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Personal Insurance covers losses to individuals and families due to death, illness, injury,
disability and unemployment.
Loss exposure presents the possibility of financial loss, whether or not loss occurs.
Property loss can occur because of it being destroyed, damaged, stolen, lost or reduced in
value by a cause of loss (peril).
• Dwelling contents:
o Broadest category of personal property
o Common to the use of dwelling as a home
o Items generally insured as a group
• High-value personal property:
o Silverware, jewellery, furs and firearms
o Can be partially covered under dwelling contents, however might require
separate category because of limitations on coverage amount.
o To keep premium reasonable for the average customer, might have to pay
additional premium to insure such property
• Property with unusual or intrinsic value:
o Value comes from its unique characteristics
o Antiques, work of art, coin or stamp collections
o Value is established by appraisal at the time of purchase of insurance
• Business personal property
o Office furniture, computer equipment for business purpose.
o Additional coverage might be necessary for this exposure
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Liability loss is a claim for money damages because of injury to another party or its
property.
• Possibility of a claim for money damages: Claims are governed by civil law – the
legal foundation of insurance.
• Financial consequences that might occur
o Cost of investigation and defense
o Money damages awarded if defense is unsuccessful
Civil law deals with rights and duties of citizens regarding one another.
• Tort Liability: Tort – a wrongful act other than a crime or breach of contract.
o Negligence – failure to act in a reasonably prudent manner
A duty to act
Breach of duty
Injury or damage
Breach of duty – the direct cause of injury/damage
o Intentional torts – regardless of whether harm is intended – deliberate act
Libel – written or printed untrue statement
Slander – oral untrue statement
Assault – intentional and unlawful threat of bodily harm
Battery – unlawful physical contact
Trespass – unauthorized possession or use of land.
Nuisance – violation of a person’s right to enjoy use of property
without disruption from outside sources
o Absolute liability- dangerous activities/defective products, regardless of
degree of care, it does not require proof of negligence.
• Contractual Liability
o Liability assumed under any contract
o Breach of warranty
• Statutory Liability
o No- fault auto laws
o Workers compensation laws
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Carrying out decisions that will decrease the adverse effects of potential losses is risk
management.
Errors and omissions: Negligent act (error) or failure to act (omission) while conducting
insurance business. – Can lead to legal liability of damages
• Loss Control
• Loss prevention: control frequency of loss
• Loss reduction: controls severity of loss
• Noninsurance Transfer: transfers loss from one party to another party that is
not an insurer.
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• Drivers with bad traffic records are not able to obtain insurance.
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Add-On Plans
• Injured person retains the right to seek compensation and damages from the
negligent party.
• Under this law, policyholder has the right to decline to purchase no-fault
insurance whereas the insurer has to offer it.
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Restrictions on Cancellation
• Coverage is terminated before the policy expiry date.
• Do not apply to policies that are not in force for less than a certain period (60
days).
• A certain number of days notice is required. Also required to indicate that
insurance is available under residual plan.
• Following reasons are allowed for cancellations –
o Non payment of premium
o Suspension or revocation of driver’s license
o Submission of false or fraudulent claim
o Material Misrepresentation of underwriting information
o Violation of policy terms or conditions.
Restrictions on Renewal
• Usually insurers can non-renew the policy subject to following -
o Written notice that policy will not be renewed.
o A certain number of days advance notice.
o Many states require to give reason for non-renewal.
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• Use of an auto – Rates are lowest for farm and highest for business use.
• Good Student Discount -
• Driver Education Credit – 10% discount on completing course.
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Part A–Liability Coverage – Protects the insured from a suit or claim for bodily injury
or property damage arising out of operation of an auto.
Part B– Medical Payments Coverage – For reasonable & necessary medical payments
arising out of bodily injury to the insured in an auto accident.
Part D– Coverage for damage to your auto – Protection for damage to auto & certain
non-owned auto. (Physical Damage Coverage)
3.1.2 Declarations
It contains parties, vehicles involved and coverages provided by the insurer. Following
information is given –
• Insurance Company – Name
• Named Insured – can be an individual, married couple or other parties.
• Policy Period – Date & time of start and end of coverage.
• Description Of Insured Auto Insured – vehicles & trailers
• Schedule of Coverages – Coverages, limits and deductibles to all listed vehicles.
• Applicable Endorsements – Contains all endorsements like snowmobiles.
