Insurable interest

A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. For example, if the house you own is damaged by fire, the value of your house has been reduced, and whether you pay to have the house rebuilt or sell it at a reduced price, you have suffered a financial loss resulting from the fire.

By contrast, if your neighbor's house, which you do not own, is damaged by fire, you may feel sympathy for your neighbor and you may be emotionally upset, but you have not suffered a financial loss from the fire.

You have an insurable interest in your own house, but in this example you do not have an insurable interest in your neighbor's house.

The basic principle of insurance is to protect against loss rather than create an opportunity for speculative gain. Early use of insurance as a form of gambling (life insurance on the lives of kings, for example) led to the banning of life insurance in France, Holland and Sweden during the 16th and 17th centuries*.

A notorious abuse of insurance occurred in Pennsylvania in the late 1800s. Six men obtained an insurance policy on an elderly man, who continued to live longer than expected. Understandably, the premiums on an old man were high. Frustrated by the high costs and impatient for the payoff, the men murdered the old man, a crime for which they were hanged. The ability of a person to buy insurance on the life of a stranger would create a moral hazard wherein the person owning the insurance policy stands to profit from the death of the insured.

Establishing the principle of insurable interest as a requirement for purchasing insurance distanced the insurance from gambling, thereby leading to better reputation and greater acceptance of the insurance industry. The United Kingdom provided leadership by passing legislation that prohibited insurance contracts if no insurable interest could be proven, notably the Life Assurance Act 1774 which renders such contracts illegal, and the Marine Insurance Act 1906, s.4 which renders such contracts void.

Catastrophe modeling

Catastrophe modeling (also known as cat modeling) is the process of using computer-assisted calculations to estimate the losses that could be sustained by a portfolio of properties due to a catastrophic event such as a hurricane or earthquake. Cat modeling is especially applicable to analysing risks in the insurance industry and is at the confluence of actuarial science, engineering, meteorology, and seismology.

Perils analysed

Natural catastrophes (sometimes referred to as "nat cat") include:

• hurricane (main peril is wind damage; some models can also include storm surge)
• earthquake (main peril is ground shaking; some models can also include fire following earthquakes and sprinkler leakage damage)
• tornado
• flood
• wind storm/hail
• wildfire

Other catastrophes include:

• terrorism events
• warfare
• Casulty/liability events

Lines of business modeled

• Business personal property
• Commercial property
• Workers' compensation
• Automobile physical damage
• Leasehold improvements
• Limited liabilities
• Product liability

Input

The input into a typical cat modeling software package is information on the properties being analyzed. This is referred to as the exposure data, since the properties are exposed to catastrophe risk. The exposure data can be categorized into three basic groups:

• information on the site locations, referred to as geocoding data (street address, postal code, county/CRESTA zone, et cetera)
• information on the physical characteristics of the structures (construction, occupancy, year built, number of stories, et cetera)
• information on the financial terms of the insurance coverage (coverage value, limit, deductible, et cetera)

output

The output is estimates of the losses that the model predicts would be associated with a particular event or set of events. When running a probabilistic model, the output is either a probabilistic loss distribution or a set of events that could be used to create a loss distribution; probable maximum losses (PMLs) and average annual losses (AALs) are calculated from the loss distribution. When running a deterministic model, losses caused by a specific event are calculated; for example, Hurricane Katrina or "a magnitude 8.0 earthquake in downtown San Francisco" could be analyzed against the portfolio of exposures.

Uses

Insurers and risk managers use cat modeling to assess the risk in a portfolio of exposures. This might help guide an insurer's underwriting strategy or help them decide how much reinsurance to purchase. Some state departments of insurance allow insurers to use cat modeling in their rate filings to help determine how much premium their policyholders are charged in catastrophe prone areas. Insurance rating agencies such as A. M. Best and Standard & Poor's use cat modeling to assess the financial strength of insurers that take on catastrophe risk. Reinsurers and reinsurance brokers use cat modeling in the pricing and structuring of reinsurance treaties. Likewise, cat bond investors, investment banks, and bond rating agencies use cat modeling in the pricing and structuring of catastrophe bond.

Demand surge

Some cat models allow the user the option of including demand surge in the loss estimates, which is post-event inflation. After a large disaster, construction material and labor can temporarily be in short supply, so construction costs are inflated. The larger the impact of the event on the local economy, the larger the effect of demand surge. For example, an event that causes a $5 billion insurance industry loss might cause demand surge to increase construction costs by 5%, while an event that causes a $40 billion insurance industry loss might cause demand surge to increase construction costs by 25%.

annuity contract

An annuity contract is a financial product, typically offered by a financial institution, that may accumulate value and take a current value and pay it out over a period of years. These contracts are regulated by various jurisdictions, leading to the term being focused on different features in different parts of the world.

United States

An annuity is an insurance product; annuities are typically issued by the same companies that issue life insurance policies, and the risks undertaken by the issuer are fundamentally the same for both products -- that is, the insurance company bets on the life expectancy of the customer. The result is to transfer the effects of the uncertainty of an individual's lifespan from the individual to the insurer, which reduces its own uncertainty by pooling many clients.

With a "single premium" or "immediate" annuity, the annuitant pays for the annuity with a single lump sum. The annuity starts making regular payments to the annuitant within a year. A common use of a single premium annuity is as a destination for roll-over retirement savings upon retirement. In such a case, a retiree withdraws all of the money the retiree has saved in, for example, a 401(k) (i.e., tax-advantaged) savings vehicle during the retiree's working life and uses the money to buy an annuity whose payments will replace the retiree's wage payments for the rest of the retiree's life. The advantage of such an annuity is that the annuitant has a guaranteed income for life, whereas if the retiree were instead to withdraw money regularly from the retirement account, the retiree might run out of money before the retiree dies or not have as much to spend while the retiree is alive.

Another kind of annuity is a combination of retirement savings and retirement payment plan: the annuitant makes regular contributions to the annuity until a certain date and then receives regular payments from the annuity until the annuitant dies. Sometimes there is a life insurance component added so that if the annuitant dies before annuity payments begin, a beneficiary gets either a lump sum or annuity payments.

There are two possible phases for an annuity, one phase in which the customer deposits and accumulates money into an account (the deferral phase), and the annuity phase in which the insurance company makes income payments until the death of the customers (the "annuitants") named in the contract. It is possible to structure an annuity contract so that it has only the annuity phase; such a contract is called an immediate annuity. Annuity contracts with a deferral phase are similar to bank CDs and have a growth phase prior to distribution of income, and are called deferred annuities. The newest incarnation is the fixed, equity indexed product which can be either a fixed annuity or pure life insurance.

Such contracts provide an income during retirement or a stream of payments as a settlement of a personal injury lawsuit (i.e., a structured settlement). Some annuities (called "joint life" or "joint and survivor" annuities) continue paying a second person (i.e., the "beneficiary") after the annuitant dies, until that person dies as well. For example, an annuity may be structured to make payments to a married couple, such payments ceasing on the death of the second spouse.

Annuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called fixed annuities. Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds.

