. Premiums can increase.3. Policy has no cash surrender value.4. Policy is not considered an asset for loans.5. Face value can decrease.

There are several different forms of these basic insurance policies. Old line life insur-ance is insurance available at a level or flat rate. The premium is fixed (will not increase ordecrease); it is payable without condition at stated intervals; and upon death a certain sumof money will be paid without condition.

Endowment insurance (or an endowment policy) is a type of life insurance that com-bines the features of life insurance with those of investments. The endowment policy is fora stated period of time and premiums are paid during this time. If the insured is still aliveafter the stated period of time, the face value is paid to the insured. If he or she dies beforethe stated period of time, the face value is paid to his or her beneficiary.

Endowment insurance may be a type of limited payment life insurance, where the pre-miums are payable for a definite period of time. Upon completion of this period of time,the policy is paid for in full. For example, Clayton takes out an endowment life insurancepolicy when he is 20 years old and pays on it for thirty years. If he is still alive after thirtyyears, he will receive the face value of the policy. If he has died, then his named benefici-ary will receive the value of the policy. The policy would be a paid up policy, one on whichno additional payments of the premium are to be made.

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Decreasing term insurance is a term life insurance policy where the premiums stay thesame, but the face value of the policy declines. Decreasing term insurance provides a deathbenefit, but the amount declines throughout the term of the policy to zero at the end of theterm. For example, Benita takes out a decreasing term life insurance policy for $40,000. Thepremium stays the same throughout the life of the policy. The amount her beneficiaries willreceive upon her death will decline the older she gets. The amount may ultimately be nothing.

Group term life insurance is coverage provided by an employer for a group of em-ployees. Such insurance is renewable on a year-to-year basis and does not accumulate anyvalue. Group term life insurance may be regular term insurance or it may be decreasingterm insurance.

In renewable term life insurance, the premiums are level during each term, but increaseat each term as the insured ages. The insured can renew the policy for additional terms with-out having to undergo a medical examination. Convertible life insurance is a form of termlife insurance that gives the insured the right to change the policy to whole life insurancewithout a medical examination. See Exhibit 2-9 for a summary of the different types of lifeinsurance.

EXHIBIT 2-9 TYPES OF LIFE INSURANCE

Old Line Life Insurance – The premium amount stays the same and is due at set intervals. There are noconditions that have to be met before payment will be made.

Endowment Insurance – The premiums are paid for a certain, set period of time. If the person who tookout the insurance is still alive at the end of this period, he or she will receive the benefits. If not, thebenefit goes to the named beneficiary.

Decreasing Term Insurance – Term life insurance where the premiums stay the same but the face value ofthe policy declines. Decreasing term provides a death benefit, but the amount declines throughout theterm of the policy until it reaches zero at the end of the term.

Renewable Term Life Insurance – The premiums are level during each term, but increase at each termwith the age of insured. The insured can renew the policy for additional terms without having to un-dergo a medical examination.

Convertible Life Insurance – A form of term life insurance that gives the insured the right to change thepolicy to whole life insurance without a medical examination.

JOINT LIFE INSURANCE

Joint life insurance is a type of life insurance for two or more people and is payable on thedeath of the first to die. The remaining insured will share in the proceeds. For example,Paul, Candy, and Steven take out a joint life insurance policy for $60,000. When one of theinsured dies, the remaining two will share $60,000, receiving $30,000 each. Last survivorinsurance is life insurance on two or more people, but is not payable until the death ofevery one of the insured. For example, if Wes and Grace took out last survivor insuranceand named their daughter as the beneficiary, their daughter would not receive the benefitsuntil both of her parents had died.

DOUBLE INDEMNITY

If a life insurance policy has a double indemnity clause, the beneficiary will receive twicethe amount of the face value of the policy if a certain event takes place. For example, Faisaltakes out a $40,000 life insurance policy with a double indemnity clause. The clause states

INSURANCE 13

that if Faisal is killed while driving his 18-wheeler truck, then the face value doubles. IfFaisal dies while operating his big rig, his beneficiary would receive $80,000 instead of$40,000. If Faisal dies of natural causes, then the beneficiary would receive $40,000.