• Lienholder – Name of financing bank or owner or institution if the vehicle is
leased or owned & financed by a bank.
• Garaged Location – Place where the vehicle is primarily garaged.
• Rating Information – Rating class of vehicle and any discounts if applicable.
• Signature of signing parties in the agreement.
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Definitions
• You & Your – refer to named insureds (applies to spouse living in same house).
o If couple divorces, then you does not apply to both.
o If the one spouse moves out but still remains married coverage applies to
both for 90 days.
• We, Us & Our - Refers to the insurance company.
• Owned includes Leased - A vehicle leased for more than 6 months is considered
owned under PAP.
• Bodily Injury – Bodily harm includes sickness, death & disease
• Business – Trade, profession, Occupation
• Family Member – Related to insured by blood, marriage or adoption and resides
in his household.
• Occupying – In, Upon, Getting In, Getting Out, On, Out, or Off. (B & C
coverage)
• Property Damage – physical injury or destruction to tangible property.
• Trailer – Vehicle pulled by an private passenger auto or van or pick-up.
• Your Covered Auto – includes 4 types of vehicles -
o Any vehicle listed in declarations
o A trailer owned by insured
o A temporary substitute auto – Used in short term substitute for an out-of-
service covered auto.
o New Acquired Auto
• Newly Acquired Auto – Any auto of which the insured becomes the owner during
the policy period. It can be an additional auto or a substitute auto.
o An additional auto is covered for 14 days.
o Replacement auto for remainder of policy.
o Does not apply to physical damage coverage – must be redone.
• $500 deductible is charged on a physical damage coverage for 4
days if insured does not carry collision coverage.
• If there is collision coverage then it is provided for 14 days.
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Special Damages
o Punitive Damages
o Damages paid upto 2 kinds of limits – (both per accident)
Split Limits – Different limits for bodily injury & property damage
Single Limit – For the entire damages per accident
o Include Pre-judgment interest.
o Damages are paid in lump or structured settlement (paid periodically for
large bodily injuries).
• Legal defense costs paid in addition – can exceed beyond policy limit.
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3.4.4 Exclusions
• No uninsured motorists coverage on vehicle.
• Primary coverage in another policy
• Claims settled w/o insurer’s consent
• Vehicle being used as public conveyance
• No workers compensation
• Only compensatory damages are being paid.
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3.4.7 Arbitration
• Process for settling disputes, if coverage applies
• Arbitrators decides –
o Whether coverage exists & whether to pay damages
o How much damages to pay
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Collision Loss
• Auto collides with another vehicle.
• Auto collides with telephone pole.
• Overturning of auto.
• Stationary Collision –
o Hit by a car parked next to you.
o Hit by a car in parking.
• Paid regardless of fault
• If there are more than one autos insured and the owner has gets collision damages,
then the higher damage and higher deductible applies.
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• Always the broadest coverage is applied if the insured has 2 auto policies for
covered autos and is driving a non-owned auto.
Deductible
• Of $100, 250, 500 or more apply to each collision loss.
• Separate for other-than collision loss. (less than collision loss)
• Used to
o Reduce small claims
o Encourage prudence
o Hold down premiums
Theft
• Coverage starts 48 hours after the theft has been reported and continues till the
auto is repaired and fit for use or has been replaced.
• Reimbursement provided = (time till car was found + time till car was repaired –
2)*20 [or (time till car was replaced –2 ) * 20]
• Max limit is $600.
4.1.3 Exclusions
• Public or livery conveyance (does not include carpool system).
• Wear and tear, freezing, breakdown, repairs, etc.
• Radioactive contamination or War
• Electronic equipment designed for reproduction of sound unless permanently
installed to the car (limit $1000).
• Equipment designed for visual and data signals transmission and reception.
• Media and Accessories
• Camper body or trailer not shown in declarations
• Another person under coverage takes away the auto W/O reasonable belief of
entitlement
• Radar / Laser equipment
• Racing
• Customizing equipment
o Carpeting / Insulation
o Furniture
o Height extending roofs
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Appraisal
• Each party appoints 1 appraiser. The 2 appraisers select an umpire whose decision
is binding.
• Each party pays its appraiser and both parties pay their umpire.
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4.3.3 Fraud
• No coverage for fraudulent conduct or false statements
4.3.7 Termination
Cancellation
• Named insured can cancel a policy a by giving notice to the insurer to make
cancellation effective.
