Table of contents for Principles of risk management and insurance / George E. Rejda.

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Contents
Preface xvi
	Part One	Basic Concepts in Risk Management and 
Insurance 1
chapter 1	Risk in Our Society 2
Meaning of Risk 3
Chance of Loss 4
Peril and Hazard 5
Basic Categories of Risk 6
Types of Pure Risk 8
Burden of Risk on Society 11
Methods of Handling Risk 12
Summary 15 n Key Concepts and Terms 15 n Review 
Questions 16
Application Questions 16 n Internet Resources 17 n 
Selected References 17
Notes 17
Case Application 14
Insight 1.1:	At a Glance; The Economic Problem of Poor 
Health 10
chapter 2	Insurance and Risk 18
Definition of Insurance 19
Basic Characteristics of Insurance 19
Requirements of an Insurable Risk 21
Two Applications: The Risks of Fire and Unemployment 23
Adverse Selection and Insurance 24
Insurance and Gambling Compared 24
Insurance and Hedging Compared 25
Types of Insurance 25
Benefits of Insurance to Society 28
Costs of Insurance to Society 29
Summary 33 n Key Concepts and Terms 34 n Review 
Questions 34
Application Questions 34 n Internet Resources 35 n 
Selected References 36
Notes 36
Case Application 33
Insight 2.1:	Insurance Fraud Hall of Shame; Sampling of 
Outrageous Cases 31
Insight 2.2:	Don't Think Insurance Fraud is Committed 
Only by Hardened 
Crooks 32
Appendix Basic Statistics and the Law of Large 
Numbers 38
chapter 3	Introduction to Risk Management 41
Meaning of Risk Management 42
Objectives of Risk Management 42
Steps in the Risk Management Process 43
Identifying Loss Exposures 44
Analyze the Loss Exposures 44
Select the Appropriate Techniques for Treating the Loss 
Exposures 45
Implement and Monitor the Risk Management Program 52
Benefits of Risk Management 53
Personal Risk Management 53
Summary 56 n Key Concepts and Terms 57 n Review 
Questions 57
Application Questions 58 n Internet Resources 59 n 
Selected References 59
Notes 59
Case Application 56
Insight 3.1:	Why Do Firms Self-Insure Their Group Health 
Insurance Plans? 49
Insight 3.2:	Show Me the Money; Risk Manager Salaries 
Rise 54
Chapter 4	Advanced Topics in Risk Management 61
The Changing Scope of Risk Management 62
Insurance Market Dynamics 65
Loss Forecasting 69
Financial Analysis in Risk Management Decision Making 72
Other Risk Management Tools 75
Summary 77 n Key Concepts and Terms 78 n Review 
Questions 78
Application Questions 78 n Internet Resources 79 n 
Selected References 80
Notes 80
Case Application 77
Insight 4.1:	The Weather (Derivatives) Report 70
Appendix Risk Management Application Problems 82
	Part Two	The Private Insurance Industry 87
Chapter 5	Types of Insurers and Marketing Systems 88
Overview of Private Insurance in the Financial Services 
Industry 89
Types of Private Insurers 92
Agents and Brokers 98
Types of Marketing Systems 99
Group Insurance Marketing 102
Summary 103 n Key Concepts and Terms 103 n Review 
Questions 103
Application Questions 104 n Internet Resources 104 n 
Selected References 105
Notes 106
Case Application 102
Insight 5.1:	Holding Company Schemes: The Feeling Isn't 
Mutual 96
Insight 5.2:	How Much Do Insurance Agents Earn? 99
Chapter 6	Insurance Company Operations 107
Insurance Company Operations 108
Rate Making 108
Underwriting 109
Production 112
Claims Settlement 113
Reinsurance 115
Alternatives to Traditional Reinsurance 120
Investments 121
Other Insurance Company Functions 124
Summary 125 n Key Concepts and Terms 126 n Review 