A policy may have an aviation clause that limits the liability on the insurance companyif death or injury is connected to a specified type of aviation. For example, Faisal’s policyalso has a clause that states if he is killed while flying a private plane, the face value is re-duced by 50%. If he is killed in a crash of a private plane he is flying, his beneficiary wouldreceive $20,000.

Extended term insurance is a provision in most policies that continues the existingamount of life insurance for as long a period of time as the policy’s cash value will purchasethe insurance. The cash value of the policy will pay the premiums, keeping the policy in ef-fect until there is no more cash surrender value.

HEALTH INSURANCE

Health insurance is a contract whereby the insurer is obligated to pay for any expenses re-lated to a bodily injury, disablement, sickness, or death by accidental means, or for the ex-penses accrued in preventing any sickness. The insurer may also have to pay a monetary orpecuniary benefit if any of these conditions happen. The policy may contain a preexistingcondition clause. This clause limits coverage for a condition the insured had when the pol-icy was first taken out. It may not cover the condition until a certain period of time haspassed or it may never cover the condition.

Group health insurance provides insurance coverage for employees or other membersof the group covered under a group policy for hospital, surgical, and other medical ex-penses. Major medical insurance provides coverage for large medical, surgical, and hos-pital expenses of the insured.

AUTOMOBILE INSURANCE

IN GENERAL

Automobile insurance may include insurance against the loss or damage to a car causedby fire, windstorm, theft, collision, or other hazard. Auto insurance may also be against thelegal liability for personal injuries or property damage that is caused by the operation of themotor vehicle. A policy of indemnification protects the owner/operator of a vehicle from li-ability to a third person. It may also include protection to the owner/operator of the vehicleif the other driver does not have insurance.

COLLISION AND LIABILITY

Collision insurance is auto insurance that covers losses caused by collision with anothervehicle. Collision insurance covers damages to the owner/operator’s property and the prop-erty of another if the owner/operator is responsible for the harm. Collision coverage doesnot cover bodily injury or any other type of liability that may arise as a result of the colli-sion. Convertible collision insurance is a policy that has a lower premium, but will require

14 CHAPTER 2

a higher premium after the first loss or claim. The insured pays one premium, and as longas he or she does not have an accident, that will remain the premium. In the event of an ac-cident, the premium will be increased to indicate the fact that the insured had the wreck.

Liability insurance is auto insurance that covers suits against the insured for such dam-ages as injury or death to other drivers and passengers, property damage, and other dam-ages caused. No-fault auto insurance is a policy in which claims for personal injury andsometimes property damage are made against the claimant’s own insurance company re-gardless of who was at fault. Only in cases of serious personal injury and high medicalcosts may the injured innocent party seek payment from the other insurance company.

If the owner/operator of the automobile has other insurance available, the pro rataclause in his or her car insurance, if there is a pro rata clause, will apply. A pro rata clausestates that when an insured has other insurance available, the company will be responsiblefor only a proportion of the loss. This portion is determined by the ratio between the policylimit and total limits of all other available insurance. See Exhibit 2-10 for a summary ofclauses in auto insurance.

EXHIBIT 2-10 COVERAGE AND CLAUSES IN AUTOMOBILE INSURANCE

Collision Coverage – Auto insurance that covers losses caused by collision with another vehicle.Convertible Collision – A policy that has a lower premium but will require a higher premium after the

first loss or claim.Liability Coverage – Auto insurance that covers suits against the insured for such damages as injury or

death to other drivers and passengers, property damage, and other damages caused.No-fault Coverage – Insurance in which claims for personal injury and sometimes property damage are

made against the claimant’s own insurance company regardless of who is at fault.Pro Rata Clause – Clause that states when an insured has other insurance available, the company will

only be responsible for a portion of the loss. This portion is determined by the ratio between the pol-icy limit and total limits of all other available insurance.

PROPERTY INSURANCE

LEASE AND MORTGAGE INSURANCE

There are several different types of insurance for real property, depending on the nature ofthe ownership or possession of the property. Lease insurance protects against losses sus-tained through the termination of the lease as a result of such hazards as fire. The specifichazards covered are listed in the policy. Mortgage insurance provides benefits that are tobe used to pay off a mortgage if the insured dies, or to meet mortgage payments if the in-sured becomes disabled and cannot make payments. It is also insurance against the loss tothe mortgagee in the event of a default on the mortgage and the amount received from thesale is insufficient to satisfy the debt.