• Insurer has limited cancellation rights -
o If policy has been issued less than 60 days ago, then the insurer can cancel
the policy if it does not meet the standards.
o Policy can be canceled for non-payment of premium – given 10 days
notice.
o For other grounds of cancellation, insurer has to give a 20 days notice.
• The reasons allowed for cancellation are –
o Non-payment of premium
o Driver’s License suspended or revoked
o Material misrepresentation
Non-renewal
• Insured must be given 30 days notice for non-renewal.
• Time period of policy is used to determine the non-renewal time -
o If policy period is < 6 months, insurer can non-renew every 6 months
o If policy period < 6 months and greater than 1 year, then insurer has the
right to non-renew at the end of policy period.
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o If policy period > 1 year, then insurer can non-renew at the anniversary of
policy effective date.
Automatic termination
• Insurer offers to renew, named insured does not accept, policy automatically
terminates.
• If insured obtains other insurance, PAP terminates this policy.
Other termination provisions
• Insurer delivers cancellation notice through mail or in person.
o Proof of mail sent is necessary.
• In the event of policy cancellation insured is assigned a premium refund.
• The effective date of cancellation is the end of policy period.
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The homeowners policy includes coverages for a house, its contents and the occupant’s
liability. It’s a self-contained policy – single document that forms a complete contract.
Most widely used homeowners policy: ISO’s Homeowners 3 Special Form (HO 00 03)
commonly known as HO-3.
Section I: Property Coverage – specifies property covered, the perils for which it is
covered, and the conditions and exclusions that affect property coverages and losses.
• Policyholder
• Policyholder’s residence
• Coverage limits
• Premium
• Section I deductible
• Effective date of the policy
• Forms and endorsements that apply
• Mortgage holder
5.2.2 Agreement
Establishes the basis for the contract and what the insurer and the policyholder
will do for each other.
Insurer agrees to provide coverage in lieu f premium and compliance with
conditions.
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5.2.3 Definition
Any ambiguity is interpreted in favor of the insured.
• An unlisted residence acquired by the named insured during the policy period.
• A nonowned premises where any insured is temporarily residing (hotel)
• Vacant land (other than farm land) owned by or rented to an insured.
• An insured’s land where 1 to 4 dwelling is being constructed
• Individual or family cemetery plots
• Any part of a premise occasionally rented to an insured for nonbusiness use
(such as hall rented for a wedding reception).
5.2.3.3 Deductible
Standard deductible is $250.
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The total liability under Coverage F – Medical Payments to others for al medical
expenses for bodily injury to one person as the result of an accident will not be
more than the Coverage F limit shown on the declarations page.
• Give written notice: time, place, circumstances, name and addresses of the
claimants and witnesses, identify policy and the named insured.
• Cooperate with the insurer: investigation, settlement and defense
activities.
• Forward Legal documents
• Provide claims assistance
• Submit evidence of damage of property of others: within 60 days a sworn
statement of loss and show damaged property to insurer.
• Not make voluntary payments: cannot make commitments on the behalf of
the insurer.
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• No one has the right to join the insurer as a party to any action against an
insured.
• No action with respect to Coverage E can be brought against the insurer
until the obligation of the insured has been determined by a final judgment
or agreement signed by the insurer.
Other Insurance – Coverage E: Coverage E limits are paid as excess over any
other collectible insurance unless the other insurance is written specifically to
provide excess coverage.
Policy Period: BI and PD to occur only during the policy period. The claim can
be filed at any time even after the policy has expired.
Concealment or Fraud:
Innocent insureds are not precluded from liability coverage.
Liberalization Clause:
If the insurer, during the policy period or 60 days before the policy period adopts
a revision that broadens the coverage without an additional premium charge, the
increased coverage will automatically apply to all existing policies on the date it is
implemented in the state. It does not apply to general homeowners program
revision that both broadens and restricts coverage.
Cancellation:
Insured can cancel by returning the policy or contacting the insurer in writing and
advising the date the cancellation is to take effect.
Insurer can cancel with written notice to policyholder at his mailing address for
1. nonpayment of premium if policyholder is given at least 10 days notice
before effective date of cancellation.
2. new policy in effect < 60 days if policyholder is given at least 10 days
notice before effective date of cancellation.
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State laws take precedence over policy language wrt cancellation/renewal. When
policy is cancelled pro rata refund is established. In some cases short-rate penalty
is used.
