Summary Life And Health Insurance Factors

1. Insurance is a social arrangement for shifting the economic burden of losses from individuals to groups. It does not prevent losses. 

2. Groups are better equipped to deal with losses than individuals because the law of large numbers serves to make group risks more predictable. 

3. Equitable distribution of costs dictates that individuals be placed in different risk groups depending upon their age, sex, or other distinguishing characteristics. 

4. Government-sponsored insurance programs also involve pooling of similar risks to increase predictability, but their different objectives diminish the need for private equity in favor of social adequacy. 

5. Insurance contracts, to be legally enforceable, must meet the requirements of any legal contract; there must be offer and acceptance, consideration, legal purpose, and legally competent parties. 

6. Life and health insurance contracts are aleatory, unilateral, contracts of adhesion, conditional, often valued, and require the utmost good faith of both parties. It is these characteristics which distinguish insurance contracts from most other contracts. 

7. Participating life insurance policies often have larger premiums, returning any excess to the insured in the form of dividends; nonparticipating policies have a set premium, usually somewhat lower, with any profits belonging to the owners of the company. 

8. The cost ingredients of the life insurance product are mortality, expenses, and investment earnings. 

9. Life insurance annual premiums are computed by dividing the net single premium by the present value of an annuity due. 

10. The primary cost ingredients of health insurance are the frequency of claims, the average size of claims, and expenses.