Variable annuities are used for many different objectives. One common objective is deferral of the recognition of taxable gains. Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made. Variable annuities offer a variety of funds ("subaccounts" in the parlance of the industry) from various money managers. This gives investors the ability to move between subaccounts without incurring additional fees or sales charges.

United Kingdom and Ghana

In the United Kingdom and Ghana, the term "annuity" generally refers to the actual contract that makes payments. Commonly it is used to refer to a contract that is making payments (with the means of saving being referred to as a "pension"). In the UK the conversion of pension income into an annuity is essentially compulsory and this has led to a large market for annuities.

Within the UK there are many different types of annuity. The most common are those where the source of the funds required to buy the annuity is from a pension scheme. Examples of these types of annuity, often referred to as a Compulsory Purchase Annuity, are conventional annuities, with profit annuities and unit linked, or "third way" annuities. Annuities purchased from savings (ie not from a pension scheme) are referred to as Purchase Life Annuities and Immediate Vesting Annuities.

There has also been a very significant growth in the development of "Impaired Life" annuities. These involve improving the terms offered due to a medical diagnosis which is severe enough to reduce life expectancy. A process of medical underwriting is involved and the range of qualifying conditions has increased substantially in recent years. Both conventional annuities and Purchase Life Annuities can qualify for impaired terms.

Actuarial science

Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through education and experience. They must demonstrate their qualifications by passing a series of professional examinations.

Actuarial science includes a number of interrelating subjects, including probability and statistics, finance, and economics. Historically, actuarial science used deterministic models in the construction of tables and premiums. The science has gone through revolutionary changes during the last 30 years due to the proliferation of high speed computers and the synergy of stochastic actuarial models with modern financial theory (Frees 1990).

Many universities have undergraduate and graduate degree programs in actuarial science. In 2002, a Wall Street Journal survey on the best jobs in the United States listed "actuary" as the second best job (Lee 2002).

Life insurance, pensions and healthcare

Actuarial science became a formal mathematical discipline in the late 17th century with the increased demand for long-term insurance coverages such as Burial, Life insurance, and Annuities. These long term coverages required that money be set aside to pay future benefits, such as annuity and death benefits many years into the future. This requires estimating future contingent events, such as the rates of mortality by age, as well as the development of mathematical techniques for discounting the value of funds set aside and invested. This led to the development of an important actuarial concept, referred to as the Present value of a future sum. Pensions and healthcare emerged in the early 20th century as a result of collective bargaining. Certain aspects of the actuarial methods for discounting pension funds have come under criticism from modern financial economics.

• In traditional life insurance, actuarial science focuses on the analysis of mortality, the production of life tables, and the application of compound interest to produce life insurance, annuities and endowment policies. Contemporary life insurance programs have been extended to include credit and mortgage insurance, key man insurance for small businesses, long term care insurance and health savings accounts (Hsiao 2001).

• In health insurance, including insurance provided directly by employers, and social insurance, actuarial science focuses on the analyses of rates of disability, morbidity, mortality, fertility and other contingencies. The effects of consumer choice and the geographical distribution of the utilization of medical services and procedures, and the utilization of drugs and therapies, is also of great importance. These factors underlay the development of the Resource-Base Relative Value Scale (RBRVS) at Harvard in a multi-disciplined study. (Hsiao 1988) Actuarial science also aids in the design of benefit structures, reimbursement standards, and the effects of proposed government standards on the cost of healthcare (cf. CHBRP 2004).

• In the pension industry, actuarial methods are used to measure the costs of alternative strategies with regard to the design, maintenance or redesign of pension plans. The strategies are greatly influenced by collective bargaining; the employer's old, new and foreign competitors; the changing demographics of the workforce; changes in the internal revenue code; changes in the attitude of the internal revenue service regarding the calculation of surpluses; and equally importantly, both the short and long term financial and economic trends. It is common with mergers and acquisitions that several pension plans have to be combined or at least administered on an equitable basis. When benefit changes occur, old and new benefit plans have to be blended, satisfying new social demands and various government discrimination test calculations, and providing employees and retirees with understandable choices and transition paths. Benefit plans liabilities have to be properly valued, reflecting both earned benefits for past service, and the benefits for future service. Finally, funding schemes have to be developed that are manageable and satisfy the Financial Accounting Standards Board (FASB).

• In social welfare programs, the Office of the Chief Actuary (OCACT), Social Security Administration plans and directs a program of actuarial estimates and analyses relating to SSA-administered retirement, survivors and disability insurance programs and to proposed changes in those programs. It evaluates operations of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, conducts studies of program financing, performs actuarial and demographic research on social insurance and related program issues involving mortality, morbidity, utilization, retirement, disability, survivorship, marriage, unemployment, poverty, old age, families with children, etc., and projects future workloads. In addition, the Office is charged with conducting cost analyses relating to the Supplemental Security Income (SSI) program, a general-revenue financed, means-tested program for low-income aged, blind and disabled people. The Office provides technical and consultative services to the Commissioner, to the Board of Trustees of the Social Security Trust Funds, and its staff appears before Congressional Committees to provide expert testimony on the actuarial aspects of Social Security issues.

Actuarial science applied to other forms of insurance

Actuarial science is also applied to short-term forms of insurance, referred to as Property & Casualty or Liability insurance, or General insurance. In these forms of insurance, coverage is generally provided on a renewable annual period, (such as a yearly contract to provide homeowners insurance policy covering damage to a house and its contents for one year). Coverage can be cancelled at the end of the period by either party.

• In the property & casualty insurance fields, companies tend to specialize because of the complexity and diversity of risks. A convenient division is to organize around personal and commercial lines of insurance. Personal lines of insurance are for individuals and include the familiar fire, auto, homeowners, theft and umbrella coverages. Commercial lines address the insurance needs of businesses and include property, business continuation, product liability, fleet/commercial vehicle, workers compensation, fidelity & surety, D&O insurance and a great variety of other coverages a business might need. Beyond these, the industry needs to provide insurance for unique exposures such as catastrophe, weather-related risks, earthquakes, patent infringement and other forms of corporate espionage, terrorism and all its implications, and finally coverage for the most unusual risks which are sometimes "one-of-a-kind" like a satellite launch (Lloyds of London handles many of these hard to gauge risks). In all of these ventures, actuarial science has to bring data collection, measurement, estimating, forecasting, and valuation tools to provide financial and underwriting data for management to assess marketing opportunities and the degree of risk taking that is required. Actuarial science needs to operate at two levels: (i) at the product level to facilitate politically correct equitable pricing and reserving; and (ii) at the corporate level to assess the overall risk to the enterprise from catastrophic events in relation to its underwriting capacity or surplus. Actuaries, usually working in a multidisciplinary team must help answer management issues: (i) is the risk insurable; (ii) does the company have effective claims administration to determine damages; (iii) does the company have sufficient claims handling to cover catastrophic events; (iv) and the vulnerability of the enterprise to uncontrollable risks such as inflation, adverse political outcomes; unfavorable legal outcomes such as excess punitive damage awards, and international turmoil.

