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This article is about the risk management method. For insurance in blackjack, see Blackjack. Car insurance young drivers australia zoo An advertising poster for an insurance company from ca. 1900-1918 depicts an armoured knight.
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Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and must involve something in which the insured has an insurable interest established by ownership, possession, or preexisting relationship.

The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster.

Contents

  • 1 History
    • 1.1 Early methods
    • 1.2 Modern insurance
  • 2 Principles
    • 2.1 Insurability
    • 2.2 Legal
    • 2.3 Indemnification
  • 3 Social effects
    • 3.1 Methods of insurance
  • 4 Insurers' business model
    • 4.1 Underwriting and investing
    • 4.2 Claims
    • 4.3 Marketing
  • 5 Types
    • 5.1 Auto insurance
    • 5.2 Gap insurance
    • 5.3 Health insurance
    • 5.4 Income protection insurance
    • 5.5 Casualty insurance
    • 5.6 Life insurance
    • 5.7 Burial insurance
    • 5.8 Property
    • 5.9 Liability
    • 5.10 Credit
    • 5.11 Other types
    • 5.12 Insurance financing vehicles
    • 5.13 Closed community and governmental self-insurance
  • 6 Insurance companies
  • 7 Across the world
    • 7.1 Regulatory differences
  • 8 Controversies
    • 8.1 Does not reduce the risk
    • 8.2 Insurance insulates too much
    • 8.3 Complexity of insurance policy contracts
    • 8.4 Limited consumer benefits
    • 8.5 Redlining
    • 8.6 Insurance patents
    • 8.7 Insurance industry and rent-seeking
    • 8.8 Religious concerns
  • 9 See also
  • 10 Notes
  • 11 Bibliography
  • 12 External links

History

Main article: History of insurance

Early methods

Samsung fire and marine insurance uk car Merchants have sought methods to minimize risks since early times. Pictured, Governors of the Wine Merchant's Guild by Ferdinand Bol, c. 1680.

Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.[1] Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen, or lost at sea.

At some point in the 1st millennium BC, the inhabitants of Rhodes created the 'general average'. This allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.[2]

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks.[3] These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance.

Modern insurance

Insurance became far more sophisticated in Enlightenment era Europe, and specialized varieties developed.

Insurance quotes antique car Lloyd's Coffee House was the first organized market for marine insurance.

Property insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667".[4] A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his Insurance Office.[5]

At the same time, the first insurance schemes for the underwriting of business ventures became available. By the end of the seventeenth century, London's growing importance as a center for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house, which became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd's of London and several related shipping and insurance businesses.[6]

Car insurance deductible refund cents Leaflet promoting the National Insurance Act 1911.

The first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen.[7][8] Edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship in 1762.

It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based".[9]

In the late 19th century, "accident insurance" began to become available.[10] The first company to offer accident insurance was the Railway Passengers Assurance Company, formed in 1848 in England to insure against the rising number of fatalities on the nascent railway system.

By the late 19th century, governments began to initiate national insurance programs against sickness and old age. Germany built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck introduced old age pensions, accident insurance and medical care that formed the basis for Germany's welfare state.[11][12] In Britain more extensive legislation was introduced by the Liberal government in the 1911 National Insurance Act. This gave the British working classes the first contributory system of insurance against illness and unemployment.[13] This system was greatly expanded after the Second World War under the influence of the Beveridge Report, to form the first modern welfare state.[11][14]

Principles

Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be an insurable risk, the risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.[15]

Insurability

Main article: Insurability

Risk which can be insured by private companies typically shares seven common characteristics:[16]

  1. Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London, which is famous for insuring the life or health of actors, sports figures, and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.
  2. Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place, or cause is identifiable. Ideally, the time, place, and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
  3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements such as ordinary business risks or even purchasing a lottery ticket are generally not considered insurable.
  4. Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses, these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.
  5. Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, then it is not likely that the insurance will be purchased, even if on offer. Furthermore, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, then the transaction may have the form of insurance, but not the substance (see the U.S. Financial Accounting Standards Board pronouncement number 113: "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts").
  6. Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
  7. Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital constrains insurers' ability to sell earthquake insurance as well as wind insurance in hurricane zones. In the United States, flood risk is insured by the federal government. In commercial fire insurance, it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

Legal

When a company insures an individual entity, there are basic legal requirements and regulations. Several commonly cited legal principles of insurance include:[17]

  1. Indemnity – the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insured's interest.
  2. Benefit insurance – as it is stated in the study books of The Chartered Insurance Institute, the insurance company does not have the right of recovery from the party who caused the injury and is to compensate the Insured regardless of the fact that Insured had already sued the negligent party for the damages (for example, personal accident insurance)
  3. Insurable interest – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. The requirement of an insurable interest is what distinguishes insurance from gambling.
  4. Utmost good faith – (Uberrima fides) the insured and the insurer are bound by a good faith bond of honesty and fairness. Material facts must be disclosed.
  5. Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method.
  6. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for the insured's loss. The Insurers can waive their subrogation rights by using the special clauses.
  7. Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not be excluded
  8. Mitigation – In case of any loss or casualty, the asset owner must attempt to keep loss to a minimum, as if the asset was not insured.

Indemnification

Main article: Indemnity

To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly, life insurance is generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a claim arises on the occurrence of a specified event). There are generally three types of insurance contracts that seek to indemnify an insured:

  1. A "reimbursement" policy
  2. A "pay on behalf" or "on behalf of policy"[18]
  3. An "indemnification" policy

From an insured's standpoint, the result is usually the same: the insurer pays the loss and claims expenses.

If the Insured has a "reimbursement" policy, the insured can be required to pay for a loss and then be "reimbursed" by the insurance carrier for the loss and out of pocket costs including, with the permission of the insurer, claim expenses.[18][19]

Under a "pay on behalf" policy, the insurance carrier would defend and pay a claim on behalf of the insured who would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language which enables the insurance carrier to manage and control the claim.

Under an "indemnification" policy, the insurance carrier can generally either "reimburse" or "pay on behalf of", whichever is more beneficial to it and the insured in the claim handling process.

An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract, called an insurance policy. Generally, an insurance contract includes, at a minimum, the following elements: identification of participating parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified" against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims – in theory for a relatively few claimants – and for overhead costs. So long as an insurer maintains adequate funds set aside for anticipated losses (called reserves), the remaining margin is an insurer's profit.

Social effects

Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. On one hand it can increase fraud; on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies.

Insurance can influence the probability of losses through moral hazard, insurance fraud, and preventive steps by the insurance company. Insurance scholars have typically used moral hazard to refer to the increased loss due to unintentional carelessness and insurance fraud to refer to increased risk due to intentional carelessness or indifference.[20] Insurers attempt to address carelessness through inspections, policy provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures—particularly to prevent disaster losses such as hurricanes—because of concerns over rate reductions and legal battles. However, since about 1996 insurers have begun to take a more active role in loss mitigation, such as through building codes.[21]

Methods of insurance

In accordance with study books of The Chartered Insurance Institute, there are the following types of insurance:

  1. Co-insurance – risks shared between insurers
  2. Dual insurance – risks having two or more policies with same coverage (Both the individual policies would not pay separately- a concept named contribution, and would contribute together to make up the policyholder's losses. However, in case of contingency insurances like Life insurance, dual payment is allowed)
  3. Self-insurance – situations where risk is not transferred to insurance companies and solely retained by the entities or individuals themselves
  4. Reinsurance – situations when Insurer passes some part of or all risks to another Insurer called Reinsurer

Insurers' business model

Askmid car insurance checkersPlay media Accidents will happen (William H. Watson, 1922) is a slapstick silent film about the methods and mishaps of an insurance broker. Collection EYE Film Institute Netherlands.

Underwriting and investing

The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation:

Profit = earned premium + investment income – incurred loss – underwriting expenses.

Insurers make money in two ways:

  • Through underwriting, the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks
  • By investing the premiums they collect from insured parties

The most complicated aspect of the insurance business is the actuarial science of ratemaking (price-setting) of policies, which uses statistics and probability to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.

At the most basic level, initial ratemaking involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value, and compare these prior losses to the premium collected in order to assess rate adequacy.[22] Loss ratios and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities"—a policy with twice as many losses would therefore be charged twice as much. More complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected minus the amount paid out in claims is the insurer's underwriting profit on that policy. Underwriting performance is measured by something called the "combined ratio", which is the ratio of expenses/losses to premiums.[23] A combined ratio of less than 100% indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.

Insurance companies earn investment profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange.[24]

In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

Naturally, the float method is difficult to carry out in an economically depressed period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle.[25]

Claims

Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD.

Insurance company claims departments employ a large number of claims adjusters supported by a staff of records management and data entry clerks. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

The policyholder may hire their own public adjuster to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add-on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.

Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

If a claims adjuster suspects under-insurance, the condition of average may come into play to limit the insurance company's exposure.

In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices are a major business risk that must be managed and overcome. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation (see insurance bad faith).