Nonrenewal:
Accomplished by mailing a notice to the policyholder at least 30 days before
policy expiration date.
Assignment
Cannot be assigned (transferred to another party) without insurer’s written
consent.
Subrogation
Right to recover its claim payment to an insured from the party responsible for the
loss.
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8.1.4 Coverages
• All coverages are not included automatically.
• DP-1 includes fair rental value but not additional expense coverages. DP-2 & DP-
3 have both coverages.
Coverage A – Dwelling
• Dwelling – Is used primarily for dwelling purposes.
• Building equipment & outdoor equipment is also included in coverage A if
coverage C is not bought.
Other Coverages
• Loss assessment coverage added to dwelling policy for additional premium.
• Additional coverages for landlord’s credit cards, furnishings, etc. not included.
• Comparison of other coverages with HO –
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Property Limit is same as limit for property being removed. Covered property is protected
Removed if it is removed under an insured peril.
Trees & Plants Same 5% of coverage A limit. 500 for one plant. DP-
1 – requires endorsement.
Fire Department $500 service charge. Additional $500 charge. provided if property is not in city
Service Charge insurance with no deductible. limits or close to fire station.
Collapse HO-2 & HO – 3 Available in DP-2 & DP-3 Not in DP – 1.
Glass or Safety Included in HO policy where Provided in DP-2 & DP-3 for damage to
Glazing Material glass is a part of building. covered property (also in HO)
Ordinance or 10% of Coverage A or 10% of Coverage B in DP-2 & Dp-3. If tenant is the
Law insured, then 10% of improvements, alterations & additions limit.
General Exclusions
• Similar to HO-3, include loss caused directly or indirectly by any of the following
o Ordinance Law (except if it is included in coverages)
o Earthquake
o Water Damage
o Power Failure
o Neglect
o Nuclear Hazard
o Intentional Loss
o Weather conditions leading to loss
o Acts or decisions by groups of persons, government or organizations.
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8.2.1 Exposures
• Damage or destruction of the MH
• Damage or destruction of the other structures in residential premises.
• Damage or destruction of personal property in MH.
• Loss of the use of MH.
• Liability Loss
ISO MH Endorsement
• MH is designated for coverage if it is portable and fit for round the year living.
• At least 10 feet wide and minimum 400sq. ft in area.
• Endorsements in HO-2 & HO-3 policy. Tenants -> HO-4 policy.
MH Endorsement
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• MH is designated for coverage if it is portable and fit for round the year living.
• Policy is created by adding a MH endorsement form to a HO policy.
• Major differences between MH and HO policy are –
o Definitions – “residence premises” changes to mean MH & other
structures including the location of the land.
o Coverage A – Dwelling
MH used as private residence.
Structures and utility tanks are included.
Applies to equipments & fixtures like floor covering etc.
o Coverage B – Other Structures
10% of coverage A limit to a max. of $2000.
o Additional Coverages
$500 for property removed (no deductible)
Ordinance or law coverage.
o Section 1 Conditions
Carpeting and appliances, not included in property to be valued on
ACV basis will be valued on replacement cost basis.
Other MH Endorsement
• ACV – Changes loss settlement terms on MH from replacement cost basis to
ACV basis.
• Transportation / Permission to move – coverage for perils of transportation for 30
days from the effective date.
• MH lien holder’s single interest –
o Provides coverage only to lien holder for transportation perils.
o Coverage for loss due to conversion, embezzlement or secretion of MH.
• Property removed increased limit –
o Increases the basic limit of removal expenses from $500 for an endangered
MH against an insured peril.
• Ordinance or Law
o Add coverage for an amount equal to a % of coverage A.
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Chapter 9
9.1 Inland Marine Floaters
• Insurance provided to moving goods, goods in cargo, property in transmission and
communication.
• Personal umbrella provides liability protection above policy limits of HO, PA &
WC.
• Floaters – Policy that provides coverages for policies that move or “floats” like
jewelry, fur, cameras, etc.
• Generally special form coverages is used.
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o Warranties
Pleasure Use
Seaworthiness
Lay-up Period
Navigational Limits
o Persons Insured
Named insured, family members, relatives in same household
Other people with insured’s permission
• Physical Damage Coverage
o Hull insurance
o Exclusions are –
Wear and Tear
Mechanical Breakdown
Freezing and thawing of ice
Racing and Speeding
Intentional Loss
War and nuclear hazard.