TITLE INSURANCE

A title company issues title insurance after doing a title search that ensures the accuracyof the search against claims of title defects. Title insurance protects against the loss or dam-age resulting from defects or failure of title to a particular parcel of land, or from the en-forcement of liens existing against the land.

INSURANCE 15

RENTER’S AND HOMEOWNER’S INSURANCE

Renter’s insurance is for people who rent an apartment. It insures against some or all ofthe risks of loss to personal property or personal liability for harm caused in the rentedpremises. Homeowner’s insurance is insurance against some or all the risks of the loss ofpersonal property or the home itself, and against personal liability for harm caused on thepremises. Fire insurance protects against losses caused to houses, buildings, furniture,ships in port, or merchandise caused by accidental fires happening within a prescribed pe-riod of time. If the fire insurance policy sets a specific period of time of coverage, it is alsoknown as a time policy. In fire insurance, a total loss is the complete destruction of the in-sured property by fire so that nothing of value remains.

MARITIME INSURANCE

Marine insurance is insurance against certain perils or sea risks that a ship, freight, orcargo may be exposed to during a certain voyage or during a fixed period of time. Cargoinsurance is specifically for cargo. A claim can be made against it if the cargo does notarrive at its destination in the same condition it was in at the beginning of the trip. If,during the trip, the cargo had to be thrown overboard to save the ship, the loss may beshared by the shipowner and the owners of the cargo. This is known as the general av-erage loss.

BUSINESS INSURANCE

Because businesses can suffer a wide variety of losses, they have a wide range of insurancefrom which to choose. A business can elect to be protected from loss of profit, loss of em-ployees, or even loss of business.

COMMERCIAL TRANSACTION INSURANCE

Commercial insurance indemnifies a business for loss by reason of a breach of contracton the part of another contracting party. Credit insurance, a type of commercial insurance,indemnifies a business for losses due to death, disability, insolvency, or bankruptcy of adebtor. Credit insurance usually covers the amount due to the company. Accounts receiv-able insurance is for losses suffered as a result of an inability to collect money owed be-cause of the destruction of records indicating how much money is owed to the company bywhom. If a fire destroys all the records of a company so that company has no way of know-ing its accounts receivable, then it may file a claim against this type of insurance.

BUSINESS LOSS INSURANCE

Business interruption insurance is a type of insurance that protects a business from lossesdue to an inability to operate because of fire or other hazards. For example, if a business is dam-aged in a tornado and is unable to operate, this insurance will pay for the losses suffered. Profitinsurance pays for the loss of profits a business owner would have had if the damage or losshad not happened. If a business loses its merchandise in a fire but is able to keep on operating,the profit insurance will pay the owner for the profit he or she lost as a result of the fire.

16 CHAPTER 2

Businesses may have an employee who is vital to their operation. If that employee diesor is disabled, the business could suffer losses while it searches for and trains a replacement.Or, a business partner could die and the remaining partners wish to buy out his or her partof the business. Business insurance protects a business in the event of the death of a keyemployee. Key man life insurance is a type of business insurance that insures the life of akey officer or employee in the company. Upon that employee’s death, the company is thebeneficiary of the life insurance and collects the monetary payment. Partnership insur-ance is life insurance on the different partners in a partnership. It is designed to enable theremaining partners to buy out the deceased partner’s estate. See Exhibit 2-11 for a summaryof types of business insurance.

EXHIBIT 2-11 BUSINESS INSURANCE

Commercial Insurance – Pays a business for loss by reason of a breach of contract on the part of anothercontracting party.

Credit Insurance – Pays a business for losses due to death, disability, insolvency, or bankruptcy of a debtor.Accounts Receivable Insurance – Pays for losses suffered as a result of an inability to collect money owed

because of the destruction of records indicating how much money is owed to the company.Business Interruption Insurance – Protects a business from losses due to an inability to operate because

of fire or other hazards.Profit Insurance – Pays the loss of profits a business owner would have had if the damage or loss had

not happened.Key Man Life Insurance – The business insures the life of a key officer or employee in the company. Upon

that person’s death, the company is the beneficiary of the life insurance and collects the monetarypayment.