Questions 126
Application Questions 126 n Internet Resources 127 n 
Selected References 128
Notes 128
Case Application 125
Insight 6.1:	Stiffed by Your Insurer? Check Your 
Insurer's Complaint 
Record 115
Insight 6.2:	New Proposals for Dealing with Mega-
Catastrophes 121
Chapter 7	Financial Operations of Insurers 130
Property and Casualty Insurers 131
Life Insurance Companies 136
Rate Making in Property and Casualty Insurance 139
Rate Making in Life Insurance 143
Summary 144 n Key Concepts and Terms 145 n Review 
Questions 145
Application Questions 145 n Internet Resources 146 n 
Selected References 147
Notes 147
Case Application 143
Insight 7.1:	Profitability of Insurance Industry and 
other Selected 
Industries 137
Chapter 8	Government Regulation of Insurance 149
Reasons for Insurance Regulation 150
Historical Development of Insurance Regulation 151
Methods for Regulating Insurers 153
What Areas Are Regulated? 153
State Versus Federal Regulation 161
Current Problems and Issues in Insurance Regulation 163
Summary 169 n Key Concepts and Terms 169 n Review 
Questions 169
Application Questions 170 n Internet Resources 171 n 
Selected References 171
Notes 172
Case Application 168
Insight 8.1:	2005 Annual Ranking of Automobile Insurance 
Complaints 
in New York State (based on 2004 data) 159
	Part THREE	Legal Principles in Risks and 
Insurance 173
Chapter 9	Fundamental Legal Principles 174
Principle of Indemnity 175
Principle of Insurable Interest 178
Principle of Subrogation 179
Principle of Utmost Good Faith 181
Requirements of an Insurance Contract 183
Distinct Legal Characteristics of Insurance Contracts 185
Law and the Insurance Agent 186
Summary 188 n Key Concepts and Terms 189 n Review 
Questions 190
Application Questions 190 n Internet Resources 191 n 
Selected References 191
Notes 191
Case Application 188
Insight 9.1:	Corporation Lacking Insurable Interest at 
Time of Death Can Receive 
Life Insurance Proceeds 180
Insight 9.2:	Auto Insurer Denies Coverage Because of 
Material 
Misrepresentation 182
Insight 9.3 Insurer Voids Coverage Because of 
Misrepresentations in Proof 
of Loss 182
Chapter 10	Analysis of Insurance Contracts 193
Basic Parts of an Insurance Contract 194
Definition of the "Insured" 197
Endorsements and Riders 198
Deductibles 198
Coinsurance 200
Coinsurance in Health Insurance 201
Other-Insurance Provisions 201
Summary 204 n Key Concepts and Terms 204 n Review 
Questions 205
Application Questions 205 n Internet Resources 206 n 
Selected References 206
Notes 207
Case Application 203
Insight 10.1:	Will Your Auto Insurance Cover You When You 
Drive Another 
Person's Car? 197
	Part Four	Life and health Risks 209
Chapter 11	Life Insurance 210
Premature Death 211
Financial Impact of Premature Death on Different Types of 
Families 212
Amount of Life Insurance to Own 213
Types of Life Insurance 219
Variations of Whole Life Insurance 225
Other Types of Insurance 234
Summary 237 n Key Concepts and Terms 238 n Review 
Questions 239
Application Questions 239 n Internet Resources 241 n 
Selected References 242
Notes 242
Case Application 237
Insight 11.1:	2001 CSO Mortality Table 222
Insight 11.2:	How Good Is Cash-Value Life Insurance as an 
Investment? 224
Insight 11.3:	Variable Universal Life Insurance: Is It 
Worth It? 232
Chapter 12	Life Insurance Contractual Provisions 244
Life Insurance Contractual Provisions 245
Dividend Options 251
Nonforfeiture Options 253
Settlement Options 254