• In the reinsurance fields, actuarial science is used to design and price reinsurance and retro-reinsurance schemes, and to establish reserve funds for known claims and future claims and catastrophes. Retro-reinsurance, also known as retrocession occurs when a reinsurance company reinsures risks with yet another reinsurance company. Reinsurance can be used to spread the risk, to smooth earnings and cash flow, to reduce reserve requirements and improve the quality of surplus, Reinsurance creates arbitrage situations, and retro-reinsurance arbitrage can create Spirals which can lead to financial instability and bankruptcies. A spiral occurs (as an example) when a reinsurer accepts a retrocession which unknowingly contains risks that were previously reinsured. Some reported cases of arbitrage and spirals have been found to be illegal. The Equity Funding scam was built on the abusive use of financial reinsurance to transfer capital funds from the reinsurance carrier to Equity Funding. In the broadest sense of the word, reinsurance takes many forms: (i) declining a risk; (ii) requiring the insured to self insure part of the contingent or investment risk; (iii) limiting the coverage through deductibles, coinsurance or exclusionary policy language; (iv) placing a policy in a risk pool with a cohort of competitors to achieve a social objective; (v) ceding or transferring a percentage of each policy to another insurance company (i.e. the reinsurer); (vi) ceding or transferring excess amounts or excess coverages to the reinsurer; (vii) ceding or transferring asset based policies to the reinsurer in exchange for capital; (viii) purchasing stop loss insurance; (ix) purchasing umbrella coverages for a basket of risks; (x) purchasing catastrophe insurance for specific contingent events. Reinsurance is complex. Company management and their actuaries need to deal with all the known insurable contingent events, as well as underwrite the quality of their cedant companies, and maintain the information tools and auditing practices to identify arbitrage and spirals.

Long-term care insurance (LTC or LTCI)

Long-term care insurance (LTC or LTCI), an insurance product sold in the United States and United Kingdom, helps provide for the cost of long-term care beyond a predetermined period. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform the basic activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.

Age is not a determining factor in needing long-term care. About 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime.About 40% of those receiving long-term care today are between 18 and 64. Once a change of health occurs long-term care insurance may not be available. Early onset (before age 65) Alzheimer's and Parkinson's disease are rare but do occur.

Benefits

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer's facilities. If home care coverage is purchased, long-term care insurance can pay for home care, often from the first day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to 7 days a week, 24 hours a day (up to the policy benefit maximum).

Other benefits of long-term care insurance:

• Many individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family.
• Premiums paid on a long-term care insurance product may be eligible for an income tax deduction. The amount of the deduction depends on the age of the covered person.Benefits paid from a long-term care contract are generally excluded from income.
• Business deductions of premiums are determined by the type of business. Generally corporations paying premiums for an employee are 100% deductible if not included in employee's taxable income.

In the United States, Medicaid provides some of the benefits of long term care insurance. A welfare program, Medicaid does provide medically necessary services for people with limited resources who "need nursing home care but can stay at home with special community care services."However, Medicaid generally does not cover long-term care provided in a home setting or for assisted living. People who need long-term care often prefer care in the home or in a private room in an assisted living facility.

Types of policies

Private long-term care (LTC) insurance is growing in popularity in the United States. Although premiums have remained relatively stable in recent years, coverage costs can be expensive, especially when consumers wait until retirement age to purchase LTC coverage.

As they relate to U.S. income tax, two types of long term care policies offered are

• Tax qualified (TQ) policies are the most common policies offered. A TQ policy requires that a person 1) be expected to require care for at least 90 days, and be unable to perform 2 or more activities of daily living (eating, dressing, bathing, transferring, toileting, continence) without substantial assistance (hands on or standby); or 2) for at least 90 days, need substantial assistance due to a severe cognitive impairment. In either case a doctor must provide a plan of care. Benefits from a TQ policy are non-taxable.

• Non-tax qualified (NTQ) was formerly called traditional long term care insurance. It often includes a "trigger" called a "medical necessity" trigger. This means that the patient's own doctor, or that doctor in conjunction with someone from the insurance company, can state that the patient needs care for any medical reason and the policy will pay. NTQ policies include walking as an activity of daily living and usually only require the inability to perform 1 or more activity of daily living. The Treasury Department has not clarified the status of benefits received under a non-qualified long-term care insurance plan. Therefore, the taxability of these benefits is open to further interpretation. This means that it is possible that individuals who receive benefits under a non-qualified long-term care insurance policy risk facing a large tax bill for these benefits.

Fewer non-tax qualified policies are available for sale. One reason is because consumers want to be eligible for the tax deductions available when buying a tax-qualified policy. The tax issues can be more complex than the issue of deductions alone, and it is advisable to seek good counsel on all the pros and cons of a tax-qualified policy versus a non-tax-qualified policy, since the benefit triggers on a good non-tax-qualified policy are better.By law, tax-qualified policies carry restrictions on when the policy holder can receive benefits. One survey found that sixty-five percent of purchasers did not know whether or not the policy they bought was tax qualified.

Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.

Most benefits are paid on a reimbursement basis and a few companies offer per-diem benefits at a higher rate. Most policies cover care only in the continental United States. Policies that cover care in select foreign countries usually only cover nursing care and do so at a rated benefit.

Group policies may have provisions for non-restricted or open enrollment periods and underwriting may be required. Group plans may or may not be guaranteed renewable or tax qualified. Some group plans include language allowing the insurance company to replace the policy with a similar policy and to change the premiums at that time. Some group plans can be canceled by the insurance company. To compensate for the higher insurance risk group plans may have higher deductibles and lower benefits than individual plans. Some group plans have a 3 ADL (activities of daily living) requirement for nursing care.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates.

Retirement systems such as CalPERS may offer long-term care insurance similar to a group plan. These organizations are not regulated by the state insurance departments. They can increase rates and make changes to policies without state scrutiny and approval.

Long-term care insurance rates are determined by six main factors: the person's age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard). Most companies will give couple's and multi-life discounts on individual policies. Some companies define “couples” not only to spouses, but also to two people who meet criteria for living together in a committed relationship and sharing basic living expenses. The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

The Deficit Reduction Act of 2005 makes the Partnership for Long Term Care available to all states. Partnership provides "lifetime asset protection" from the Medicaid spend-down requirement. Originally four states had Partnership plans New York, Indiana, Connecticut and California

You should not purchase any long term care insurance if you currently receive or may soon receive Medicaid benefits, if you have limited assets and can’t afford the premiums over the lifetime of your policy, or if your only source of income is a social security benefit or supplemental security income.

Life insurance tax shelter

A life insurance tax shelter uses investments in life insurance to protect income or assets from tax liabilities. Life insurance proceeds are not taxable in many jurisdictions. Since most other forms of income are taxable (such as capital gains, dividends and interest income), consumers are often advised to purchase life insurance policies to either offset future tax liabilities, or to shelter the growth of their investments from taxation.