Partnership Insurance – Life insurance on the different partners in a partnership. Proceeds from the pol-icy enable the remaining partners to buy out the deceased partner’s estate.

FIDELITY INSURANCE

Businesses hope that their employees and agents are honest, but if they are dishonest, abusiness can face liability consequences. Fidelity insurance is a form of insurance thatguarantees the honesty of an officer, agent, or employee of the insured. If the employee, of-ficer, or agent turns out to be dishonest, the policy will indemnify the employer for anylosses suffered as a result of the employee’s dishonesty. Fidelity and guaranty insurancenot only protects the insured from an employee’s dishonesty, but also provides credit in-surance and title insurance. The fidelity bond is the actual contract of insurance. Suretyand fidelity insurance protects the business from the dishonesty of its employees, itsagents, and the public—its customers. See Exhibit 2-12.

EXHIBIT 2-12 FIDELITY INSURANCE

Fidelity Insurance – Guarantees the honesty of an officer, agent, or employee of the insured. Fidelity and Guaranty Insurance – Protects the insured from an employee’s dishonesty, but also provides

credit insurance and title insurance. Fidelity Bond – The actual contract of insurance.Surety and Fidelity Insurance – Designed to protect a business from the dishonesty of its employees, its

agents, and the public (its customers).

INSURANCE 17

LIABILITY INSURANCE

Because an employer may be held responsible for the harm suffered by its employees in theevent of an accident, injury, or death, the business may take out employer’s liability in-surance. This insurance indemnifies the insured business from losses caused by being li-able for harm caused to another by an employee. This insurance is for claims that are notcovered by worker’s compensation.

A business may also want to protect itself from losses caused by claims of damages andinjury from the consumers of its goods and services. It may purchase product liability in-surance, which protects the insured manufacturer and supplier from the claims arising outof the use of their products.

To protect itself against claims of harm caused by its vehicles or to cover harm to its ve-hicles, a business may use fleet insurance, a blanket policy that covers a number of vehi-cles owned by the business.

A business may also want to protect its intangible assets. For example, a patent is an in-tangible asset a company may want to protect. Patent insurance protects against a losscaused by the infringement of an insured company’s patent. It also protects against lossescaused by a claim of patent infringement against the insured company.

If a business is fed up with the high cost of insurance, it may self insure. Self insuranceis a plan by which a company places aside in a fund sufficient sums of money to cover anyliability losses that may be sustained. The type of losses a company may set aside moneyfor are those due to unemployment claims, worker’s compensation claims, liability claims,or other claims. It is common for a business to self insure up to a certain amount, and thenobtain liability insurance for any amounts in excess of the fund.

Doctors, lawyers, accounts, psychiatrists, counselors, and other professionals have theirown type of business insurance. This is malpractice insurance, which protects profes-sional people against claims of negligence that are brought against them. The cost of suchinsurance is determined by the type of medicine a person practices and the number andtypes of claims that have been made against the insured.

ANNUITIES

IN GENERAL

Another type of insurance is an annuity. An annuity is the right to receive a fixed, periodicpayment, either for life or for a period of years. The payments represent a partial paymentof the capital that was used to create the annuity and the return or interest that is earned bythe capital. The person who establishes the annuity is the annuitant. An annuity policy isan insurance policy that provides for monthly or periodic payments to the insured to beginat a fixed time and to continue throughout the life of the annuitant. There are several typesof annuities and several terms that define provisions of the annuity. For example, the termannuity certain means that an annuity is payable for a certain period of time, no matterwhen the annuitant dies.

STRAIGHT AND VARIABLE ANNUITIES

A straight annuity is a contract, usually issued by an insurance company, to make peri-odic payments in monthly or yearly increments. The amount of the payment is fixed. A

18 CHAPTER 2

variable annuity is a contract that provides payments to the annuitant in varying amountsdepending on the success of the investments of the insurance company. The amounts thatwill be paid by the annuity are not set; they do vary. A cash refund annuity is an annu-ity policy that provides for a lump sum payment upon the death of the annuitant of thedifference between the total amount of money received and the price paid for the annu-ity. If the price was $5,000, and only $2,000 was received, the lump sum that is to be paidis $3,000.