Marketing

Insurers will often use insurance agents to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. The existence and success of companies using insurance agents is likely due to improved and personalized service. Companies also use Broking firms, Banks and other corporate entities (like Self Help Groups, Microfinance Institutions, NGOs etc.) to market their products.[26]

Types

Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy that may cover risks in one or more of the categories set out below. For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance policy in the United States typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Business insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are discussed below under that name; and the business owner's policy (BOP), which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners' insurance packages the coverages that a homeowner needs.[27]

Auto insurance

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Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision.

Coverage typically includes:

  • Property coverage, for damage to or theft of the car
  • Liability coverage, for the legal responsibility to others for bodily injury or property damage
  • Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses

Gap insurance

Main article: Gap insurance

Gap insurance covers the excess amount on your auto loan in an instance where your insurance company does not cover the entire loan. Depending on the company's specific policies it might or might not cover the deductible as well. This coverage is marketed for those who put low down payments, have high interest rates on their loans, and those with 60-month or longer terms. Gap insurance is typically offered by a finance company when the vehicle owner purchases their vehicle, but many auto insurance companies offer this coverage to consumers as well.

Health insurance

Main articles: Health insurance and Dental insurance Average monthly car insurance full coverage Great Western Hospital, Swindon

Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance, protects policyholders for dental costs. In most developed countries, all citizens receive some health coverage from their governments, paid for by taxation. In most countries, health insurance is often part of an employer's benefits.

Income protection insurance

Hollard car insurance quotes Workers' compensation, or employers' liability insurance, is compulsory in some countries
  • Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and credit cards. Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.
  • Long-term disability insurance covers an individual's expenses for the long term, up until such time as they are considered permanently disabled and thereafter Insurance companies will often try to encourage the person back into employment in preference to and before declaring them unable to work at all and therefore totally disabled.
  • Disability overhead insurance allows business owners to cover the overhead expenses of their business while they are unable to work.
  • Total permanent disability insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
  • Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expenses incurred because of a job-related injury.

Casualty insurance

Main article: Casualty insurance

Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.

  • Crime insurance is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.
  • Terrorism insurance provides protection against any loss or damage caused by terrorist activities. In the United States in the wake of 9/11, the Terrorism Risk Insurance Act 2002 (TRIA) set up a federal program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).
  • Kidnap and ransom insurance is designed to protect individuals and corporations operating in high-risk areas around the world against the perils of kidnap, extortion, wrongful detention and hijacking.
  • Political risk insurance is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions could result in a loss.

Life insurance

Main article: Life insurance Car third party property damage insurance quote Amicable Society for a Perpetual Assurance Office, Serjeants' Inn, Fleet Street, London, 1801

Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. In most states, a person cannot purchase a policy on another person without their knowledge.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are regulated as insurance, and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.

Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments to accumulate or liquidate wealth when it is needed.

In many countries, such as the United States and the UK, the tax law provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In the United States, the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation.

Burial insurance

Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance c. 600 CE when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose, as did friendly societies during Victorian times.

Property

Main article: Property insurance Funny car insurance pictures free This tornado damage to an Illinois home would be considered an "Act of God" for insurance purposes

Property insurance provides protection against risks to property, such as fire, theft or weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

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  • Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as passenger and third-party liability. Airports may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures.
  • Boiler insurance (also known as boiler and machinery insurance, or equipment breakdown insurance) insures against accidental physical damage to boilers, equipment or machinery.
  • Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.[28]
  • Crop insurance may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.[29]
  • 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 home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high deductible. Rates depend on location and hence the likelihood of an earthquake, as well as the construction of the home.
  • Fidelity bond is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.
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  • Flood insurance protects against property loss due to flooding. Many U.S. insurers do not provide flood insurance in some parts of the country. In response to this, the federal government created the National Flood Insurance Program which serves as the insurer of last resort.
  • Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.[30]
  • Landlord insurance covers residential and commercial properties which are rented to others. Most homeowners' insurance covers only owner-occupied homes.
  • Marine insurance and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.
  • Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.
  • Surety bond insurance is a three-party insurance guaranteeing the performance of the principal.
Travelers car insurance phone number The demand for terrorism insurance surged after 9/11
  • Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions.
  • Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes.

Liability

Main article: Liability insurance

Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.

Lv car insurance free phone number The subprime mortgage crisis was the source of many liability insurance losses
  • Public liability insurance or general liability insurance covers a business or organization against claims should its operations injure a member of the public or damage their property in some way.
  • Directors and officers liability insurance (D&O) protects an organization (usually a corporation) from costs associated with litigation resulting from errors made by directors and officers for which they are liable.
  • Environmental liability or environmental impairment insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
  • Errors and omissions insurance (E&O) is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators (TPAs) and other business professionals.
  • Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
  • Professional liability insurance, also called professional indemnity insurance (PI), protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance.

Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[31]

Credit

Main article: Payment protection insurance

Credit insurance repays some or all of a loan when the borrower is insolvent.

  • Mortgage insurance insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name "credit insurance" more often is used to refer to policies that cover other kinds of debt.
  • Many credit cards offer payment protection plans which are a form of credit insurance.
  • Trade credit insurance is business insurance over the accounts receivable of the insured. The policy pays the policy holder for covered accounts receivable if the debtor defaults on payment.
  • Collateral protection insurance (CPI) insures property (primarily vehicles) held as collateral for loans made by lending institutions.

Other types

  • All-risk insurance is an insurance that covers a wide range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy.[32] In car insurance, all-risk policy includes also the damages caused by the own driver.
Bejan winwalashvili vardi car insurance High-value horses may be insured under a bloodstock policy
  • Bloodstock insurance covers individual horses or a number of horses under common ownership. Coverage is typically for mortality as a result of accident, illness or disease but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.
  • Business interruption insurance covers the loss of income, and the expenses incurred, after a covered peril interrupts normal business operations.
  • Defense Base Act (DBA) insurance provides coverage for civilian workers hired by the government to perform contracts outside the United States and Canada. DBA is required for all U.S. citizens, U.S. residents, U.S. Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, foreign nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
  • Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
  • Legal expenses insurance covers policyholders for the potential costs of legal action against an institution or an individual. When something happens which triggers the need for legal action, it is known as "the event". There are two main types of legal expenses insurance: before the event insurance and after the event insurance.
  • Livestock insurance is a specialist policy provided to, for example, commercial or hobby farms, aquariums, fish farms or any other animal holding. Cover is available for mortality or economic slaughter as a result of accident, illness or disease but can extend to include destruction by government order.
  • Media liability insurance is designed to cover professionals that engage in film and television production and print, against risks such as defamation.
  • Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. (See the nuclear exclusion clause and for the US the Price-Anderson Nuclear Industries Indemnity Act.)
  • Pet insurance insures pets against accidents and illnesses; some companies cover routine/wellness care and burial, as well.
  • Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
  • Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
  • Tax insurance is increasingly being used in corporate transactions to protect taxpayers in the event that a tax position it has taken is challenged by the IRS or a state, local, or foreign taxing authority[33]
  • Title insurance provides a guarantee that title to real property is vested in the purchaser or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.
  • Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.
  • Tuition insurance insures students against involuntary withdrawal from cost-intensive educational institutions
  • Interest rate insurance protects the holder from adverse changes in interest rates, for instance for those with a variable rate loan or mortgage
  • Divorce insurance is a form of contractual liability insurance that pays the insured a cash benefit if their marriage ends in divorce.

Insurance financing vehicles

  • Fraternal insurance is provided on a cooperative basis by fraternal benefit societies or other social organizations.[34]
  • No-fault insurance is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
  • Protected self-insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
  • Retrospectively rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
  • Formal self-insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money.[citation needed] This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self-insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.[citation needed]
  • Reinsurance is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. Financial reinsurance is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk.
  • Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
    • National Insurance
    • Social safety net
    • Social security
    • Social Security debate (United States)
    • Social Security (United States)
    • Social welfare provision
  • Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organizations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.

Closed community and governmental self-insurance

Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.

In the United Kingdom, The Crown (which, for practical purposes, meant the civil service) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

In the United States, the most prevalent form of self-insurance is governmental risk management pools. They are self-funded cooperatives, operating as carriers of coverage for the majority of governmental entities today, such as county governments, municipalities, and school districts. Rather than these entities independently self-insure and risk bankruptcy from a large judgment or catastrophic loss, such governmental entities form a risk pool. Such pools begin their operations by capitalization through member deposits or bond issuance. Coverage (such as general liability, auto liability, professional liability, workers compensation, and property) is offered by the pool to its members, similar to coverage offered by insurance companies. However, self-insured pools offer members lower rates (due to not needing insurance brokers), increased benefits (such as loss prevention services) and subject matter expertise. Of approximately 91,000 distinct governmental entities operating in the United States, 75,000 are members of self-insured pools in various lines of coverage, forming approximately 500 pools. Although a relatively small corner of the insurance market, the annual contributions (self-insured premiums) to such pools have been estimated up to 17 billion dollars annually.[35]

Insurance companies

Part year car insurance uk go compare Certificate issued by Republic Fire Insurance Co. of New York c. 1860

Insurance companies may be classified into two groups:

  • Life insurance companies, which sell life insurance, annuities and pensions products.
  • Non-life or property/casualty insurance companies, which sell other types of insurance.