Life insurance to cover future taxes

In those jurisdictions where life insurance proceeds are only tax free at death, tax liabilities that come due at death are often offset by a policy of the same size. Since the mathematics required to compare different strategies is quite complex, most consumers defer to an accountant or life insurance agent for advice. However, there is often vast differences of opinion between these professionals, even given the same starting conditions. This should not be surprising, given the huge future differences that even small variances in starting conditions can make.

For example, assume that an individual is likely to owe $100,000.00 in taxes at death. If a permanent life insurance policy with a $100,000.00 death benefit costs $1,000 per year (remaining level for life), and the life expectancy of the person is 30 years, then the following events could occur.

• The individual could die early. In this case, it is unlikely that any alternative investment of the $1000 per year would have yielded the required $100,000.00 at death.
• The individual could live much longer than expected. The individual could have built up a significant cash value within the policy, depending on investment selection. As such, the individual would have access to these cash values tax-free regardless of growth, provided it is set up properly.

Since one normally does not know which of these will occur (see adverse selection) calculations must be based on expected life expectancies for people of similar gender, physical condition, and behaviour.

Life insurance to shelter investment growth and income

In an attempt to achieve the "best of both worlds" (protection in the case of early death, and additional tax-protected returns in the case of long life), life insurance policies were created containing investment accounts having preferential tax treatment. This is most often done with a Variable universal life policy. See that article for some discussion of the tax issues.

Permanent life insurance

Permanent life insurance is a form of life insurance such as whole life or endowment, where the policy is for the life of the insured, the payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value.

This is compared with Term life insurance where insurance is purchased for a specified period (typically a year, or for level periods such as 5, 10, 15, 20 even 25 and 30 years) where a death benefit is only paid to the beneficiary if the insured dies during the specified period.

Permanent life insurance originally was offered as a fixed premium fixed return product known as whole life insurance also known as cash surrender life insurance. This offered consumers guaranteed cash value accumulation and a consistent premium. Consumers later wanted more flexibility which was offered in the form of universal life insurance. Universal life insurance allows consumers flexibility in when premiums are to be paid and the amount that they would be. Universal life policies also allowed consumers to permanently withdraw cash from the policy without the interest associated with the loan provisions in whole life policies. Universal life policies retained the fixed investment performance of whole life policies. Variable life insurance follows the mold of whole or universal life, but it shifts the investment risk to the consumer along with the potential for greater returns. Variable universal life insurance combines this with the flexibility in premium structure of universal life to create the most free form option for consumers to manage their own money (at their own risk). Variable universal life insurance policies are considered more favorable to other permanent life insurance alternatives due to the favorable tax treatment of all permanent life insurance policies and their potential for greater returns than other permanent life insurance products.

Payout likelihood

Because permanent life insurance programs are designed to be permanent and pay a death benefit, the cost of insurance is considerably higher than term insurance. Term insurance is referred to as pure death benefit with no cash accumulation vehicle tied to it. Because of this, term premiums remain 8 to 10 times less expensive than permanent premiums for the same coverage. Most people are drawn to term insurance for the low cost and the ability to invest the difference in separate financial products. Doing so has a potential drawback in some cases because all term policies eventually expire and the client would then have to pay a higher premium based on his attained age or he may not be able to qualify for a new policy at that point. In these situations, money earned from investments may not measure up to the coverage the policy would have provided.

http://www.inheritancenetwork.org/life-insurance/life-insurance-comparison.php

Term life insurance or term assurance

Term life insurance or term assurance is life insurance which provides coverage for a limited period of time, the relevant term. After that period, the insured can either drop the policy or pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

Term life insurance is the original form of life insurance and is considered to be pure insurance protection because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.

Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed. As an example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against the home if it is damaged or destroyed by, for example, an earthquake or fire. Whether or not these events will occur is uncertain, and if the policy holder discontinues coverage because he has sold the insured car or home the insurance company will not refund the premium. This is purely risk protection.

Usage

Because term life insurance is a pure death benefit, its primary use is to provide coverage of financial responsibilities, for the insured. Such responsibilities may include, but are not limited to, consumer debt, dependent care, college education for dependents, funeral costs, and mortgages.

Annual renewable term

The simplest form of term life insurance is for a term of one year. The death benefit would be paid by the insurance company if the insured died during the one year term, while no benefit is paid if the insured dies one day after the last day of the one year term. The premium paid is then based on the expected probability of the insured dying in that one year.

Because the likelihood of dying in the next year is low for anyone that the insurer would accept for the coverage, purchase of only one year of coverage is rare.

One of the main challenges to renewal experienced with some of these policies is requiring proof of insurability. For instance the insured could acquire a terminal illness within the term, but not actually die until after the term expires. Because of the terminal illness, the purchaser would likely be uninsurable after the expiration of the initial term, and would be unable to renew the policy or purchase a new one.

This issue is frequently overcome by a feature in some policies called guaranteed reinsurability included on some programs, that allows the insured to renew without proof of insurability.

A version of term insurance which is commonly purchased is annual renewable term (ART). In this form, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. This period varies from 10 to 30 years, or occasionally until age 95. As the insured ages, the premiums increase with each renewal period, eventually becoming financially inviable as the rates for a policy would eventually exceed the cost of a permanent policy. In this form the premium is slightly higher than for a single year's coverage, but the chances of the benefit being paid are much higher.

Level Term Life Insurance

Much more common than annual renewable term insurance is guaranteed level premium term life insurance, where the premium is guaranteed to be the same for a given period of years. The most common terms are 10, 15, 20, and 30 years.

In this form, the premium paid each year is the same, and is based on the summed cost of each year's annual renewable term rates, with a time value of money adjustment made by the insurer. Thus, the longer the term the premium is level for, the higher the premium, because the older, more expensive to insure years are averaged into the premium.

Most level term programs include a renewal option and allow the insured to renew for a maximum guaranteed rate if the insured period needs to be extended. It is important to note that the renewal may or may not be guaranteed and the insured should review their contract to see if evidence of insurability is requierd to renew the policy. Typically this clause is invoked only if the health of the insured deteriorates significantly during the term, and poor health would prevent them from being able to provide proof of insurability.

Payout Likelihood and Cost Difference

Both term insurance and permanent insurance use the exact same mortality tables for calculating the cost of insurance, and a death benefit which is income tax free, as long as the policy is in force and premiums are current; however, the premiums are substantially different.

The reason the costs are substantially different is that term programs may expire without paying out, while permanent programs must always pay out eventually. To address this Permanent programs have built in cash accumulations vehicles to force the insured to "self insure" making the programs many times more expensive.

Insurance industry studies have shown that the probability of filing a death benefit claim under a term insurance policy is unlikely. One study placed the percentage as low as 1% of policies paying a benefit. The low payout likelihood allows term insurance to be relatively inexpensive. The low payout percentage is a combination of there being a low likelihood (in the aggregate) of a random, healthy person dying within a short period of time. Because of the low likelihood of an insurer having to pay a death benefit, term insurance seems better when considered in terms of coverage per premium dollar basis - by a factor of up to 10.

Universal Life

Universal Life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.