REFUND, LIFE, AND CONTINGENT ANNUITIES

A refund annuity assures a specific annual sum to the annuitant with the additional assur-ance that if the annuitant dies prematurely, the estate will be paid an additional amount thatrepresents the difference between the purchase price and the amount that was actually re-ceived. A life annuity pays an income to the annuitant only during his or her lifetime. Whenthe annuitant dies, even if the death is premature, no other payments will be received.

A contingent annuity is a funded annuity that states payments will begin to be madewhen an uncertain event happens. For example, the annuity will begin upon the death of theannuitant’s grandparent. A deferred annuity is one where payments will begin at some fu-ture date, provided the annuitant is alive on that date. A fixed annuity guarantees fixed pay-ments to the annuitant either for life or for a fixed period of time.

JOINT ANNUITIES

A joint annuity is paid to two named persons until one of them dies. When the first persondies, the annuity ends. A joint and survivorship annuity is an annuity with two or morepeople named, paying them during the period of their lives. When one of the annuitantsdies, the annuity continues paying the remaining annuitants, the survivors. A private an-nuity is created by contract for periodic payments to be made to the annuitant from a pri-vate company instead of a public or life insurance company. See Exhibit 2-13 for asummary of the different types of annuities.

EXHIBIT 2-13 ANNUITIES

Annuity Policy – Insurance policy that provides for monthly or periodic payments to the insured to beginat a fixed time and to continue through the life of the annuitant.

Annuity Certain – An annuity payable for a certain period of time, no matter when the annuitant dies.Straight Annuity – A contract issued by an insurance company to make periodic payments at monthly

or yearly increments. The amount of the payment is fixed.Variable Annuity – The contract provides payments to the annuitant in varying amounts depending on

the success of the investments of the insurance company. Refund Annuity – An annuity that assures a specific annual sum to the annuitant with the additional as-

surance that if the annuitant dies prematurely, the estate will be paid an additional amount that rep-resents the difference between the purchase price and the amount that was actually received.

Life Annuity – An annuity that pays an income to the annuitant only during his or her lifetime. When theannuitant dies, no other payments will be received.

Contingent Annuity – A funded annuity that states payments will begin when an uncertain event happens.Deferred Annuity – An annuity where the payments will begin at some future date, provided the annui-

tant is alive on that date.

INSURANCE 19

Fixed Annuity – An annuity that guarantees fixed payments to the annuitant either for life or for a fixedperiod of time.

Joint Annuity – An annuity that is paid to two named persons until one of them dies. When the first per-son dies, the annuity ends.

Joint and Survivorship Annuity – An annuity with two or more people named, paying them during theperiod of their lives. When one of the annuitants dies, the annuity continues paying the remainingannuitants.

Private Annuity – An annuity created by contract for periodic payments to be made to the annuitant froma private company instead of a public or life insurance company.

There are many types of insurance designed to cover many types of losses. Several termsmay apply to the broad categories of insurance, while more definite terms apply to morespecific types of insurance. Several terms may apply to one type of policy to fully delineatethat policy and its terms and clauses.

SUMMARY

20

CHAPTER 2 REVIEW

KEY TERMS AND PHRASES

accident insuranceactual lossadditional insuredannuitantannuityannuity certainannuity insuranceauto insuranceaviation clausebinderblanket policybusiness interruptioninsurance

capital losscargo insurancecash refund annuitycasualty insurancecasualty losscollision insurancecomprehensive insuranceconcurrent insuranceconsequential lossconstructive lossconstructive total losscredit insurancedecreasing term insurancedeductibledeductible clausedeferred annuitydeposit insurancedirect lossdouble indemnity clause

endowment insuranceendowment policyexcess clauseexcess insuranceface valueFederal Deposit InsuranceCorporation (FDIC)

fidelity and guaranteeinsurance

fidelity bondfidelity insurancefixed annuityfraternal insurancegeneral average lossgroup health insurancegroup insurancegroup term life insurancehealth insurancehomeowner’s insuranceindemnifyindemnity insuranceinsurable interestinsuranceinsurance adjusterinsurance agentinsurance brokerinsurance companyinsurance poolinsurance premiuminsurance ratinginsurance trustjoint annuity