General insurance companies can be further divided into these sub categories.

  • Standard lines
  • Excess lines

In most countries, life and non-life insurers are subject to different regulatory regimes and different tax and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature – coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers a shorter period, such as one year.

Insurance companies are generally classified as either mutual or proprietary companies.[36] Mutual companies are owned by the policyholders, while shareholders (who may or may not own policies) own proprietary insurance companies.

Demutualization of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century. However, not all states permit mutual holding companies.

Other possible forms for an insurance company include reciprocals, in which policyholders reciprocate in sharing risks, and Lloyd's organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

Reinsurance companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

  • Heavy and increasing premium costs in almost every line of coverage
  • Difficulties in insuring certain types of fortuitous risk
  • Differential coverage standards in various parts of the world
  • Rating structures which reflect market trends rather than individual loss experience
  • Insufficient credit for deductibles or loss control efforts

There are also companies known as "insurance consultants". Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.

Across the world

Car insurance auto renewal is it legal to sell Life insurance premiums written in 2005 Hamalainen car insurance Non-life insurance premiums written in 2005

Global insurance premiums grew by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, climbing above pre-crisis levels. The return to growth and record premiums generated during the year followed two years of decline in real terms. Life insurance premiums increased by 3.2% in 2010 and non-life premiums by 2.1%. While industrialised countries saw an increase in premiums of around 1.4%, insurance markets in emerging economies saw rapid expansion with 11% growth in premium income. The global insurance industry was sufficiently capitalised to withstand the financial crisis of 2008 and 2009 and most insurance companies restored their capital to pre-crisis levels by the end of 2010. With the continuation of the gradual recovery of the global economy, it is likely the insurance industry will continue to see growth in premium income both in industrialised countries and emerging markets in 2011.

Advanced economies account for the bulk of global insurance. With premium income of $1.62 trillion, Europe was the most important region in 2010, followed by North America $1.409 trillion and Asia $1.161 trillion. Europe has however seen a decline in premium income during the year in contrast to the growth seen in North America and Asia. The top four countries generated more than a half of premiums. The United States and Japan alone accounted for 40% of world insurance, much higher than their 7% share of the global population. Emerging economies accounted for over 85% of the world's population but only around 15% of premiums. Their markets are however growing at a quicker pace.[37] The country expected to have the biggest impact on the insurance share distribution across the world is China. According to Sam Radwan of ENHANCE International LLC, low premium penetration (insurance premium as a % of GDP), an ageing population and the largest car market in terms of new sales, premium growth has averaged 15–20% in the past five years, and China is expected to be the largest insurance market in the next decade or two.[38]

Regulatory differences

Main article: Insurance law

In the United States, insurance is regulated by the states under the McCarran-Ferguson Act, with "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations.[39] The National Conference of Insurance Legislators (NCOIL) also works to harmonize the different state laws.[40]

In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (subject to permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU.[41] As far as insurance in the United Kingdom, the Financial Services Authority took over insurance regulation from the General Insurance Standards Council in 2005;[42] laws passed include the Insurance Companies Act 1973 and another in 1982,[43] and reforms to warranty and other aspects under discussion as of 2012[update].[44]

The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment. In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China[45] was passed, followed in 1998 by the formation of China Insurance Regulatory Commission (CIRC), which has broad regulatory authority over the insurance market of China.[46]

In India IRDA is insurance regulatory authority. As per the section 4 of IRDA Act 1999, Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of parliament. National Insurance Academy, Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance companies.

Controversies

Does not reduce the risk

Insurance is just a risk transfer mechanism wherein the financial burden which may arise due to some fortuitous event is transferred to a bigger entity called an Insurance Company by way of paying premiums. This only reduces the financial burden and not the actual chances of happening of an event. Insurance is a risk for both the insurance company and the insured. The insurance company understands the risk involved and will perform a risk assessment when writing the policy. As a result, the premiums may go up if they determine that the policyholder will file a claim. If a person is financially stable and plans for life's unexpected events, they may be able to go without insurance. However, they must have enough to cover a total and complete loss of employment and of their possessions. Some states will accept a surety bond, a government bond, or even making a cash deposit with the state.[citation needed]

Insurance insulates too much

An insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard. This 'insulates' many from the true costs of living with risk, negating measures that can mitigate or adapt to risk and leading some to describe insurance schemes as potentially maladaptive.[47] To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.[citation needed]

For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider desired to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.[citation needed]

Complexity of insurance policy contracts

Affordable car insurance ocala fl 9/11 was a major insurance loss, but there were disputes over the World Trade Center's insurance policy

Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

For example, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.

Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys (while a free agent sells policies of various insurance companies). Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. Agents generally cannot offer as broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers or agents. However, such a consultant must still work through brokers or agents in order to secure coverage for their clients.

Limited consumer benefits

In United States, economists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductibles and to not insure losses which would not cause a disruption in their life. However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk. This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.[48]

Redlining

Redlining is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling or redlining has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.[49]

In July 2007, The Federal Trade Commission (FTC) released a report presenting the results of a study concerning credit-based insurance scores in automobile insurance. The study found that these scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. The FTC indicated little data was available to evaluate benefit of insurance scores to consumers.[50] The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.[51]

All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.[52]

In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit scores, gender, occupation, marital status, and education level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.

An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent.[citation needed] Thus, "discrimination" against (i.e., negative differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently from younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.

Insurance patents

Further information: Insurance patent

New assurance products can now be protected from copying with a business method patent in the United States.

A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major US auto insurance company, Progressive Auto Insurance (U.S. Patent 5,797,134) and a Spanish independent inventor, Salvador Minguijon Perez (EP 0700009 ).

Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new U.S. patent applications in this area.

Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.

There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have been issued has steadily risen from 15 in 2002 to 44 in 2006.[53]

Inventors can now have their insurance US patent applications reviewed by the public in the Peer to Patent program.[54] The first insurance patent to be granted was [55] including another example of an application posted was US2009005522 "risk assessment company". It was posted on March 6, 2009. This patent application describes a method for increasing the ease of changing insurance companies.[56]

Insurance industry and rent-seeking

Certain insurance products and practices have been described as rent-seeking by critics.[citation needed] That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities and variable life insurance can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products.[citation needed] Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.

Religious concerns

Muslim scholars have varying opinions about life insurance. Life insurance policies that earn interest (or guaranteed bonus/NAV) are generally considered to be a form of riba[57] (usury) and some consider even policies that do not earn interest to be a form of gharar (speculation). Some argue that gharar is not present due to the actuarial science behind the underwriting.[58] Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.[59]

Some Christians believe insurance represents a lack of faith[citation needed] and there is a long history of resistance to commercial insurance in Anabaptist communities (Mennonites, Amish, Hutterites, Brethren in Christ) but many participate in community-based self-insurance programs that spread risk within their communities.[60][61][62]

See also

  • Agent of Record
  • Earthquake loss
  • Financial adviser
  • Financial services (broader industry to which insurance belongs)
  • Geneva Association (the International Association for the Study of Insurance Economics)
  • Global assets under management
  • Insurance broker
  • Insurance fraud
  • Insurance Hall of Fame
  • Insurance law
  • Insurance Premium Tax (UK)
  • List of Acts of Parliament of the United Kingdom Parliament, 1960-1979
  • Loss-control consultant
  • Reinsurance
  • Intergovernmental Risk Pool
  • The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know (book)
  • List of finance topics
  • List of insurance topics
  • List of United States insurance companies
  • Social security
  • Uberrima fides
  • Universal health care
  • Welfare state

Country-specific articles:

  • Insurance in Australia
  • Insurance in India
  • Insurance in the United States
  • Insurance in the United Kingdom