Similar life insurance types

A similar type of policy that was developed from universal life policies is the variable universal life insurance policy, or VUL. VUL's allow the cash value to be directed to a number of separate accounts that operate like mutual funds and can be invested in stock or bond investments with greater risk and potential reward. Additionally, there is the recent addition of Equity Indexed Universal Life contracts analogous to Equity Indexed Annuities that invest in Index Options on the movement of an Index such as the S&P 500, Russell 2000, and the Dow (to name a few). These type of contracts only participate in the movement of Index and not the actual purchase of stocks, bonds or mutual funds. They may have a cap (but not always) as to the maximum amount they will credit interest to and a minimum guarantee which keeps the principal of the contract from losing money in a down year. Typically each year the starting point is last year's ending point which means that: (1) the policy amount is locked in at the end of the year; and, (2)the beginning value from which the movement measured is reset.

Universal life is similar in some ways to, and was developed from whole life insurance. The potential advantage of the universal life policy is in its flexibility and the potential for greater cash value growth if the interest rates offered outperform the insurer's general account (that whole life policy cash value growth is based on). Universal life is more flexible than whole life in two primary ways: the death benefit and usually the premium payment are flexible. The death benefit can be increased (subject to insurability) and decreased without surrendering the policy or getting a new one as would be required with whole life. Also a range of premium payments can be made to the policy, from a minimum amount to cover various guarantees the policy may offer to the maximum amount allowed by IRS rules. The primary difference is that the universal life policy shifts some of the risk for maintaining the death benefit to the insured. In a whole life policy, as long as every premium payment is made, the death benefit is guaranteed to be paid if the insured dies. In a UL the policy will lapse (the death benefit will no longer be in force) if the cash value or premium payments are not enough to cover the cost of insurance. To make their policies more attractive insurers often add guarantees, where if certain premium payments are made for a given period, the policy will remain in force for the guarantee period even if the cash value drops to zero. There are two other areas that differentiate Universal Life from Whole Life Insurance. The first is that the expenses, charges and cost of insurance within a Universal Life contract are transparently disclosed to the insured, whereas a Whole Life Insurance policy has traditionally hidden this type of information from the policyholder. Secondly, there are more flexible provisions within a Universal Life contract including zero interest or wash loans which in limited cases can provide the policyholder the ability to access the growth inside the contract without paying income tax. However if the policy lapses while the growth has been withdrawn, there may be substantial income tax owed.

Uses

Universal Life is used as a tax-advantaged way to purchase life insurance. In the early years of the contract, the premium far exceeds the cost of insurance (COI) charges. The difference between the two (the "cash value") will grow tax-deferred so long as the policy remains in force. If the policy is held until death, the cash value will escape taxation entirely. This is because the premiums are paid with after-tax money, so the money going in has already been taxed, and only growth would be taxed. However, since you only pay taxes on the growth of an investment, and you rarely see growth relative to premiums paid, the money in the end is able to escape taxation. Also the death benefit of life insurance policies generally does not face income tax as long as certain circumstances don't occur.

Types

Single Premium

Single Premium UL is paid for by a single, substantial, initial payment. The policy remains in force so long as the COI charges have not depleted the account. Since changes in the tax code, this type of policy is now called a "Modified Endowment Contract (MEC)" and is subject to less advantageous tax treatment. All policies paid up in 5 or less years are subject to this same negative tax treatment. While the premiums and accumulation will be taxed just like an annuity upon withdrawing, the accumulations will grow tax deferred and will still transfer tax free to the beneficiary under Internal Revenue Service Code 101a under certain circumstances.

Fixed Premium

Fixed Premium UL is paid for by periodic premium payments. Generally these payments will be for a shorter period of time than the policy is in force; for example payments may be made for 10 years, with the intention that thereafter the policy is paid-up. If the experience of the plan is not as good as predicted, the account value at the end of the premium period may not be adequate to continue the policy as originally written. In this case, the policyholder may have the choice to either:

1. Leave the policy alone, and let it potentially expire early (if COI charges deplete the account), or
2. Make additional or higher premium payments, to keep the death benefit level, or
3. Lower the death benefit.

Many universal life contracts taken out in the high interest periods of the 1970s and 1980s faced this situation and lapsed when the premiums paid were not enough to cover the cost of insurance.

Flexible Premium

Flexible Premium UL allows the policyholder to determine how much they wish to pay each time premium is due. In addition, Flexible Premium UL may offer a number of different death benefit options, which typically include at least the following:

• A level death benefit (often called Option A or Option 1, Type 1, etc), or
• A level amount at risk (often called Option B, etc). This is also referred to as an increasing death benefit.

Policyholders may also buy Flexible Premium UL with a large initial deposit, thereafter making payments irregularly.

Variable Universal Life Insurance

Variable Universal Life Insurance (often shortened to VUL) is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The 'variable' component in the name refers to this ability to invest in separate accounts whose values vary--they vary because they are invested in stock and/or bond markets. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy.

Variable universal life is a type of permanent life insurance, because the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. With most if not all VUL's, unlike whole life, there is no endowment age (which for whole life is typically 100). This is yet another key advantage of VUL over Whole Life. With a typical whole life policy, the death benefit is limited to the face amount specified in the policy, and at endowment age, the face amount is all that is paid out. Thus with either death or endowment, the insurance company keeps any cash value built up over the years. With a VUL policy, the death benefit is the face amount plus the build up of any cash value that occurs (beyond any amount being used to fund the current cost of insurance.)

If good choices for investments are made in the separate accounts, a much higher rate-of-return can occur than the low fixed rates-of-return typical for whole life. The combination over the years of no endowment age, continually increasing death benefit and high rate-of-return in the separate accounts of a VUL policy could typically result in value to the owner or beneficiary which can be many times that of a whole life policy with the same amounts of money paid in as premiums.

Regulation of VUL Providers

Because the separate accounts are securities, the representative providing a VUL must be working in accordance with the securities regulations of the country or province in which he operates. And because they are life insurance policies, VULs may only be sold by representatives who are properly licensed to sell life insurance in the areas in which they operate. The insurance company providing the policy must also be licensed as an "insurer."

This dual regulation helps protect consumers, who can look up the track record of offenses of any provider listed by the regulating SRO (Self Regulatory Organization) or provincial securities commission.

1. United States. VULs may only be sold in the United States by representatives who have a "producers" life insurance license in the state(s) in which he operates. The insurance company providing the policy must also be licensed in the state(s) as an "insurer." Because the separate accounts are securities, the representative must be working through a broker/dealer registered with the United States' SRO, the Financial Industry Regulatory Authority (FINRA) and himself be registered with FINRA. (FINRA has an online database an investor can use to look up offenses and regulatory actions of any broker or broker/dealer.) The fact of a representative's securities registration will show on his state insurance license as "Variable" as in "qualified for Life and Variable Products." (The exact wording could vary from state to state.)
2. Canada. VUL's, as securities, may only be sold in Canada by representatives duly registered with their provincial securities commission to sell mutual funds. And as VUL's are life insurance policies, providers must comply with the regulations of the Canadian Life and Health Insurance Association (CLHIA). In Canada, there is no real differentiation between universal life and variable universal life. The Canadian Securities Industry is also regulated by 2 self-regulatory organizations: the IIROC {Investment Industry Regulatory Organization of Canada} and the MFDA (Mutual Fund Dealers Association). The Canadian Securities Administrators oversee these self-regulatory organizations and rely on them as front-line regulators of securities dealers and their representatives.

