The premium form of insurance is based on the law of averages. This law and its application may be crudely illustrated as follows: If a community of four thousand people has ten thieves in its population one person in every four hundred is a thief and is likely to steal if an opportunity for theft is afforded. If four hundred people hold positions in which each has an opportunity to steal four thousand dollars it is probable that the employer of one and only one will lose four thousand dollars through his theft. A contribution of ten dollars from each of the four hundred employers would be sufficient therefore to protect all of them against loss through the infidelity of their employés. In this crude example each of the insured would pay a premium of ten dollars. In actual practice many circumstances are taken into consideration in calculating the amount of the premium that should be required before a given risk is accepted. 241. Kinds of life insurance.-Life insurance has been defined by the United States Supreme Court as: a mutual agreement whereby the insurer, in consideration of the payment by the assured of a named sum annually or at certain times, stipulates to pay a larger sum at the death of the assured. The company takes into consideration, among other things, the age and health of the parents and relatives of the applicant for insurance, together with his own age, course of life, habits and present physical condition; and the premium exacted from the assured is determined by the probable duration of his life, calculated upon the basis of past experience in the business of insurance.1 Endowment insurance is a form of life insurance whereby the insurer agrees to pay a certain sum to the 1 Ritter v. Mutual Life Ins. Co., 169 U. S. 139, 151; 18 Sup. Ct. 300; 42 L. Ed. 693. insured if he lives a certain length of time, or, if he dies before that time to a certain designated person. Term insurance is a form of life insurance in which the insurer agrees to pay a stipulated sum if the insured dies before reaching a certain age or during a specified term of years. Tontine insurance is a form of life insurance in which the insurer agrees that surplus funds shall not be distributed as dividends or in other ways until the expiration of a given period, at which time they are to be divided among all those who have continued their insurance. The word "tontine" is derived from the name of an Italian banker, Lorenzo Tonti, who is said to have devised the system. 242. Other kinds of insurance.-Formerly, the risks of shipwreck, fire and death were the only ones against which people insured, but a variety of perils are now insured against by modern insurance companies. Marine insurance is a contract to indemnify the insured against loss that may arise out of voyages on sea or on inland waters. The contract may cover the ship, the cargo, freightage, profits or other movable property that may be exposed to marine perils and may be restricted to a given voyage or may extend over a given period of time. Fire insurance is a contract to indemnify the insured against loss to property by fire. Accident insurance is a contract to indemnify the insured against personal injury. The contract usually provides for specified payments for specified injuries, such as the loss of an eye, a broken leg, etc., and for the payment of a stated sum for every week during which the insured is kept from his business on account of ill ness. added.. The benefits of regular life insurance are often Automobile insurance is a contract to indemnify the insured against loss to his automobile arising out of certain specified causes. Casualty insurance is a contract to indemnify the insured against damage to property arising from various forms of accidents or contingencies. Insurance against each separate accident or contingency is sometimes given a distinct name, as, for example, boiler insurance, cyclone insurance, lightning insurance, etc. In one of the recently published encyclopedias of law, the following forms of insurance are named and defined. Most of them are not important enough to the ordinary reader to be more than mentioned here.1 Accident Insurance Policy Insurance Theft Insurance Credit Insurance Fire Insurance Fidelity Insurance Employers' Liability Insurance Graveyard Insurance Guaranty Insurance Hail Insurance Health Insurance Life Insurance Lightning Insurance Marine Insurance Tornado Insurance. 243. Characteristics of insurance contracts.-While in general, insurance contracts are similar to other contracts and are governed by the same rules of interpretation and construction, several peculiarities must be noticed. The first and most important feature of an insurance contract is that it is one of indemnity only. The insured 'The reader will find this subject more fully treated on the non-legal side in Volume VIII, INSURANCE AND REAL ESTATE. is indemnified by the insurer for any loss sustained. The sum of insurance mentioned in the policy does not measure the amount which the insured will recover, in the event of loss, but merely limits the liability of the insurer in case of total loss. While the insurance contract is strictly one of indemnity only, the parties may agree in advance upon the value of the subject of insurance. This is accomplished by what is known as a valued policy, which in the absence of fraud will be valid, although the valuation named therein may be in fact erroneous. The insured is usually entitled to reimbursement for such damages only as are proximately caused by the perils specified in the policy; for example, the loss of trade or of the use of a building while being repaired, or of prospective profits, is held to be too remote to be covered by the ordinary policy of fire insurance. The insurer's contract to indemnify the insured for the loss he may sustain is not avoided because the loss occurs through carelessness or negligence on the part of the insured or his servants. 244. Co-insurance and reinsurance.-Marine policies and some fire policies sometimes provide that the insured shall not be fully indemnified for his loss, but that to a certain extent he shall be a co-insurer with the insurance company. EXAMPLES 259. A's property is insured in the B fire insurance company for $6,000; the property is valued at $10,000. It is totally destroyed by fire. A will receive $6,000. 260. If in the above example a loss of $4,000 had occurred, A would receive $4,000. 261. If in the above example A's property had been covered by an ordinary policy of marine insurance, A would be a co-insurer with the insurance company up to 40 per cent of the value of the property, he having obtained from the insurance company insurance up to 60 per cent of the value of his property only. If, therefore, he sustains a loss amounting to $4,000 the insurance company will pay 60 per cent ($2,400), and the insured will pay 40 per cent ($1,600). 262. If A obtain a $6,000 policy of fire insurance on $10,000 worth of property and the policy contains what is known as the "100 per cent co-insurance or average clause," and he sustains a loss of $4,000, the same results will follow as in example 261. Many policies of fire insurance contain what is known as the "80 per cent co-insurance clause," which clause applies only in cases of partial loss. This clause in the standard policy of New York State reads as follows: This Company shall not be liable for a greater proportion of any loss or damage to the property described herein than the sum hereby insured bears to eighty per centum (80%) of the cash value of said property at the time such loss shall happen. In case of claim for loss on the property described herein not exceeding five per cent (5%) of the maximum amount named in the policies written thereon and in force at the time such loss shall happen, no special inventory or appraisement of the damaged property shall be required. If the insurance under this policy be divided into two or more items, these clauses shall apply to each item separately. 263. If A procures a $6,000 policy containing this clause on property valued at $10,000 and he sustains a loss thereon of $4,000 he will receive from the company only $3,000. The formula applied, where a represents the value of the property, i the amount of the insurance and the amount of the loss, and i a the amount recoverable, is as follows: x = .80 X a -X Sometimes the insurer will find that its risks in a given territory are too numerous or are in some way likely to mature into a liability through the happening of a single event. The company then procures from some other insurer a contract to indemnify it in the event of loss through payment of some of its risks. |