Notes

  1. ^ See, e.g., Vaughan, E. J., 1997, Risk Management, New York: Wiley.
  2. ^ "Lex Rhodia: The Ancient Ancestor of Maritime Law - 800 BC". 
  3. ^ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns Hopkins University Press, 2001), 274-277.
  4. ^ Dickson (1960): 4
  5. ^ Dickson (1960): 7
  6. ^ Palmer, Sarah (October 2007). "Lloyd, Edward (c.1648–1713)". Oxford Dictionary of National Biography. Oxford University Press. doi:10.1093/ref:odnb/16829. Archived from the original on 15 July 2011. Retrieved 16 February 2011. 
  7. ^ Anzovin, Steven, Famous First Facts 2000, item # 2422, H. W. Wilson Company, ISBN 0-8242-0958-3 p. 121 The first life insurance company known of record was founded in 1706 by the Bishop of Oxford and the financier Thomas Allen in London, England. The company, called the Amicable Society for a Perpetual Assurance Office, collected annual premiums from policyholders and paid the nominees of deceased members from a common fund.
  8. ^ Amicable Society, The charters, acts of Parliament, and by-laws of the corporation of the Amicable Society for a perpetual assurance office, Gilbert and Rivington, 1854, p. 4
  9. ^ "Today and History:The History of Equitable Life". 2009-06-26. Retrieved 2009-08-16. 
  10. ^ "Encarta: Health Insurance". Archived from the original on 2009-11-01. 
  11. ^ a b E. P. Hennock, The Origin of the Welfare State in England and Germany, 1850–1914: Social Policies Compared (2007)
  12. ^ Hermann Beck, Origins of the Authoritarian Welfare State in Prussia, 1815-1870 (1995)
  13. ^ The Cabinet Papers 1915-1982: National Health Insurance Act 1911. The National Archives, 2013. Retrieved 30 June 2013.
  14. ^ Bentley B. Gilbert, British social policy, 1914-1939 (1970)
  15. ^ Gollier C. (2003). To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory.
  16. ^ This discussion is adapted from Mehr and Camack "Principles of Insurance", 6th edition, 1976, pp 34 – 37.
  17. ^ Irish Brokers Association. Insurance Principles.
  18. ^ a b C. Kulp & J. Hall, Casualty Insurance, Fourth Edition, 1968, page 35
  19. ^ However, bankruptcy of the insured with a "reimbursement" policy does not relieve the insurer. Certain types of insurance, e.g., workers' compensation and personal automobile liability, are subject to statutory requirements that injured parties have direct access to coverage.
  20. ^ Dembe, A. E., Boden, L. I. (2000). Moral hazard: A question of morality?. New Solutions.
  21. ^ Kunreuther H. (1996). Mitigating Disaster Losses Through Insurance. Journal of Risk and Uncertainty.
  22. ^ Brown RL. (1993). Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance. ACTEX Publications.
  23. ^ Feldstein, Sylvan G.; Fabozzi, Frank J. (2008). The Handbook of Municipal Bonds. Wiley. p. 614. ISBN 978-0-470-10875-8. Retrieved February 8, 2010. 
  24. ^ What we do ABI. Abi.org.uk. Retrieved on 2013-07-18.
  25. ^ Fitzpatrick, Sean, Fear is the Key: A Behavioral Guide to Underwriting Cycles, 10 Conn. Ins. L.J. 255 (2004).
  26. ^ Berger, Allen N.; Cummins, J. David; Weiss, Mary A. (October 1997). "The Coexistence of Multiple Distribution Systems for Financial Services: The Case of Property-Liability Insurance.". Journal of Business. 70 (4): 515–46. doi:10.1086/209730.  (online draft)
  27. ^ Insurance Information Institute. "Business insurance information. What does a businessowners policy cover?". Retrieved 2007-05-09. 
  28. ^ "Builder's Risk Insurance: Specialized Coverage for Construction Projects". Adjusting Today. Adjusters International. Retrieved 2009-10-16. 
  29. ^ US application 20,060,287,896  "Method for providing crop insurance for a crop associated with a defined attribute"
  30. ^ Insurance Information Institute. "What is homeowners insurance?". Retrieved 2008-11-11. 
  31. ^ Seaman, S. M.; Kittredge, C. (Spring 1997). "Excess Liability Insurance: Law and Litigation". Tort & Insurance Law Journal. 32 (3): 653–714. JSTOR 25763179. 
  32. ^ Types of Business Insurance | SBA.gov. Business.gov. Retrieved on 2013-07-18.
  33. ^ Blitz, Gary; Schoenberg, Daniel. "Private REITs: Facilitating a Cleaner Exit with Tax Insurance". Transaction Advisors. ISSN 2329-9134. 
  34. ^ Margaret E. Lynch, Editor, "Health Insurance Terminology", Health Insurance Association of America, 1992, ISBN 1-879143-13-5
  35. ^ Marcos Antonio Mendoza, "Reinsurance as Governance: Governmental Risk Management Pools as a Case Study in the Governance Role Played by Reinsurance Institutions", 21 Conn. Ins. L.J. 53, 55-60 (2014) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2573253
  36. ^ David Ransom (2011). IF1 – Insurance, Legal & Regulatory. Chartered Insurance Institute. p. 2/5. ISBN 978 0 85713 094 5. 
  37. ^ (PDF) http://www.thecityuk.com/assets/Uploads/Insurance-2011-F2.pdf.  Missing or empty |title= (help) (365 KB) p. 2
  38. ^ Sam Radwan, "China's Insurance Market: Lessons Learned from Taiwan", Bloomberg Businessweek, June 2010.
  39. ^ Randall S. (1998). Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners. FLORIDA STATE UNIVERSITY LAW REVIEW.
  40. ^ J Schacht, B Foudree. (2007). A Study on State Authority: Making a Case for Proper Insurance Oversight. NCOIL
  41. ^ C. J. Campbell, L. Goldberg, A. Rai. (2003). The Impact of the European Union Insurance Directives on Insurance Company Stocks. The Journal of Risk and Insurance.
  42. ^ Haurant S. (2005). FSA takes on insurance regulation. The Guardian.
  43. ^ Adams J. (2012). The impact of changing regulation on the insurance industry. Financial Services Authority.
  44. ^ Lloyds. (2012). Reforming UK insurance contract law.
  45. ^ Insurance Law of the People's Republic of China – 1995. Lehman, Lee & Xu.
  46. ^ Thomas JE. (2002). The role and powers of the Chinese insurance regulatory commission in the administration of insurance law in China. Geneva Papers on Risk and Insurance.
  47. ^ O'Hare, Paul; White, Iain; Connelly, Angela (2015-09-01). "Insurance as maladaptation: Resilience and the 'business as usual' paradox". Environment and Planning C: Government and Policy: 0263774X15602022. doi:10.1177/0263774X15602022. ISSN 0263-774X. 
  48. ^ Schindler, R. M. (1994). Consumer Motivation for Purchasing Low-Deductible Insurance. In Marketing and Public Policy Conference Proceedings, Vol. 4, D. J. Ringold (ed.), Chicago, IL: American Marketing Association, 147–155.
  49. ^ Gregory D. Squires (2003) Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas Journal of Urban Affairs Volume 25 Issue 4 pp. 391–410, November 2003
  50. ^ Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, Federal Trade Commission (July 2007)
  51. ^ Consumers Dispute FTC Report on Insurance Credit Scoring www.consumeraffairs.com (July 2007)
  52. ^ Insurance Information Institute. "Issues Update: Regulation Modernization". Retrieved 2008-11-11. 
  53. ^ (Source: Insurance IP Bulletin, December 15, 2006)
  54. ^ Mark Nowotarski "Patent Q/A: Peer to Patent", Insurance IP Bulletin, August 15, 2008
  55. ^ US6922720 "SYSTEMS AND METHODS FOR INSURING DATA OVER THE INTERNET"
  56. ^ Bakos, Nowotarski, "An Experiment in Better Patent Examination", Insurance IP Bulletin, December 15, 2008.
  57. ^ "Islam Question and Answer – The true nature of insurance and the rulings concerning it". Retrieved 2010-01-18. 
  58. ^ "Life Insurance from an Islamic Perspective". Retrieved 2010-01-18. 
  59. ^ "Jewish Association for Business Ethics – Insurance". Retrieved 2008-03-25. 
  60. ^ Rubinkam, Michael (October 5, 2006). "Amish Reluctantly Accept Donations". The Washington Post. Retrieved 2008-03-25. 
  61. ^ Donald B. Kraybill. The riddle of Amish culture. p. 277. ISBN 0-8018-3682-4. 
  62. ^ "Global Anabaptist Mennonite Encyclopedia Online, Insurance". Retrieved 2010-01-18. 

Bibliography

  • Dickson, P. G. M. (1960). The Sun Insurance Office 1710–1960: The History of Two and a half Centuries of British Insurance. London: Oxford University Press. p. 324. 

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Texas law requires people who drive in Texas to pay for the accidents they cause. Most drivers do this by buying auto liability insurance. Liability insurance pays to repair or replace the other driver's car and pays other people's medical expenses when you’re at fault in an accident.

If you buy insurance to meet the state's financial responsibility law, you must buy at least the minimum amount. The current minimum liability limits are $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. This basic coverage is called 30/60/25 coverage.

Because of car prices and the high cost of medical care, the minimum amounts might not be enough to pay all of the other driver's costs if you're in an accident. Other drivers could sue you to collect the difference. Consider buying more than the basic limits to protect yourself financially.

Liability insurance doesn't pay to repair or replace your car or to treat your injuries. Other types of coverages such as personal injury protection, uninsured or underinsured motorist, medical payments, collision, and comprehensive - can help you pay for these expenses.

Proof of Financial Responsibility

When you buy an auto policy, your insurance company will send you a proof-of-insurance card. You must show your current card when you:

  • are asked for it by a police officer,
  • have an accident,
  • register your car or renew its registration,
  • get or renew your driver's license, and
  • have your car inspected.