Additional Life Insurance Benefits 259
Summary 264 n Key Concepts and Terms 264 n Review 
Questions 265
Application Questions 265 n Internet Resources 266 n 
Selected References 267
Notes 267
Case Application 262
Insight 12.1:	Is This Death a Suicide? 247
Insight 12.2:	Don't Be Confused About Dividend 
Options 252
Insight 12.3:	Examples of Life Settlement Cases 262
Chapter 13	Buying Life Insurance 268
Determining the Cost of Life Insurance 269
Rate of Return on Saving Component 273
Taxation of Life Insurance 275
Shopping for Life Insurance 272
Summary 280 n Key Concepts and Terms 281 n Review 
Questions 281
Application Questions 281 n Internet Resources 282 n 
Selected References 282
Notes 283
Case Application 279
Insight 13.1:	Be Careful in Replacing an Existing Life 
Insurance Policy 273
Appendix Calculation of Life Insurance Premiums 284
Chapter 14	Annuities and Individual Retirement 
Accounts 290
Individual Annuities 291
Types of Annuities 292
Taxation of Individual Annuities 295
Individual Retirement Accounts 297
Summary 305 n Key Concepts and Terms 306 n Review 
Questions 306
Application Questions 306 n Internet Resources 307 n 
Selected References 307
Notes 307
Case Application 1 304
Case Application 2 304
Insight 14.1:	At a Glance; Advantages of an Immediate 
Annuity 293
Insight 14.2:	Ten Questions to Answer Before You Buy a 
Variable Annuity 298
Insight 14.3:	Will You Have Enough Money at Retirement? 
Monte Carlo Simulations 
Can Be Helpful 303
Chapter 15	Individual Health Insurance Coverages 309
Health-Care Problems in the United States 310
Large Member of Uninsured Persons in the Population 312
Individual Health Insurance Coverages 313
Hospital-Surgical Insurance 314
Major Medical Insurance 314
Health Savings Accounts 316
Long-Term-Care Insurance 319
Disability-Income Insurance 321
Individual Medical Expense Contractual Provisions 324
Shopping for Individual Health Insurance 326
Summary 330 n Key Concepts and Terms 330 n Review 
Questions 331
Application Questions 331 n Internet Resources 332 n 
Selected References 332
Notes 333
Case Application 329
Insight 15.1:	Health Savings Accounts Are Not an Effective 
Way to Control 
Costs 318
Insight 15.2:	Don't Delay Applying for Disability-Income 
Insurance 327
Insight 15.3:	State High-Risk Pools for the 
Uninsurable 328
Chapter 16	Employee Benefits: Group Life and Health 
Insurance 334
Group Insurance 335
Group Life Insurance Plans 337
Group Medical Expense Insurance 340
Traditional Indemnity Plans 341
Managed Care Plans 343
Consumer-Driven Health Plans 349
Patients Bill of Rights 350
Group Medical Expense Contractual Provisions 351
Group Dental Insurance 352
Group Disability-Income Insurance 353
Cafeteria Plans 355
Summary 356 n Key Concepts and Terms 357 n Review 
Questions 358
Application Questions 358 n Internet Resources 359 n 
Selected References 360
Notes 360
Case Application 356
Insight 16.1:	Credit Insurance Overcharges Cost Consumers 
Billions of Dollars 
Annually 339
Chapter 17	Employee Benefits: Retirement Plans 361
Fundamentals of Private Retirement Plans 362
Types of Qualified Retirement Plans 368
Defined-Contribution Plans 368
Defined-Benefit Plans 369
Section 401(k) Plans 371
Section 403(B) Plans 373
Profit-Sharing Plans 374
Retirement Plans for the Self-Employed 374
Simplified Employee Pension (SEP) 376
SIMPLE Retirement Plans 376
Funding Agency and Funding Instruments 377
Summary 378 n Key Concepts and Terms 379 n Review 
Questions 380