Boiler insurance

Boiler Insurance (Boiler Cover) is a type of insurance that covers repairs and in some cases the replacement of your home boiler. It can also cover other parts of your central heating system and even your plumbing and electrics.

Types Of Boiler cover

More than 22 million UK households rely on a boiler for their heating and hot water. But boilers are not usually covered by standard home insurance. They can be very costly to repair or replace so if you own your own home; it is advisable to take out separate insurance for your boiler or central heating system.

You only need to get boiler cover for your home if you are the owner, or if you’re the landlord of the property. If you live in social housing or rent from a private landlord then any repairs to the boiler are not your responsibility.

Boiler cover is usually a contract tying you into regular monthly payments for a year.

There are various types of boiler cover available in the UK:

• Boiler only • Boiler and service • Full heating system

Boiler only

Some types of boiler insurance policies cover only the boiler and heating controls - these are the cheapest types of policy.

Boiler and service

Boilers need to be serviced every year to ensure that they run safely and efficiently but it is estimated that four out of ten households neglect to service their hot water and heating systems.

If your annual service isn’t included in your boiler cover, a service by a Corgi-registered engineer will set you back anything from £65 to more than £90, however some types of cover will include this in your policy so it will automatically be done each year.

Full heating system

The most expensive types of boiler cover will insure not just your boiler and controls but also your full central heating system, including pipes, radiators and valves. You can even get boiler insurance that covers your plumbing and electrical wiring. But this cover will cost around £26 a month, so you should ask yourself whether or not you really need to get all of this covered.

Who offers boiler cover?

Many home energy providers offer boiler cover and you don’t have to be a customer to take out boiler insurance from that company, nor do you have to take boiler cover from the company that supplies your gas and electricity.

Various types of boiler cover at various costs are offered by British Gas, E.ON, npower, HomeCall+ and Direct Line.

Boiler cover exceptions

Each boiler cover policy comes with some exceptions. These range from the amount of times you can call an engineer out to the amount that each repair can cost to what the insurer considers to be an emergency.

Most policies have a “no claims” period of between 30 and 45 days to ensure that customers don’t sign up simply to avoid paying emergency costs on a boiler that’s already broken down since it will typically cost £33 an hour to call out an engineer - or £76 in London .

If your boiler is more than 15 years old you might not be able to get it covered as it will be unreliable and costly to the insurer. In cases like this it might be better to invest in a new boiler.

If your boiler is 10-15 years old then it probably isn’t an energy saving boiler and could be wasting 875kg of CO2 a year . By law, all new boilers must now be energy efficient condensing boilers, which could save you at least £150 a year according to the Energy Saving Trust.

Make sure that you read the small print on any policy that you sign and carefully go over the terms and conditions to make sure that you know how long it will take for an engineer to visit; some will come out within 24 hours, some within a few days and others will limit callouts at weekends to extreme emergencies only.

Earthquake insurance

Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake loss.

Most earthquake insurance policies feature a high deductible, which makes this type of insurance useful if the entire home is destroyed, but not useful if the home is merely damaged. Rates depend on location and the probability of an earthquake. Rates may be cheaper for homes made of wood, which withstand earthquakes better than homes made of brick.

As with flood insurance or insurance on damage from a hurricane or other large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong enough to destroy one home will probably destroy dozens of homes in the same area. If one company has written insurance policies on a large number of homes in a particular city, then a devastating earthquake will quickly drain all the company's resources. Insurance companies devote much study and effort toward risk management to avoid such cases.

California

Earthquake insurance has become a political issue in California, whose residents purchase more earthquake insurance than residents of any other state in the U.S. After the 1994 Northridge earthquake, nearly all insurance companies completely stopped writing homeowners' insurance policies altogether in the state, because under California law (the "mandatory offer law"), companies offering homeowners' insurance must also offer earthquake insurance. Eventually the legislature created a "mini policy" that could be sold by any insurer to comply with the mandatory offer law: only earthquake loss due to structural damage need be covered, with a 15% deductible. Claims on personal property losses and "loss of use" are limited. The legislature also created a quasi-public (privately funded, publicly managed) agency called the CEA California Earthquake Authority. Membership in the CEA by insurers is voluntary and member companies satisfy the mandatory offer law by selling the CEA mini policy. Premiums are paid to the insurer, and then pooled in the CEA to cover claims from homeowners with a CEA policy from member insurers. The state of California specifically states that it does not back up CEA earthquake insurance, in the event that claims from a major earthquake were to drain all CEA funds, nor will it cover claims from non-CEA insurers if they were to become insolvent due to earthquake losses.

Japan

The government of Japan created the "Japanese Earthquake Reinsurance" scheme in 1966, and the scheme has been revised several times since.Homeowners may buy earthquake insurance from an insurance company as an optional rider to a fire insurance policy. Insurers enrolled in the JER scheme who have to pay earthquake claims to homeowners share the risk among themselves and also the government, through the JER. The government pays a much larger proportion of the claims if a single earthquake causes aggregate damage of over about 1 trillion yen (about US $8.75 billion). The maximum payout in a single year to all JER insurance claim filers is 4.5 trillion yen (about US $39.4 billion); if claims exceed this amount, then the claims are pro-rated among all claimants.

Why Title Insurance Exists in the United States

Title insurance exists in the U.S. in great part because of a comparative deficiency in the U.S. land records laws. Most of the industrialized world uses land registration systems for the transfer of land titles or interests in them. Under these systems, the government makes the determination of title ownership and encumbrances on the title based on the registration of the instruments transferring or otherwise affecting the title in the applicable government office. With only a few exceptions, the government's determination is conclusive. Governmental errors lead to monetary compensation to the person damaged by the error but that aggrieved party usually cannot recover the property.

A few jurisdictions in the United States have adopted a form of this system, e.g., Minneapolis, Minnesota and Boston, Massachusetts. However, for the most part, the states have opted for a system of document recording in which no governmental official makes any determination of who owns the title or whether the instruments transferring it are valid. The reason for this is probably that it is much less expensive to operate than a land registration system; it doesn't require the number of legally skilled employees that the registration systems do.

Greatly simplified, in the recording system, each time a land title transaction takes place, the transfer instrument is recorded with a local government recorder located in the jurisdiction (usually the county) where the land lies. The instrument is then indexed by the names of the grantor (transferor) and the grantee (transferee) and photographed so it can be found and examined by anyone who wants to see it. Usually, the failure by the grantee to record the transfer instrument voids it as to subsequent purchasers of the property who don't actually know of its existence.

