Casualty Insurance Basics

Casualty insurance is a general term for the insurance lines that protect a person or business from loss due to damage, theft or even lawsuits. Casualty insurance is typically part of a greater insurance category called, "property and casualty" or simply "P&C." P&C is the most general form of insurance, and it covers nearly any exposure with the exception of specialized exposures by industry. 

Types of Casualty Insurance

Casualty insurance can include both personal and corporate insurance. Personal lines include automobile, homeowners and rental insurance. Each of these lines of insurance is designed to protect an individual from loss. In contrast, medical insurance is not covered under a casualty insurance policy. It is purchased in order to provide services in a time of need, not to protect against loss. Life insurance is the same way. Both of these lines would be classified in separate parts of an insurance contract or in a separate contract altogether.

On the business side, casualty insurance encompasses some of the most necessary lines of coverage. Worker's compensation is part of a casualty program because it protects a business from loss due to lawsuit. Similarly, business owner's insurance falls under the casualty arena. More specialized lines of business insurance may be classified under a separate policy. For example, insurance covering the executives of a company should the price of the company's stock drop drastically is typically not in a casualty coverage line. 

Important Terms

Casualty insurance contracts have several basic terms and factors that ultimately affect the shape of the contract formed between the insured and the insurer. All these terms are discussed on a "policy," or insurance agreement. The first important term is "limit." This is the maximum amount an insurer will pay in the case of a claim; higher limits result in higher payments to the company. These payments are called "premiums," and they are typically owed on a monthly or term basis. Insurance companies do not begin making payments on a casualty policy immediately. Instead, the individual or company must make a portion of payments itself, called the "deductible." Deductibles have an inverse relationship with premium costs. 

Casualty Insurance Example

John has a casualty insurance policy with XYZ Insurance for his homeowners insurance. The policy has a per occurrence limit of $20,000 and a per occurrence deductible of $1,000. A tree falls on John's house during a storm. He checks his casualty policy to ensure this type of damage, "storm," is covered. It is covered, so he submits a claim to XYZ. In his claim, he includes the bills from his roofer, window repairman, carpet cleaners, plumber and electrician who all helped repair the home after the accident. The bills total $23,000. John pays a $1,000 deductible. XYZ insurance then pays the next $20,000 in coverage, up to the per occurrence limit. John pays the additional $2,000. Because John has made such a large claim this month, his premium may go up next month in order to compensate for the loss to the insurance company.

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