Application Questions 380 n Internet Resources 381 n 
Selected References 381
Notes 382
Case Application 378
Insight 17.1:	Check It Out; The New Roth 401(k) Plan 373
Insight 17.2:	Maximum Tax Savings for a Sole Proprietor 
with a Self-Employed 401(k) 
Plan 375
Chapter 18	Social Insurance 383
Social Insurance 384
Old-Age, Survivors, and Disability Insurance (OASDI) 386
Types of Benefits 387
Medicare 394
Unemployment Insurance 401
Workers Compensation 405
Summary 410 n Key Concepts and Terms 411 n Review 
Questions 411
Application Questions 411 n Internet Resources 413 n 
Selected References 413
Notes 414
Case Application 410
Insight 18.1:	When Is the Right Time to Draw Social 
Security? 389
Insight 18.2:	How Would You Fix Social Security 395
Insight 18.3:	At a Glance; The Pros and Cons of Personal 
Retirement Accounts Under Social Security 396
	Part Five	Personal Property and Liability Risks 415
Chapter 19	The Liability Risk 416
Basis of Legal Liability 417
Law of Negligence 418
Imputed Negligence 420
Res Ipsa Loquitur 420
Specific Applications of the Law of Negligence 421
Current Tort Liability Problems 423
Summary 434 n Key Concepts and Terms 435 n Review 
Questions 435
Application Questions 435 n Internet Resources 436 n 
Selected References 437
Notes 437
Case Application 433
Insight 19.1:	Which Cities and Countries are Perceived as 
"Judicial Hellholes"? 427
Insight 19.2:	Study Says Wrong-Site Surgery is Very Rare 
and Preventable 430
Insight 19.3:	Medical Errors Rank with Highway Accidents 
and Breast Cancer as a Major Killer in the United 
States 431
Chapter 20	Homeowners Insurance, Section I 439
Homeowners Insurance 440
Analysis of Homeowners 3 Policy (Special Form) 441
Section I Coverages 445
Section I Perils Insured Against 451
Section I Exclusions 455
Section I Conditions 457
Section I and II Conditions 461
Summary 462 n Key Concepts and Terms 463 n Review 
Questions 463
Application Questions 464 n Internet Resources 465 n 
Selected References 466
Notes 466
Case Application 462
Insight 20.1:	Renters Insurance: Shattering a Few 
Myths 444
Insight 20.2:	Hurricane Katrina; Windstorm and Flood Damage 
Answers to Frequently Asked Questions 454
Insight 20.3:	The Big Gap Between Replacement Cost and 
Actual Cash Value Can Empty Your Wallet 458
Chapter 21	Homeowners Insurance, Section II 467
Personal Liability Insurance 468
Section II Exclusions 470
Section II Additional Coverages 474
Endorsements to a Homeowners Policy 476
Cost of Homeowners Insurance 478
Summary 486 n Key Concepts and Terms 487 n Review 
Questions 487
Application Questions 487 n Internet Resources 489 n 
Selected References 489
Notes 490
Case Application 486
Insight 21.1:	Don't Let Your Dog Jeopardize Your 
Homeowners Coverage 469
Insight 21.2:	Identity Theft Insurance Can Restore Your 
Good Name 479
Appendix How to Save Money on a Homeowners Policy 491
Chapter 22	Auto Insurance 494
Overview of Personal Auto Policy 495
Part A: Liability Coverage 497
Part B: Medical Payments Coverage 500
Part C: Uninsured Motorists Coverage 502
Part D: Coverage for Damage to Your Auto 505
Part E: Duties After an Accident or Loss 512
Part F: General Provisions 513
Insuring Motorcycles and Other Vehicles 514
Summary 515 n Key Concepts and Terms 515 n Review 
Questions 515
Application Questions 516 n Internet Resources 518 n 
Selected References 518
Notes 519
Case Application 514
Insight 22.1:	The Top 10 Reasons to Purchase the Rental 
Car Collision Damage 
Waiver (CDW) 508