Under this system, determining who owns the title requires the examination of the indexes in the recorders' offices pursuant to various rules established by state legislatures and courts, scrutinizing the instruments to which they refer and making the determination of how they affect the title under applicable law. (The final arbiters of title matters are the courts, which make decisions in suits brought by parties having disagreements.) Initially, this was done by hiring an abstractor to search for the documents affecting the title to the land in question and an attorney to opine on their meaning under the law, and this is still done in some places. However, this procedure has been found to be cumbersome and inefficient in most of the US. Substantial errors made by the abstractor or the attorney will be compensated only to the limit of the financial responsibility of these parties (including their liability insurance). Some errors may not be compensated at all, depending on whether the error was the result of negligence. The opinions given by attorneys as to each title are not uniform and often require time consuming analysis to determine their meanings.

Title insurers use this recording system to produce an insurance policy for any purchaser of land, or interest in it, or mortgage lender if the premium is paid. Title insurers use their employees or agents to perform the necessary searches of the recorders' offices records and to make the determinations of who owns the title and to what interests it is subject. The policies are fairly uniform (a fact that greatly pleases lenders and others in the real estate business) and the insurers carry, at a minimum, the financial reserves required by insurance regulation to compensate their insureds for valid claims they make under the policies. This is especially important in large commercial real estate transactions where many millions of dollars are invested or loaned in reliance on the validity of real estate titles. As stated above, the policies also require the insurers to pay for the costs of defense of their insureds in legal contests over what they have insured. Abstractors and attorneys have no such obligation.

Title insurance in the United States

Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the US land records laws. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.Title insurance was created in the United States by William Penn and the vast majority of title insurance policies are written on land within the U.S.

Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, including an easement, lease or life estate. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate. Some mortgage lenders, especially non-institutional lenders, may not require title insurance.

Title insurance is available in many other countries, such as Canada, Australia, United Kingdom, Northern Ireland, Mexico, New Zealand, China, Korea and throughout Europe. However, while a substantial number of properties located in these countries are insured by US title insurers, they do not constitute a significant share of the real estate transactions in those countries. They also do not constitute a large share of US title insurers' revenues. In many cases these are properties to be used for commercial purposes by US companies doing business abroad, or properties financed by US lenders. The US companies involved buy title insurance to obtain the security of a US insurer backing up the evidence of title that they receive from the other country's land registration system, and payment of legal defense costs if the title is challenged.

Pet Insurance

Pet Insurance pays the veterinary costs if one's pet becomes ill or is injured in an accident. Some policies will also pay out when the pet dies, or if it's lost or stolen.

The purpose of pet insurance is to mitigate the risk of incurring significant expense to treat ill or injured pets. As veterinary medicine is increasingly employing expensive medical techniques and drugs, and owners have higher expectations for their pets' health care and standard of living than previously, the market for pet insurance has increased.

History

The first pet insurance policy was written in 1890 by Claes Virgin. Virgin was the founder of Länsförsäkrings Alliance, at that time he focused on horses and livestock.^{[citation needed]} In 1947 the first pet insurance policy was sold in Britain. Today Britain has the second-highest level of pet insurance in the world (23%)^[1], behind only Sweden.

How policies work

Many pet owners believe pet insurance is a variation of human health insurance; however, pet insurance is actually a form of property insurance. As such, pet insurance reimburses the owner after the pet has received care and the owner submits a claim to the insurance company.

UK Policies usually pay 100% of vets fees. Policies in the USA usually offer to pay 80-90%^{[citation needed]} of the costs minus a deductible depending on the company and the specific policy. The owner will usually pay the amount due to the Vet, and then send in the claim form and receive reimbursement, which some companies and policies limit according to their own schedule of necessary and usual charges. In the event of a very high bill, some veterinarians will allow the owner to put off payment until the insurance claim is processed. Some insurers pay veterinarians directly on behalf of customers. Most U.S. policies require the pet owner to submit a request for fees incurred.^{[citation needed]}

Traditionally, most pet insurance plans did not pay for preventative care (such as vaccinations) or elective procedures (such as neutering). Recently however, some companies in the UK and US are offering routine care coverage, or some times called comprehensive coverage.

In addition, companies often limit coverage for pre-existing conditions in order to eliminate fraudulent consumers, thus giving owners an incentive to insure even very young animals who are not expected to incur high veterinary costs while they are still healthy.

Some insurers offer options not directly related to pet health, including covering boarding costs for animals whose owners are hospitalized, or costs (such as rewards or posters) associated with retrieving lost animals. Some policies also include travel cancellation coverage if owners must remain with pets who need urgent treatment or are dying.

Some UK policies for dogs also include third party liability insurance. Thus, for example, if a dog causes a car accident that damages a vehicle, the insurer will pay to rectify the damage for which the owner is responsible under the Animals Act 1971.

The difference between companies

The smart consumer will always check the details before signing up for a policy which may not cover your animal's condition. Some companies will use a benefit schedule covering only what they think a given procedure is worth. Other companies will not cover hereditary conditions. Finally, some companies will not renew your policy at the end of a given term or will consider a condition pre-existing after renewing your yearly contract and then refuse to cover the illness. Despite these set-backs, pet insurance can provide financial support enabling the dedicated pet owner to not factor in economic considerations while life-saving care is needed.

Casualty insurance

Casualty insurance policies are written to cover loss that is the direct result of accident. It may include Auto liability insurance for car accidents, Marine insurance for shipwrecks or losses at sea, and etc. Life, health and property insurance are typically excluded from the definition. Loosely used to describe an area of insurance not particularly or directly concerned with life insurance, fire insurance or automobile insurance. Most frequently it refers to liability, crime and plate glass insurance but may include surety as well.

Segments

It also includes other insurance coverages such as:

• liability insurance
• political risk insurance
• terrorism insurance
• fidelity and surety bonds.
• earthquake
• cyber liability

See also

• Property insurance
• List of finance topics (Insurance)

Political risk insurance

Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss.

Political risk insurance is available for several different types of political risk, including (among others):

• Political violence, such as revolution, insurrection, civil unrest, terrorism or war;
• Governmental expropriation or confiscation of assets;
• Governmental frustration or repudiation of contracts;
• Wrongful calling of letters of credit or similar on-demand guarantees; and
• Inconvertibility of foreign currency or the inability to repatriate funds.

As with any insurance, the precise scope of coverage is governed by the terms of the insurance policy.

The underwriting of political risk insurance is a dynamic, growing business. As globalisation increases, there are more corporations doing more business in more places around the world with each passing year. Some of the changes occurring in the business are high growth, new product offerings, and a greater role for private capital.

While political risk insurance policies are sometimes manuscripted for specific situations, the major political risk insurers have standard forms for the coverages that they issue.

for more visit

http://www.miga.org/

http://www.pri-center.com/

Terrorism insurance

Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.

It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in Casualty and Property insurance, or else require endorsments to provide coverage.

On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.

The United States insurance market offers coverage to the majority of large companies which ask for it in their polices. The price of the policy depends on where the clients are residing and how much limit they buy.