• Liability Coverage (protection and Indemnity Insurance) – The exclusions are -
o Intentional Injury
o Business Pursuit
o Liability from dangerous sports – water skiing, parasailing
o Racing
o Losses covered by workers compensation
o Bodily injury or property damage arising out of transportation of boat on
land
o Liability assumed under contract
o Injury to an employee if employee’s work involves maintenance of
watercraft
o War and nuclear hazard.
• Medical Payments coverages
o Covers insured family members under HO.
• Uninsured Boaters Coverage – similar to UM coverage
• Other Coverage
o Liability of injury to maritime workers
o Legal obligation of insured to remove a wrecked or sunken vessel.
o Cost of commercial towing and assistance
o Damage or loss to insured’s personal effects
o Bodily injury from transportation of boat.
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• If insured fails to maintain underlying limits, then the umbrella insurance will only
pay the excess.
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Defense Costs
• Include payment of attorney fees, premiums on appeal bonds, release of
attachment bonds, court costs and loss of earnings to attend court proceedings.
• Defense costs are paid in addition to policy limit.
Exclusions
Exclusions to personal umbrella coverage are –
• Workers compensation
• Damage to insured’s property – damage to non-owned watercraft or aircraft.
• Nuclear Energy
• Intentional Injury
• Aircraft
• Watercraft – excludes for large watercraft with 50HP engine
• Business property and pursuits
• Professional liability
• Directors and Officers
• Transmission of any communicable diseases
• Advertising and broadcasting
• Recreational Vehicles
Conditions
• The insured must maintain underlying coverages and limits shown in declarations.
• The insured must give a notice of loss as soon as practicable
• The umbrella policy is excess over insurance whether collectible or not.
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Advantages of financial planning are – increase in personal wealth, better quality of life
and proper attainment of goals. Protection against liability and other exposures.
Obstacles are high use of credit cards, low savings and less knowledge of financial
planning and delay saving for specific goals like children education.
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• W/d for higher education expenses and first-time home purchase (upto $10000)
are excluded.
• Must withdraw after they reach 71.5 or a tax penalty applies.
Roth IRA
• Same limits for annual contribution as traditional IRA.
• Annual contributions not income tax deductible.
• Investment earnings accumulate free of federal income taxes.
• Tax-free w/d after age of 59.5 or later.
• Does not make it mandatory to w/d after age of 71.5
• Maximum individual contribution gross income is $95000 (150000 for married
couples).
o With adjusted gross limits phased out – between 95000 & 110000
o For married couples – between 150000 and 160000.
• A traditional IRA can be converted to a Roth IRA for workers with inc < 100000.
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11.2.1 Singles
Modest amount of life insurance for funeral expenses and uninsured medical bills.
Insurance needs could change in the future.
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- An estate clearance fund: funeral expenses, uninsured medical bills, car loans
and installment debts, and estate administration expenses.
- Income during the readjustment period
- Income during dependency period
- Income to surviving spouse during the blackout period: Social Security
benefits can be paid to a surviving spouse with eligible children under the age
of sixteen. The benefits do not resume until the spouse reaches 60. Children’s
benefits continue till the child reaches 18.
- Retirement income
- Special needs, such as paying off a mortgage, an emergency fund, or a college
fund for children.
Cash Value: funds that accumulate in a whole life insurance policy – can be
accessed by borrowing, paid-up life insurance and surrendering the policy in exchange for
the cash value.
Renewable: characteristics of term life insurance that allows renew ability for
additional periods without evidence of insurability
Convertible: Can be exchanged for some type of permanent life insurance policy
with no evidence of insurability
- Yearly renewable term: policyowner has the right to renew for successive one-
year periods.
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- When income is limited and substantial amounts of life insurance are needed.
Premium has decreased over time because of intense price competition and
increases in life expectancy.
- To meet a temporary need, such as the need fro income during the
readjustment, dependency and the blackout period.
- To guarantee the future insurability of the insured: might convert it later into a
permanent policy without evidence of insurability.
Evidence of Insurability:
A requirement that insured demonstrate that he or she still meets the insurer’s
underwriting standards - submit a medical questionnaire or have a physical
examination.
Disadvantages: not suitable for lifetime protection since premium increase with
age prohibitively. They do not develop cash values.
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