Mortgage insurance

Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.

For example, suppose Mr. Smith decides to purchase a house which costs $150,000. He pays 10% ($15,000) down payment and takes out a $135,000 ($150,000-$15,000) mortgage on the remaining 90%. Lenders will often require mortgage insurance for mortgage loans which exceed 80% (the typical cut-off) of the property's sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects the lender against his default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 25% of the 135,000, or $33,750, leaving the lender with an exposure of $101,250. The mortgage insurer will charge a premium for this coverage, which may be paid by either the borrower or the lender. If the borrower defaults and the property is sold at a loss, the insurer will cover the first $33,750 of losses. Coverages offered by mortgage insurers can vary from 20% to 50% and higher.

To obtain public mortgage insurance from the Federal Housing Administration in the United States, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well. The United States Veterans Administration also offers insurance on mortgages.

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Bond insurance

Bond insurance is a service whereby issuers of a bond can pay a premium to a third party, who will provide interest and capital repayments as specified in the bond in the event of the failure of the issuer to do so. The effect of this is to raise the rating of the bond to the rating of the insurer; accordingly, a bond insurer's credit rating must be almost perfect.

The premium requested for insurance on a bond is a measure of the perceived risk of failure of the issuer.

The economic value of bond insurance to the governmental unit, agency, or company offering bonds is a saving in interest costs reflecting the difference in yield on an insured bond from that on the same bond if uninsured. Insured securities ranged from municipal bonds and structured finance bonds to collateralized debt obligations (CDOs) domestically and abroad.

National government bonds are almost never insured because governments can print money. In fact, for this reason, securities that are tied to or backed by government bonds are typically considered by ratings agencies to be high grade.

Municipal government bonds were insured by the so-called monolines starting in the 1970s. The financial crisis of 2008 seriously harmed their business model, to the point where their continued existence is in doubt.

Bond insurers are also called "financial guaranty insurance companies" or "financial guarantors".

Companies whose sole line of business is to provide bond insurance services to one industry are called monoline insurers. The term 'monoline' eventually became synonymous in some literature with terms like 'financial guarantors', and 'municipal bond insurers'.

Bonds which are insured by these companies are sometimes said to be 'wrapped' by the insurer.

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Credit Insurance

Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their balance sheet asset, accounts receivable, from loss due to credit risks such as protracted default, insolvency,bankruptcy, etc. This insurance product, commonly referred to as credit insurance, is a type of property & casualty insurance and should not be confused with such products as credit life or credit disability insurance, which the insured obtains to protect against the risk of loss of income needed to pay debts. Trade Credit Insurance can include a component of political risk insurance which is offered by the same insurers to insure the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation, etc.

This points to the major role trade credit insurance plays in facilitating international trade. Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building. This asset may then be viewed as collateral by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product. Trade credit insurance is, therefore, a trade finance tool.

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Insurance Policy

In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for payment, known as the premium, the insurer pays for damages to the insured which are caused by covered perils under the policy language. Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies.

The insurance policy is generally an integrated contract, meaning that it includes all forms associated with the agreement between the insured and insurer. In some cases, however, supplementary writings such as letters sent after the final agreement can make the insurance policy a non-integrated contract. One insurance textbook states that "courts consider all prior negotiations or agreements ... every contractual term in the policy at the time of delivery, as well as those written afterwards as policy riders and endorsements ... with both parties' consent, are part of written policy". The textbook also states that the policy must refer to all papers which are part of the policy. Oral agreements are subject to the parol evidence rule, and may not be considered part of the policy. Advertising materials and circulars are typically not part of a policy. Oral contracts pending the issuance of a written policy can occur.

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Insurance law

Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling. 

Common law jurisdictions in former members of the British empire, including the United States, Canada, India, South Africa, and Australia ultimately originate with the law of England and Wales. What distinguishes common law jurisdictions from their civil law counterparts is the concept of judge-made law and the principle of stare decisis - the idea, at its simplest, that courts are bound by the previous decisions of courts of the same or higher status. In the insurance law context, this meant that the decisions of early commercial judges such as Mansfield, Lord Eldon and Buller bound, or, outside England and Wales, were at the least highly persuasive to, their successors considering similar questions of law.