Know Your Rights

Texas has a Consumer Bill of Rights for auto insurance. Your insurance company must send you a copy with your policy. Read it to understand your rights under Texas law.

Auto Insurance Coverages

Depending on the types of coverage you have, auto insurance pays for car repair or replacement, medical expenses, rental cars, towing, court costs, and other expenses.

Read your policy carefully because coverages vary. Pay special attention to who is covered under your policy and to the exclusions, which are the things your policy doesn't cover. The following are common limitations or exclusions you might find on your policy:

  • Named driver. Some policies only cover household residents who are specifically named on the policy.
  • Excluded driver. Excludes coverage for people specifically named in an endorsement that may be attached to your policy.
  • Racing. Excludes coverage if you use your car in a racing event.
  • Intentional acts. Excludes coverage for losses that were intentional.

The front page of your policy - called the declarations or dec page - shows the exact name of your insurance company, your policy number, and the amount of each of your coverages and deductibles.

Note: The deductible is the amount you must pay before the insurance company will pay. For example, if you have a claim for $1,000 and a deductible of $300, the insurance company will automatically deduct $300 from the amount it will pay you.

Many insurance companies use the Texas Personal Automobile Policy, a standardized policy form that offers eight types of coverages. Companies may sell other policies that the Texas Department of Insurance has approved. Some of these policies have more limited coverage. The following summary can help you understand the eight basic auto coverages (please note that your coverages may be different, depending on the type of policy you buy):

1. Liability Coverage (Basic liability coverage meets the state's financial responsibility requirement.)

What it pays: The following expenses, up to your policy's dollar limits, for the people in the other car involved in an accident that you or someone covered by your policy caused:

  • medical and funeral costs, lost wages, and compensation for pain and suffering;
  • car repair or replacement costs; and
  • car rental while the other driver's car is being repaired.

Liability insurance also pays your defense costs, including attorney fees if someone sues you because of the accident. If you are arrested following an accident, liability insurance will pay up to $250 for bail.

Who it covers:

  • you and your family members. (Family members include anyone living in your home related to you by blood, marriage, or adoption. This includes your spouse, children, in-laws, adopted children, and foster children.)
  • other people driving your car with your permission.
  • family members attending school away from home.
  • spouses living elsewhere during a separation are covered.

You and your family members might be covered when driving someone else's car - including a rental car - but not a car that you don't own but have regular access to, such as a company car. Some policies provide only liability coverage when you drive a car you don’t own. Physical damage coverage for damage to the unowned vehicle might not transfer. Ask your agent before renting a car or driving a car you don’t own or lease.

Some policies – called named driver policies -- won't cover people who live with you, including family members, unless they're specifically named in the policy. For these policies, the declarations page must list the names of the people the policy covers.

2. Collision (damage to your car) Coverage

If you still owe money on your car, your lender will require you to have collision coverage.

What it pays: If the company decides your car can be fixed, it will pay you the cost of repairs. If the company totals your car, it will pay you the actual cash value of your car. Actual cash value is the current value of your car, minus depreciation. Whether the company decides to repair your car or total it, you’ll get only up to the dollar limits of your policy. Your policy’s dollar limits are shown on the declaration page of your policy.

Who it covers: You, your family members, and anyone else insured under your policy.

3. Comprehensive (other than collision) Coverage

If you still owe money on your car, your lender will require you to have comprehensive coverage.

What it pays: The cost of replacing or repairing your car if it’s stolen or damaged by fire, vandalism, hail, falling objects, or an event other than a collision. Comprehensive coverage might pay for a rental car. Your policy won't pay to replace a stolen car unless you report the theft to police.

Payment is limited to your car's actual cash value, minus your deductible.

4. Medical Payments Coverage

What it pays: Medical and funeral bills resulting from an accident.

Who it covers: You, your family members, passengers in your car, and other injured people, including bicyclists and pedestrians, regardless of who caused the accident.

5. Personal Injury Protection (PIP) Coverage

What it pays: Similar to medical payments coverage, plus 80 percent of lost income and the cost of hiring a caregiver for an injured person.

Who it covers: You, your family members, and passengers in your car, and other injured people, regardless of who caused the accident.

Your insurance company will automatically give you PIP coverage, but you may reject it in writing if you don’t want it. The company must offer you $2,500 in PIP, but you can buy more.

6. Uninsured/Underinsured Motorist (UM/UIM) Coverage

What it pays: Your expenses from an accident caused by an uninsured motorist, a motorist who did not have enough insurance, or a hit-and-run driver. Also pays for personal property that was damaged in your car.

There is a mandatory $250 deductible for property damage. This means you must pay the first $250 of the expenses yourself before the company will pay.

There are two types of UM/UIM coverage:

  • Bodily injury UM/UIM pays for medical bills, lost wages, pain and suffering, disfigurement, and permanent or partial disability. There is not a deductible with this type.
  • Property damage UM/UIM pays for auto repairs, a rental car, and damage to items in your car.

Who it covers: You, your family members, passengers in your car, and others driving your car with your permission.

Insurance companies must offer UM/UIM coverage. If you don't want it, you must reject it in writing.

7. Towing and Labor Coverage

What it pays: Towing charges when your car can't be driven. Also pays labor charges, such as changing a flat tire or jump-starting your battery.

8. Rental Reimbursement Coverage

What it pays: A set daily amount for a rental car if your car is stolen or is being repaired. Your company only pays for rental reimbursement if your car was damaged by something - such as fire or theft - that your policy covers.

Other Coverages

You can buy other coverages to add or expand coverage.

Stereo Equipment

Your policy might not pay to replace CDs, MP3 players, cell phones, or stereo equipment not installed in your car.

New or Additional Cars

If you buy another car, your policy will automatically cover it with limitations.

Insurance companies must give additional cars the same amount of coverage as your car with the most coverage. For example, let’s say you have two cars - one with liability coverage only and one with liability, collision, and comprehensive coverages. If you buy a third car, it will automatically have liability, collision, and comprehensive coverage.

Insurance companies must give replacement cars the same coverage as the car it replaced. For example, if you trade in an older car that had only liability coverage, the new car will automatically have only liability coverage.

Be sure to tell your insurance company within 20 days if you buy a new car. You could lose coverage on an additional or replacement car if you wait longer to tell your insurance company.

Rental Cars

Rental car agencies offer collision damage waivers and liability policies. The collision damage waiver isn't insurance. It’s an agreement that the rental company won't, with some exceptions, make you pay for any damage to a car you rent.

If you have auto insurance, your policy might already cover damage to a rental car, but the coverage might be less than the value of a rental car. Read your policy to know what's covered and the coverage limits. If your coverage limit is too low, consider increasing it. You’ll pay more in premium, but it might be cheaper than buying additional coverage through the rental agency, especially if you rent cars often. If you aren't sure if your policy covers damage to a rental car, ask your agent before you rent the car.

If you don't own a car, but borrow a car often, you can buy a nonowner liability policy. A nonowner policy pays for damages and injuries you cause to others when driving a borrowed car, but it doesn't pay for your injuries or damage to the car you’re driving. Some policies provide only liability coverage on a rental car.

Driving in Other States, Canada, and Mexico

Your insurance should cover you if you drive in other U.S. states and Canada. Your policy won't cover you in Mexico because Mexico doesn't recognize U.S. auto liability policies.

Mexican authorities may hold drivers criminally and financially responsible for any auto accidents they cause. If you're in an accident that results in an injury, police may keep you until they decide who is at fault. You will be asked to show you have insurance the Mexican government will accept or prove that you can pay any judgment against you.

Some U.S. insurance companies provide a free endorsement for your policy that covers occasional trips of up to 10 days and up to 25 miles into Mexico. You can buy coverage for longer stays, but it usually only covers you within 25 miles of the border. These endorsements might not meet Mexican legal requirements.

Some companies sell a Mexico tourist endorsement to attach to your Texas policy. This endorsement extends your liability coverage to pay costs exceeding a Mexican liability policy's limits. It covers trips of any distance and any length of time. Ask your agent which endorsements your insurance company offers.

You may also buy Mexican liability insurance from authorized Texas agents. Check your phone book for listings of insurance agents who specialize in auto insurance for travel in Mexico. Your local agent might be able to help you find coverage with a Texas-licensed Mexican company.

Auto Insurance for Young Drivers

Parents usually can add their children to their auto policy to meet the state's financial responsibility requirements. Adding a young driver to your policy can be expensive, but it's cheaper than buying a separate policy.

Some policies require all covered household drivers to be named on the policy. Call the company to tell them about new drivers as soon as they turn 16. If you don't have all of the drivers in your family listed on your policy and the company learns about them later, the company may bill you for the extra premium you should have paid, deny a claim, or refuse to renew your policy.

Generally, if a teenager is the main driver of a car, the company will base the teen's rate on that car. Otherwise, the company will base the teenager's rate on the car in the family (usually the most expensive) with the highest rate.