key man life insuranceliability insurancelife insurancelossmajor medical insurancemalpractice insurancemarine insurancemortgage insurancemutual insurance companyno-fault auto insuranceold line life insurancepartial losspolicy valuepolicy yearpreexisting condition clausepro rata clauseproof of lossrenewable term lifeinsurance

riskself insurancesingle premium insurancesocial insurancesoliciting agentstock insurance companytitle insurancetotal lossumbrella policyunderwriterunemployment insurancevalue policy

REVIEW QUESTIONS

SHORT ANSWER

1. What is accident insurance?

2. What is the purpose of accounts receivable insurance?

3. What is considered an actual loss?

4. What is comprehensive insurance?

5. What is casualty insurance?

6. What is considered a capital loss?

INSURANCE 21

7. What is an annuity certain?

8. Who is the person who is the beneficiary of an annuity?

9. What is all risk insurance?

10. What is an annuity?

11. What is an aviation clause?

12. What is a blanket policy of insurance?

13. What is a consequential loss?

14. What is credit insurance designed to protect?

15. What is crop insurance?

16. What is a deductible?

17. What is the difference between term life insurance and whole life insurance?

18. What is considered a disaster loss?

19. What is a fidelity bond?

20. What is considered to be face value?

21. What is an excess clause?

22. What does a double indemnity clause do?

23. What is the purpose of the Federal Deposit Insurance Company?

24. What is a general average loss?

25. What type of policy is a floater policy?

FILL IN THE BLANK

1. ___________________ is a blanket policy that covers a number of vehicles owned bya business.

2. ___________________ is an annuity that guarantees fixed payments either for the lifeof the annuitant or for a definite period of time.

3. What is a fixed annuity?

4. An insurance company pays the person who is insured for his or her loss. This is knownas ___________________.

5. The value of the property for insurance purposes is known as ___________________.

6. The amount of the premium is determined by the ___________________.

7. An annuity that pays two people until one of them dies is known as a___________________.

8. The loss of money or something that has monetary value is known as a___________________ loss.

9. When the insured property has lost all its usefulness and no longer has any benefit tothe insured, it is referred to as a ___________________ loss.

10. Insurance that sets definite premiums and sets the insurer’s liability is known as___________________ insurance.

FACT SITUATIONS

1. Paul takes out life insurance that has a cash surrender value. What type of life insur-ance is this?

2. Paul’s life insurance also carries a clause that states that if he is killed by accidentalmeans, his policy doubles in value. What type of clause is this?

22 CHAPTER 2

3. Calvin takes out insurance in which the amount of the premiums is not set. How muchhe pays is determined by the amount of losses suffered and claims paid by the insur-ance company. What type of insurance is this?

4. Irena has an annuity where she and her husband Pasqual are the beneficiaries. The an-nuity will continue to pay even if one of them passes away. What sort of annuity is this?

5. Stefan’s car is damaged in an automobile wreck. The damage is so great the car can-not be fixed. However, a dealer is interested in buying the wreck and using it for parts.What sort of loss has Stefan suffered?

6. The law firm of Dewey, Chetham, and Howe takes out insurance on its partner HarryDewey that will pay the firm if Mr. Dewey passes away. What sort of insurance is this?

7. Martina takes out an insurance policy on her house, but the value of the house is notstated in the policy. The policy states the value of the house will be determined at thetime of loss, if any loss is suffered. What sort of insurance policy does Martina have?

8. Colin takes out a type of life insurance where he will pay premiums for a definite pe-riod of time. At the end of this period of time, the insurance will be paid for in full.What sort of life insurance does Colin have?

9. Through her place of work, Katarina has a life insurance policy in which the premi-ums never increase, but the face value of the policy declines as she gets older. The pol-icy may even be zero at some point. What sort of life insurance does Katarina have?

10. Elton also has a group life insurance policy through work. It is a term life insurancepolicy, but Elton has the option of changing it to a whole life policy without having toundergo a medical exam. What sort of insurance policy is this?