At common law, the defining concept of a contract of commercial insurance is of a transfer of risk freely negotiated between counterparties of similar bargaining power, equally deserving (or not) of the courts' protection. The underwriter has the advantage, by dint of drafting the policy terms, of delineating the precise boundaries of cover. The prospective insured has the equal and opposite advantage of knowing the precise risk proposed to be insured in better detail than the underwriter can ever achieve. Central to English commercial insurance decisions, therefore, are the linked principles that the underwriter is bound to the terms of his policy; and that the risk is as it has been described to him, and that nothing material to his decision to insure it has been concealed or misrepresented to him.

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Property insurance

Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main ways - open perils and named perils. Open perils cover all the causes of loss not specifically excluded in the policy. Common exclusions on open peril policies include damage resulting from earthquakes, floods, nuclear incidents, acts of terrorism and war. Named perils require the actual cause of loss to be listed in the policy for insurance to be provided. The more common named perils include such damage-causing events as fire, lightning, explosion and theft.

There are three types of insurance coverage. Replacement cost coverage pays the cost of replacing your property regardless of depreciation or appreciation. Premiums for this type of coverage are based on replacement cost values, and not based on actual cash value. Actual cash value coverage provides for replacement cost minus depreciation. Extended replacement cost will pay over the coverage limit if the costs for construction have increased. This generally will not exceed 25% of the limit. When you obtain an insurance policy, the coverage limit established is the maximum amount the insurance company will pay out in case of loss of property. This amount will need to fluctuate if homes in your neighborhood are rising; the amount needs to be in step with the actual value of your home. In case of a fire, household content replacement is tabulated as a percentage of the value of the home. In case of high value items, the insurance company may ask to specifically cover these items separate from the other household contents. One last coverage option is to have alternative living arrangements included in a policy. If a fire leaves your home uninhabitable, the policy can help pay for a hotel or other living arrangements. 

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Universal Life Insurance

Universal life insurance is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, as well as any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a stock, bond or other interest rate index.

Final expenses, such as a funeral, burial, and unpaid medical bills. Income replacement, to provide for surviving spouses and dependent children, Debt coverage, to pay off personal and business debts, such as a home mortgage or business operating loan, Estate liquidity, when an estate has an immediate need for cash to settle federal estate taxes, state inheritance taxes, or unpaid income in respect of decedent (IRD) taxes. Estate replacement, when an insured has donated assets to a charity and wants to replace the value with cash death benefits. Business succession & continuity, for example to fund a cross-purchase or stock redemption buy/sell agreement.

Key person insurance, to protect a company from the economic loss incurred when a key employee or manager dies. Executive bonus, under IRC Sec. 162, where an employer pays the premium on a life insurance policy owned by a key person. The employer deducts the premium as an ordinary business expense, and the employee pays the income tax on the premium. Controlled executive bonus, just like above, but with an additional contract between an employee and employer that effectively limits the employees’ access to cash values for a period of time (golden handcuffs).

Split dollar plans, where the death benefits, cash surrender values, and premium payments are split between an employer and employee, or between an individual and a non-natural person (e.g. trust).Non-qualified deferred compensation, as an informal funding vehicle where a corporation owns the policy, pays the premiums, receives the benefits, and then uses them to pay, in whole or in part, a contractual promise to pay retirement benefits to a key person, or survivor benefits to the deceased key person's beneficiaries.

An alternative to long-term care insurance, where new policies have accelerated benefits for Long Term Care. Mortgage acceleration, where an over-funded UL policy is either surrendered or borrowed against to pay off a home mortgage. Charitable gift, where a UL policy is donated to a qualified charity, or the policy owner names a charity as the beneficiary. Charitable remainder trust replacement, where a policy owner wants to replace assets donated to a Charitable Remainder Trust.

Estate equalization, where a business owner has more than one child, and at least one child wants to run the business, and at least one other wants cash. Life insurance retirement plan, or Roth IRA alternative. High income earners who want an additional tax shelter, with potential creditor/predator protection, who have maxed out their IRA, who are not eligible for a Roth IRA, and who have already maxed out their qualified plans.

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