Children Away at School or Not Living with You

You might want to take your children off your policy when they move out. You'll have to prove to the insurance company that your child has moved. You can use documents like a driver's license, lease agreement, or utility receipts to show that your child has a different address.

It's not a good idea to remove children from your policy if they’re living in another city to attend school. Many insurance companies will require you to keep students on your policy, even if you’d like to remove them.

If you have children living in another city and going to school, tell your insurance company. Companies base rates on where a car is usually located, and it might need to adjust your premium. If the school is in another state, check on the financial responsibility laws in that state to make sure you have the right coverages.

If your child is away at school without a car, you might be eligible for a premium discount. Ask your agent if the company offers the discount.

Saving Money on Insurance for Young Drivers

Some insurance companies give a discount for teenagers who complete a Texas Department of Public Safety (DPS)-approved driver education course. Drivers taught by their parents may also get the discount if the parent used a DPS-approved course. Some companies offer discounts to young drivers who make good grades in school or who belong to certain youth groups. Ask your agent about discounts.

Shopping for Auto Insurance

Rates vary among companies, so it pays to shop around. The following tips can help you:

  • Decide before shopping what coverages you need.
  • Consider a higher deductible. Higher deductibles will lower your premium, but you'll have to pay more out of your own pocket if you have a claim.
  • Get price quotes from several companies. Make sure the quotes are for the same coverages.
  • When getting a price quote or applying for insurance, answer questions truthfully. Wrong information could result in an incorrect price quote or could lead to a denial or cancellation of coverage.
  • Ask your agent if you qualify for any discounts the company offers.
  • Consider factors other than price, including a company's financial rating, complaint index, and license status. The financial rating indicates a company's financial strength and stability, and the complaint index is an indication of its customer service. Buy only from licensed companies and agents. It is against the law to sell insurance without a license in Texas. You can also use the Texas Department of Insurance's Shopping for Auto Insurance Company/Policy Comparison Worksheet to help you gather information about companies and the policies they offer.
  • Review your credit score. Some companies use your credit score when deciding what rate to charge you. It's a good idea to look at your credit score each year and to correct any errors. For more information about credit scoring, visit the TDI Credit Scoring and Insurance web page.
  • You can learn more about a company, including its license status, complaint history, and financial rating from an independent rating organization, by calling TDI's Consumer Help Line.

Understanding Rates

Texas law requires insurance rates to be reasonable, adequate, not discriminatory, and not excessive. Auto insurance companies in Texas set their own rates and file them with TDI for review. Companies don't have to receive prior approval before using their rates but TDI can make a company give refunds if it decides the company's filed rates are excessive.

Factors that Affect Your Premium

Companies use a process called underwriting to decide whether to sell you a policy and what rate to charge you. Companies must file their underwriting guidelines with TDI and update them each time they make a change. The factors companies typically use to set premiums include:

  • Your age and, for younger drivers, your marital status. Men under 25 and unmarried women under 21 have the highest rates. Drivers over 50 may get discounts.
  • Your driving record and claims history. A good driving record can save you money. Insurance companies will charge you more if you have accidents or tickets on your driving record. Companies may also charge more for major convictions, some driving violations, and accidents that damage property. Some surcharges are mandatory and will apply to your premium for three years.
  • Where you keep your car. Rates are typically higher for people who live in cities because they have more accidents and auto thefts than people who live in rural areas.
  • Your car's type. Collision and comprehensive rates are highest for luxury, high-performance, and sports cars. Rates may also be higher for cars that damage easily or cost more to repair.
  • Your car's primary use. Your rates will be higher if you drive your car to and from work or for business. Rates are lowest for people who only drive for pleasure.
  • Your credit score. Companies often use your credit scores to decide if they want to sell you a policy and at what cost. A company can't refuse to sell you a policy or cancel or nonrenew your policy based only on your credit. Visit the Learning Center on HelpInsure.com, a website maintained by TDI and the Office of Public Insurance Counsel, to find out which companies use credit scores and how they use them.
  • Whether you drove uninsured in Texas. Companies may charge more if you drove without insurance in Texas for more than 30 days in a row in the 12 months before you applied for insurance. If you didn't, a company can't charge you more for liability coverage because of your prior lack of coverage.

Discounts

Discounts can help you save money on your premium. Discounts vary by company. The following is a list of some of the ways you could receive a discount:

  • defensive driving courses,
  • driver education courses for young drivers,
  • students with good grades,
  • parent or family whose young driver is away at school without a car,
  • more than one car on a policy,
  • policy renewal with good claims and driving records, and
  • a homeowners policy with the same company.

You might also qualify for a discount if your car has:

  • airbags and automatic seatbelts,
  • automatic daytime running lights,
  • antilock brakes, and
  • anti-theft devices.

Auto Insurance for High-Risk Drivers

Before selling or renewing a policy, insurance companies try to determine whether you're likely to cause an accident. They'll check your driving history, insurance claims history, and sometimes your credit score.

If you have accidents or tickets on your driving record, you'll probably be classified as a high-risk driver and will have to pay more for insurance. Companies may add surcharges to your premium - for the following:

  • accidents (the more accidents, the higher the surcharge),
  • tickets for moving violations (speeding, etc.),
  • involuntary manslaughter,
  • driving under the influence,
  • criminally negligent driving, and
  • driving without a license or with a suspended license.

Some surcharges are mandatory and will apply to your premium for three years.

Companies may also look at your credit score when deciding whether to sell you a policy and at what cost. A company can't refuse to sell you a policy or cancel or nonrenew your policy based only on your credit. Visit the Learning Center on TDI's HelpInsure.com website to find out which companies use credit scores and how they use them.

Many companies use the Comprehensive Loss Underwriting Exchange (CLUE) to learn an applicant's insurance claims history. Federal law allows you to request one free copy of your auto and personal property report every year. You can get your free reports by visiting Lexis Nexis online or by calling 1-866-527-2600.

Keep shopping if you're having trouble finding insurance because you have tickets, accidents, or poor credit. Each company has its own criteria for deciding whether to insure people. Several insurance companies write coverage for high-risk drivers.

TAIPA

If you can't find a company willing to sell you a policy, you can get basic coverage through the Texas Automobile Insurance Plan Association (TAIPA). You qualify for TAIPA coverage if two insurance companies refuse to sell you a policy.

TAIPA offers only liability, PIP, and UM/UIM coverages. It doesn't provide collision or comprehensive coverage or higher liability limits than the law requires. You must reject PIP and UM/UIM coverages in writing if you don't want them.

TAIPA insurance is more expensive than insurance from most companies. TAIPA also charges surcharges for traffic tickets. Surcharges for accidents are also higher than in the traditional market.

TDI rules encourage insurance companies to take policyholders out of TAIPA and insure them at lower rates after a year without tickets or accidents. The rules also require companies to offer cheaper voluntary policies to their TAIPA policyholders who have gone three years without tickets or accidents.

To get TAIPA coverage, apply with a licensed insurance agent (not TAIPA). Only agents specifically certified by TAIPA may sell insurance through TAIPA. An agent who quotes you a premium higher than TAIPA's must tell you about TAIPA if you were previously uninsured and had no more than one accident and one ticket in the previous three years.

Losing Your Insurance

Companies may cancel or nonrenew a policy for several reasons.

  • Cancellation means the company ends your policy before its expiration date.
  • Nonrenewal means the company doesn't renew your policy when it expires.

At your request, a company must explain in writing why it declined, canceled, or didn't renew your policy. It must tell you its sources of information and the incident or risk factor that violated its underwriting guidelines.

Canceling a Policy

An insurance company may not cancel an auto policy that has been in effect for more than 60 days unless:

  • you don't pay your premium,
  • you file a fraudulent claim, or
  • your driver's license or car registration are suspended or revoked (this also applies to other drivers who live with you or use your car).

During the first 60 days you have a policy, a company may cancel it for any lawful reason, including a ticket or an accident. If the company cancels your policy because of an accident, it still must pay for covered damages resulting from the accident. The company must send you a written notice at least 10 days before canceling your policy.

If either you or the company cancels your policy, the company must refund you any unearned premium by the 15th day after the effective date of the cancellation. Unearned premium is the amount you paid in advance that didn't buy coverage. For example, if you paid a six-month premium of $600 and you cancel your policy after one month, the company owes you $500 in unearned premium, minus any applicable agent or policy fees.

Not Renewing a Policy

A company can't refuse to renew your policy unless it has been in effect for at least 12 months. This means a company must renew a six-month policy to give you a full 12 months of coverage. The company must give you at least 30 days' notice before refusing to renew your policy.

In Texas, a company can't refuse to renew your policy because of:

  • weather-related claims, including damage from hail, floods, tornadoes, high winds, and hurricanes;
  • damage from hitting animals or birds;
  • damage from gravel and other flying and falling objects (the company can raise your deductible if you have three of these claims in 36 months);
  • towing and labor claims (the company can refuse to renew your towing and labor coverage if you have four of these claims in 36 months); and
  • other claims or accidents that can't reasonably be blamed on you, unless you have more than one of these claims in 12 months.