Industry Needs

Concentration of risk is another factor in determining availability for terrorism insurance. Due to the concentrated losses of the World Trade Center, carriers were hit with large losses in one centralized location. Insurers seek to spread the coverage over a wider geographic area than as with other aggregate perils, such as flood.

Modeling the Risks

Insurance companies are using an approach that is similar to that used with natural catastrophe risks. A Swiss Re report suggested that in this case where demand is greater than the supply for terrorism coverage that a short-term solution is possible: a mix of government and private resource to make easy the transition. In this situation, the government would serve two functions: to establish rules to overcome the capacity shortage and to be the insurer of last resort.

Crisis Management

Crisis management planning can save large amounts money in the long run. According to experts^{[citations needed]}, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes.

Netherlands

Insurance payments related to terrorism are restricted to a billion euro per year for all insurance companies together. This regards property insurance, but also life insurance, medical insurance, etc.

US

According to The Economist, one of the best studies to understand TRIA has been the one undertaken in 2005 by the Center for Risk Management at the Wharton Business School ("TRIA and Beyond"; available on their website below).

In mid-2007 the idea of another extension to TRIA was tabled and is officially known as TRIREA, (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverge (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.

Iraq

The New York Times reports that in Baghdad personal terrorism insurance is available. One company offers such insurance for $90, and if the customer is a victim of terrorism in the next year, it pays the heirs $3,500.

Countries With Long-Term Terrorism Insurance Programmes

According to the policy agenda of The Real Estate Roundtable, the following countries are the only ones in the world with long-term terrorism insurance.

1. Australia
2. Austria
3. Finland
4. France
5. Germany
6. Israel
7. Namibia
8. Netherlands
9. Russia
10. South Africa
11. Spain
12. Switzerland
13. Turkey
14. United Kingdom

Credit Insurance

Credit Insurance is a term used to describe both Trade Credit Insurance and Credit Life Insurance.

Credit Life Insurance is a consumer purchase, often sold with a big ticket purchase such as an automobile. The insurance will pay off the loan balance in the event of the death or the disability of the borrower. Although purchased by the consumer/borrower, the benefit payment goes to the company financing the purchase to satisfy a debt.

Credit Insurance or Trade Credit Insurance (also known as Business Credit Insurance) is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. Trade Credit Insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. This product is not available to private individuals.

The costs (called a "premium") for this are usually charged monthly, and are calculated as a percentage of sales of that month or as a percentage of all outstanding receivables.

Credit insurance insures the payment risk of companies, not of private individuals. Policy holders require a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate is usually low and reflects the average credit risk of the insured portfolio of buyers.

In addition, credit insurance can also cover single transactions or trade with only one buyer.

Credit Insurance was born at the end of nineteenth century, but it was mostly developed in Western Europe between the first and Second World Wars. Several companies were founded in every country, some of them also managed the political risk to export on behalf of their State.

Over the '90s, a concentration of the Trade Credit Insurance market took place and three groups now account for over 85% of the global credit insurance market. These main players focused on Western Europe, but rapidly expanded towards Eastern Europe, Asia and the Americas.:

• Atradius. A merger between NCM and Gerling Kreditversicherung. Later renamed Atradius after it was demerged from the Gerling insurance group.
• Coface. Formerly a French government sponsored institution established in 1946, this company is now part of the Natixis group.
• Euler Hermes, merger of the two credit insurance companies of the Allianz Group.

Notable credit insurance providers include

• Atradius
• Coface (France)
• Euler Hermes (Germany)

Brokerage Service Providers

Credit Insurance is said to be a broker driven business. Brokers mainly help in creating market competition between different insurers for better premium pricing and policy wordings for policy holders. Brokers also help policy holders to comply with the policy wordings in order to ensure smooth claiming process, if any.

Self insurance

Self insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.

If self insurance is approached as a serious risk management technique, money is set aside using actuarial and insurance information and the law of large numbers so that the amount set aside (similar to an insurance premium) is enough to cover the future uncertain loss.

Self insurance is possible for any insurable risk, meaning a risk that is predictable and measurable enough in the aggregate to be able to estimate the amount that needs to be set aside to pay for future uncertain losses. For a risk to be insurable, it must represent a future, uncertain event over which the insured has no control. Other characteristics which assist in making a risk self-insurable include the ability to price or rate the risk. If the insurable event is one in a large number of similar risks, the aggregate risk can be estimated according to the law of large numbers and the probability of that event occurring in the future can be quantified. Normally, catastrophic risks are not self-insured as they are highly unpredictable and high in loss-value. Catastrophic risks are normally underwritten by the re-insurance or wholesale insurance market. Any risk where the potential loss is so large that no one could afford to pay the market premium required to provide cover would not be commercially insurable. An example is that earthquakes cannot be fully insured against because an earthquake can cause more damage than any insurer or the combined insurance market is willing to risk in total assets. However, captives and self-insurance programmes are often designed to provide for a part of a risk that would be catastrophic to the business concerned, or catastrophic risks that are often commercially uninsurable, such as tobacco litigation liability risks.

Full or exclusive self-insurance is rare, as a combination of self-insurance and commercial insurance usually provides the best cover for the self-insured. Usually the predictable losses of the risk are retained and self-insured, forming a first or "working" layer of cover, and a stop-loss or stop-gap policy is purchased from the commercial insurance market. The commercial insurance market then pays for losses above the specified self-insurance limit per loss, thereby stopping the cost of losses to the self-insured above the retained values. Effectively the losses paid for by the insured before the stop-loss policy pays becomes the deductible layer. Depending on the level at which risks are stopped, commercial insurance cover should become less and less expensive the further away the commercial insurer moves from the working layer of paying claims each year.

A popular and cost-effective form of self-insurance can be found in various types of employee benefits insurance offered by corporations with many thousands of employees. Employee benefits self-insurance programmes are often underwritten by captive insurance companies formed, owned and managed by corporations in both on-shore and off-shore captive domiciles. The reason for this is that hundreds of thousands of employees constitute a large enough risk pool for the corporation to be able to predict and price the risk of losses from benefits offered to employees. In this way, corporations are able to manage their financial exposure to the self-insurance programme without buying commercial insurance.

The idea of self insurance is that by retaining, calculating risks, and paying the resulting claims or losses from captive or on-balance sheet financial provisions, the overall process is cheaper than buying commercial insurance from a commercial insurance company. Cost savings to the self-insured entity are usually realised through the elimination of the carrying-costs that commercial insurers are obliged to pass on to their insurance consumers.

Another example of this is a self-funded health care plan under which a smaller employer helps finance the health care costs of its employees by contracting with a Third Party Administrator (TPA) to administer many aspects of the plan. The employer may also contract with a reinsurer to pay amounts in excess of a certain threshold, in order to share the risk for potential catastrophic claims experience.

Self insurance is less readily available for individuals because individuals rarely gain sufficient cost-savings on small premiums to justify specialised self-insurance captives, interventions and negotiations with insurers. However, many small businesses are now using self-insurance mechanisms such as cell captives and rent-a-captives with considerable success.

More colloquially, the term "self-insured" is used as a euphemism for uninsured.