Insight 22.2:	Crash Risk Is Four Times Higher When Drivers 
Use Cell Phones, 
Study Says 510
Chapter 23	Auto Insurance and Society 520
Approaches for Compensating Auto Accident Victims 521
Auto Insurance for High-Risk Drivers 530
Cost of Auto Insurance 532
Shopping for Auto Insurance 536
Summary 540 n Key Concepts and Terms 542 n Review 
Questions 542
Application Questions 542 n Internet Resources 543 n 
Selected References 543
Notes 544
Case Application 541
Insight 23.1:	Claims Against Another Driver's Insurance 
Company 524
Insight 23.2:	Insuring Young Drivers 534
Chapter 24	Other Property and Liability Insurance 
Coverages 545
ISO Dwelling Program 546
Mobilehome Insurance 547
Inland Marine Floaters 548
Watercraft Insurance 549
Government Property Insurance Programs 550
Title Insurance 555
Personal Umbrella Policy 556
Summary 560 n Key Concepts and Terms 560 n Review 
Questions 561
Application Questions 561 n Internet Resources 562 n 
Selected References 563
Notes 563
Case Application 559
Insight 24.1:	Myths and Facts about the National Flood 
Insurance Program 
(NFIP) 553
Insight 24.2:	Examples of Claims Covered by Personal 
Umbrella Policy 558
	Part Six	Commercial Property and Liability 
Risks 565
Chapter 25	Commercial Property Insurance 566
ISO Commercial Property Program 567
Building and Personal Property Coverage Form 569
Causes-of-Loss Forms 572
Reporting Forms 574
Business Income Insurance 574
Other Commercial Property Coverages 577
Transportation Insurance 580
Businessowners Policy (BOP) 584
Summary 587 n Key Concepts and Terms 588 n Review 
Questions 588
Application Questions 589 n Internet Resources 590 n 
Selected References 591
Notes 591
Case Application 586
Insight 25.1:	Examples of Coverage Under the Building and 
Personal Property Coverage Form 570
Insight 25.2:	Advantages of the Special Causes-of-Loss 
Form 573
Insight 25.3:	Examples of Equipment Breakdown Losses 579
Chapter 26	Commercial Liability Insurance 592
General Liability Loss Exposures 593
Commercial General Liability Policy 594
Employment-Related Practices Liability Insurance 600
Workers Compensation Insurance 601
Commercial Auto Insurance 604
Aircraft Insurance 606
Commercial Umbrella Policy 607
Businessowners Policy 609
Professional Liability Insurance 609
Directors and Officers Liability Insurance 611
Summary 612 n Key Concepts and Terms 613 n Review 
Questions 614
Application Questions 614 n Internet Resources 615 n 
Selected References 616
Notes 616
Case Application 612
Insight 26.1:	Basic Facts about Workers Compensation 602
Chapter 27	Crime Insurance and Surety Bonds 618
ISO Commercial Crime Insurance Program 619
Commercial Crime Coverage Form (Loss-Sustained Form) 620
Financial Institution Bonds 625
Surety Bonds 626
Summary 629 n Key Concepts and Terms 630 n Review 
Questions 630
Application Questions 630 n Internet Resources 631 n 
Selected References 631
Notes 632
Case Application 628
Insight 27.1:	Taking Home More Than a Paycheck: Employee 
Theft Costs U.S. Employers $20 Billion/$40 Billion a 
Year 621
Insight 27.2:	FBI: 90% of Organizations Face Computer 
Attack; 64% Incur Financial 
Loss 624
Appendix A Homeowners 3 (Special Form) 633
Appendix B Personal Auto Policy 656
Appendix C Whole Life Insurance Policy with Riders 670
Appendix D Flexible Premium (Universal) Life Insurance 
Policy 688
Glossary 708
Index 000

Library of Congress Subject Headings for this publication:

Insurance.
Risk (Insurance).
Risk management.