If you get a nonrenewal or cancellation notice, start shopping for new insurance immediately. Make sure you buy a new policy before your old policy is canceled to comply with state law.

If you still owe money on your car, your lender will usually require you to have collision and comprehensive coverages. If you cancel or lose these coverages, your lender will buy single-interest auto physical damage coverage and add the cost to your loan payment. This coverage is expensive and only protects the lender.

Your Rights against Unfair Discrimination

An insurance company may not:

  • deny, refuse to renew, limit, or charge more for coverage because of your race, color, religion, or national origin.
  • deny, refuse to renew, limit, or charge more for coverage because of your age, gender, marital status, geographic location, disability, or partial disability unless the refusal, limitation, or higher rate is based on sound underwriting or actuarial principles. This means the company would have to show evidence that you present a greater risk for a loss than other people it is willing to insure.
  • nonrenew your policy because someone in your family has turned 16.
  • discriminate between individuals of the same rate or risk class in its rates, policy terms, benefits, or in any other manner unless the refusal, limitation, or higher rate is based on sound actuarial principles.

Steps to Take After an Accident

At the accident scene

  • If possible, move your car so you're not blocking traffic.
  • Call the police if someone is injured or killed, if you can't move your car, or if there was a hit-and-run driver. Your uninsured motorist coverage only pays for a hit-and-run accident if you report it to police.
  • Get the following information from the other driver:
    • name,
    • address,
    • telephone number,
    • plate number,
    • license number,
    • insurance company name (get the exact and complete name), and
    • insurance policy number.
  • Give the other driver the same information about you.
  • Get the names, addresses, and telephone numbers of any witnesses to the accident.

If the other driver refuses to tell you the name of his or her insurance company, get a copy of the police accident report. The accident report may list the other driver's name and insurance company.

At home after the accident

  • Contact your insurance company as soon as possible. Your company probably has a 1-800 number to report claims. If not, call your agent. The agent or company will explain the claims process, including how to schedule an adjuster and get repair estimates. Also, give your agent or company the names and addresses of any witnesses and anyone injured.
  • If you reported your claim by phone, follow up in writing as soon as possible to protect your rights under Texas' prompt payment of claims laws.
  • Send the company copies of the accident report and any legal papers you receive about the accident.
  • Cooperate with the company's investigation. You might have to submit a proof-of-loss form or have a medical examination.

Filing a Claim

Texas law sets deadlines for insurance companies to act after you've filed a claim. Companies must:

  • Respond within 15 days after it receives your claim in writing. It will probably ask you to document your loss.
  • Accept or reject your claim within 15 days after you submit any documents it asked for.
  • Send your check or bank draft within five business days after it agrees to pay your claim.

A company that can't meet these deadlines must send you a notice explaining why. The company then has 45 days to either approve or reject your claim.

If the insurance company rejects your claim, it must explain the rejection in writing. If the company says your policy doesn't cover the loss, ask to see the policy language that they used to make the decision. A court will usually order the company to pay if the language is unclear and the policy could reasonably be read in your favor.

Note: The prompt payment law doesn't apply if another driver's insurance company is paying the claim. However, the company is still required to act in good faith and to make a prompt and fair settlement.

Accidents Caused by Other Drivers

If you were in an accident caused by another driver, the other driver's liability coverage should pay the following costs, up to the liability policy's limits:

  • repair or replacement of your car,
  • car rental while your car is being repaired,
  • your medical and hospital bills,
  • wages lost because of an injury, and
  • compensation for pain and suffering if anyone is hurt.

If the other driver's insurance won't cover all your medical bills, file a claim for the difference with your auto insurance company or your health insurance company. Your auto insurance company will use either your PIP coverage or (for amounts greater than that) your UM/UIM coverage.

If the other driver's policy won't cover all of your car repairs, file a claim with your auto insurance company. You may use either your collision, UM/UIM coverage, or both to pay the difference (minus your deductible) between the damage to your car and what the other driver's policy will pay.

Settling the Claim

The other driver's insurance company may ask you to sign a release to settle your claim that says you won't file additional claims related to the same accident. Get a letter from your doctor estimating the cost and length of your future medical treatment to decide if your settlement is fair. Don't sign a release until you’re satisfied with the total settlement.

Texas law prohibits insurance companies from delaying payment of a claim to pressure you to sign a release. If you think an insurance company is delaying payment to pressure you, file a complaint with TDI.

If the other driver denies fault, his or her insurance company might refuse to pay your claim. Independent witnesses could make a difference in getting the company to pay. It's important to get names, addresses, and telephone numbers of any witnesses to the accident. Make sure the insurance company knows about the witnesses. If the company continues to refuse to pay the claim, you can file a claim against your own insurance if you have UM/UIM or collision coverage, or you might have to sue the other driver.

Ask your agent how a claim might affect your rates. A company can't refuse to renew your policy solely because you had one accident in a 12-month period that was not your fault. However, if the accident affected your driving record, your company may consider it in determining your rates, whether you filed a claim for the accident or not.

Getting Your Car Repaired

Your insurance company will either have an adjuster inspect your car and give you a repair estimate, or it will ask you to get estimates from mechanics and auto body shops.

Insurance companies will pay for repairs or replacement only up to the car's actual cash value. Actual cash value is the current cost to replace your car, minus depreciation

Some companies might give you a list of "preferred" repair shops, but they can't require you to use a particular repair shop. Your company only has to pay for parts of like kind and quality to those that were damaged.

Disputing a Settlement

If you and your insurance company can't agree on the amount of your settlement, you can demand an appraisal. Appraisal allows you and the company to hire separate damage appraisers. The two appraisers choose a third appraiser to act as an umpire. The appraisers review your claim, and the umpire rules on any disagreements. The appraisal decision is binding on the amount of the damage. If there is a dispute about what is covered, you can pursue a settlement of the coverage issue after the appraisal. You must pay for your appraiser and half of the umpire's costs.

Appraisal is available only in disputes between you and your insurance company. It is not available if the other driver was at fault and you disagree with his or her company's offer.

Totaling a Car

If the repair estimates are more than your car is worth, the insurance company will likely total your car and pay you its actual cash value rather than pay to fix it. Insurance companies use various sources to determine the value of your car. Ask the company what source it used to determine your car's value.

The company might not have considered your car's condition, special features, or value on the local market when it calculated its settlement offer. Be prepared to negotiate with the company to get what you think is a fair deal. A company might raise its offer if you can show that your car would sell for a higher price in your area. Get written price quotes for a similar car from several used car dealers, or look in the classified section of your local newspaper for used car prices.

If you'd prefer to have your vehicle repaired instead of totaled, you can keep your car if you are willing to subtract its salvage value from the insurance settlement. Make sure the cost to repair the car will not exceed the car's actual cash value. To find out the salvage value, contact local salvage yards for estimates.

Getting a Rental Car

There are several types of coverage that will pay for you to get a rental car while yours is in the shop:

  • If the other driver caused the accident, his or her liability insurance might pay for a rental car.
  • If the accident was a hit-and-run or the other driver was uninsured and at fault, your UM/UIM property damage coverage will pay for a rental car.
  • If your car was stolen and you have rental reimbursement, your company will pay a set amount each day, up to your policy's limit, for a rental car.
  • If your car is being repaired or replaced you must have rental reimbursement coverage to get a rental car.

Resolving Problems

If you have a problem with your insurance company, first try to resolve the problem by talking to your agent or company. Disputes are often caused by miscommunication. Texas law requires most companies to have toll-free phone numbers for their policyholders.

If you still can't resolve the dispute, you may complain to TDI. TDI will ask the company for a detailed response to your complaint and then share the response with you. The insurance specialist assigned to your complaint will send you an explanation of the outcome, usually within 45 days of receiving your complaint.

TDI has limited jurisdiction in some complaints. For instance, we can't resolve questions of fact or determine who is at fault in an accident. You usually have to resolve these issues in court.

Even when TDI's jurisdiction is limited, our involvement may encourage the company to review your issue more thoroughly. In addition, your complaints and inquiries help TDI identify potential problems with insurance companies and agents.

Get Help from TDI

For insurance questions or for help with an insurance-related complaint, call the TDI Consumer Help Line at 1-800-252-3439 or visit our website.

Visit HelpInsure.com to shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health insurance and your options for coverage.

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.

Source


Louisiana Car Insurance

As a resident of Louisiana, you are required to have car insurance. Those who drive without insurance are not only subject to penalties and fines, but being without insurance will also prevent you from making insurance claims regardless of who is at fault in the accident.

Read below to learn more about car insurance requirements, options, laws, and rates in Louisiana.

Insurance Regulation in Louisiana

Louisiana insurance is regulated by the Louisiana Department of Insurance (DOI).

The DOI's responsibilities include:

  • Reviewing and approving insurance rates.
  • Making and enforcing insurance rules.
  • Assisting consumers with concerns or complaints.
  • Investigating insurance fraud.

Insurance Disputes

If you have an unresolved concern or dispute with your car insurance provider, you can file a complaint form online or request a form by phone:

  • Complete the online complaint form.
  • Contact the DOI at (800) 259-5300.

Your auto insurance company cannot raise your rates or cancel your policy for filing a complaint.

Required Car Insurance in LA

Louisiana state law requires that all drivers have liability coverage.

Liability insurance pays for damages or injuries that you cause in a car accident, up to the amount of coverage you have.

The minimum liability coverage limits required in Louisiana are:

  • $15,000 of bodily injury coverage per person.
  • $30,000 of bodily injury coverage per accident.
  • $25,000 of property damage coverage.

Remember, you can always opt to purchase higher coverage limits for greater protection.

Insurance and Vehicle Registration

You must have valid liability insurance in order to register your car or renew your registration.

The LA Office of Motor Vehicles (OMV) will verify your car insurance electronically if you:

  • Register a car bought from a dealer.
  • Renew your registration online.

You must provide proof of insurance if you:

  • Register a car bought from a private individual.
  • Go to an OMV office to renew your registration.
  • Transfer an out of state title.

The OMV accepts the following as proof of insurance:

  • An insurance card issued by your auto insurance company.
  • A copy of your insurance policy.
  • A copy of your policy declaration page. OR
  • A statement from your insurer that MUST:
    • Be on your car insurance company's letterhead.
    • Be signed by your insurance agent or a representative of the company.
    • Have a complete description of your vehicle.
    • Have your vehicle identification number (VIN).

Optional LA Car Insurance

You can buy several additional types of coverage that pay for damage and injury costs not covered by liability insurance:

  • Collision coverage: Pays for accident-related repairs to your vehicle.
  • Comprehensive coverage: Pays for repairs to your vehicle from damage caused by other factors, such as theft or severe weather.
  • Uninsured/underinsured motorist (UIM) coverage: Pays for expenses you incur in an accident caused by someone with no insurance or too little insurance. Types of UIM are:
    • UIM bodily injury coverage to pay for your medical treatment.
    • UIM property damage coverage to pay for your vehicle repairs.
    • UIM economic-only coverage, which pays only for actual costs of medical treatment.It doesn't cover pain and suffering.
  • Medical payments coverage: Pays for medical expenses, including funeral expenses, for a certain period of time after an accident, regardless of who is at fault.
  • Rental reimbursement coverage: Pays for a rental car after an accident.
  • Towing and labor coverage: Pays for towing and some repair costs.

NOTE: If you finance or lease a vehicle, your lender will require you to buy collision coverage and comprehensive coverage.

Car Insurance Violations & Penalties

The main reasons you might face penalties with regard to insurance are:

  • You are unable to provide proof of current insurance.
  • Your policy has been canceled.
  • There's been a lapse in your policy.

Proof of Insurance

The Louisiana OMV has several ways to verify your auto insurance:

  • Car insurance companies must notify the OMV of canceled or expired car insurance policies.
  • You must show proof of insurance if stopped by a police officer or involved in an accident.

Proof of insurance can be shown with:

  • An insurance card (or copy) issued by your car insurance company.
  • An image of your insurance card on a mobile device.
  • The declaration page of your insurance policy.
  • The insurance policy itself.

If you are caught driving without proof of insurance, a police officer can either:

  • Remove your license plate and give you a Temporary Vehicle Use Authorization, allowing you to operate your car for 3 days to give you time to provide proof of insurance to the Office of Motor Vehicles.
  • Impound your vehicle.

Car Insurance Cancelation

Your auto insurance company can cancel your insurance policy within 60 days of purchase.

If your policy is canceled, they must notify you within:

  • 10 days, if it's canceled because you didn't pay your premium.
  • 20 days, if it's canceled for a traffic violation, accident, or any other reason.

After 60 days, your car insurance policy can be canceled ONLY if:

  • You do not pay your insurance premium.
  • You make a false claim.
  • You or someone in your home gets a driver's license or vehicle registration suspension.

Again, your insurance company must notify you of any cancelation or nonrenewal:

  • Within 10 days if it's canceled because you didn't pay your premium.
  • Within 30 days by certified mail if it's canceled for any other reason.
  • No later than 20 days prior to expiration if they aren't renewing your policy.

If your policy is not renewed, you can request the reason in writing and expect a refund of any pre-paid premiums within 30 days.

Reinstating Your Driving Privileges

If your Louisiana car insurance is canceled or has lapsed and you receive a Notice of Violation, you must:

  • Acquire minimum liability insurance.
  • Take proof of insurance to an OMV office.
  • Pay a fine of up to $100 on your first offense, and $250 on a second offense. Subsequent offenses can lead to fines up to $700.
  • Pay a reinstatement fee (the fee varies depending on the number of days you drove without insurance.)

If you have car insurance but failed to show proof at the time it was requested, you must take your proof of insurance to an OMV office:

  • If you show proof within 3 business days, the insurance violation will be dropped and your license plate and/or vehicle will be released.
  • If you show proof after 3 business days, you will have to pay a fine before your license plate and/or vehicle are released.

SR-22 Certification

After an insurance violation, you may also be required to get an SR-22 certification (also known as SR22 insurance or proof of future financial responsibility) from your auto insurance provider.

SR-22 certification is a form provided by your car insurance company to the OMV that guarantees coverage for a period of time as determined by the LA OMV.

Your insurance company and the OMV will charge you for SR-22 certification.

If you allow your SR-22 to lapse, you will have to pay a fee to the OMV.

SR-22 certification may also be required to have your driver's license reinstated if it's been suspended.

“No Pay, No Play" Law

Louisiana's “No Pay, No Play" law limits the damages uninsured motorists can collect for property damage and/or personal injuries.

Regardless of who is found at-fault, if you were involved in a car accident while you were behind the wheel, you CANNOT collect:

  • The first $25,000 of a property damage claim.
  • The first $15,000 of a bodily injury claim.

Note to passengers: If you are the passenger in a car driven by an uninsured driver and are injured, you can still collect damages.

However, if you are a passenger in a car you own (and which you do not have insurance on), you are still prevented from collecting the amounts above.

Remember! Anyone can get into an accident at any time. If you don't have car insurance, the “No Pay, No Play" law could end up costing you much more than if you'd purchased a car insurance policy.

Car Insurance for High-Risk Drivers

Insurance violations and other violations on your driving record can make you a high risk to insure, and you may have a hard time finding car insurance.

If you have shopped around and can't find an auto insurance provider to cover you, the Louisiana Automobile Insurance Plan (LAIP) allows high-risk drivers to get auto insurance from agents who voluntarily participate in the plan.

To get more information about eligibility and participating insurers, contact the LAIP at E-mail: laip@aipso.com.

NOTE: Insurance through the LAIP can be expensive, so be sure you have contacted as many car insurance providers as possible before seeking LAIP assistance.

Insurance Fraud

The Louisiana DOI investigates reports of insurance fraud.

Common forms of fraud include:

  • Filing a false or exaggerated claim.
  • Providing false information to an insurance company.

You can report fraud by phone at (800) 259-5300. Your name can be kept confidential if you prefer.

Car Insurance Rates in LA

Many factors affect your Louisiana car insurance rates. Insurers use your driving history and other details to rate their risk of insuring you, which determines:

  • Your insurance premium.
  • Any applicable discounts.

In Louisiana, your car insurance premium may be based on a combination of factors, such as your:

  • Age and gender: Younger, male drivers usually have the highest premiums.
  • Residential area: Residents of major cities usually have higher premiums than those of less populated areas.
  • Car's make and model: More economical cars are typically cheaper to insure than expensive cars.
  • Driving record: Tickets or accidents can raise your rates.
  • Deductibles: Choosing a higher deductible can reduce your premiums.

Louisiana law allows insurance companies to use your credit in determining your ability to pay insurance premiums.

Did you know insurers can use your driving record to determine your premium?
Check your driving record today and make sure it's accurate!

Auto Insurance Discounts

In addition to these factors, you may qualify for discounts. Louisiana car insurance companies commonly offer discounts for:

  • Safety equipment like air bags or car alarms.
  • Defensive driving courses or driver's education courses.
  • Good grades.
  • Insuring multiple cars or buying multiple policies.

To find the most affordable rates from companies that offer discounts you qualify for, shop around for the best car insurance quotes, ask about available discounts, and drive safely to maintain a good driving record.

Most Stolen Cars in Louisiana

If you own a car that is highly targeting for theft, you may get hit with higher car insurance rates.

The following is a list of 2013's most stolen cars in Louisiana according to www.nicb.org:

  1. Chevrolet Pickup (Full Size).
  2. Ford Pickup (Full Size).
  3. Dodge Pickup (Full Size).
  4. Honda Accord.
  5. GMC Pickup (Full Size).
  6. Chevrolet Impala.
  7. Nissan Altima.
  8. Toyota Camry.
  9. Chevrolet Tahoe.
  10. Nissan Maxima.

Source

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