InsuranceInsurance
Risk & ProtectionRisk & Protection
Can you believe?Can you believe?
Insurance claims involving teens Insurance claims involving teens 100% higher than adults100% higher than adults
Teen crash rates drop 40% 6 Teen crash rates drop 40% 6 months after getting licensemonths after getting license
75% of Americans experience 75% of Americans experience some form of disability this yearsome form of disability this year
At work, a disabling accident At work, a disabling accident occurs every 8 secondsoccurs every 8 seconds
Risk ManagementRisk Management
Risk is the chance of Risk is the chance of financial loss from financial loss from perils to property or perils to property or peoplepeople
Insurance is a method Insurance is a method for spreading for spreading individual risk among individual risk among a large group of a large group of people to make losses people to make losses more affordable to all more affordable to all
Important in financial Important in financial planningplanning
ExposureExposure RiskRisk Potential LossPotential Loss
Accident or Accident or IllnessIllness
PropertyPropertyOwnershipOwnership
LiabilityLiability
Loss of income from Loss of income from inability to work; inability to work; uninsured medical uninsured medical bills; deathbills; death
Your property is Your property is damaged, damaged, destroyed, lost, or destroyed, lost, or stolenstolen
You are found You are found liable for injuries to liable for injuries to other people or other people or damages to their damages to their propertyproperty
UNLIMITEUNLIMITEDD
UNLIMITEUNLIMITEDD
Amount Amount needed to needed to replace your replace your propertyproperty
Common Exposures to LossCommon Exposures to Loss
6-A6-A
My Personal Financial My Personal Financial Risk ExposuresRisk Exposures
Exposure Risk How to Evaluate Potential Loss
How much would I lose if I couldn’t work for:1 week?1 month?1 year?
UnlimitedUnlimited
Acc
iden
t or
Illness
LostIncome
Death Permanent UnlimitedUnlimited
MedicalBills
What is the most this could cost me? UnlimitedUnlimited
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My Personal Financial My Personal Financial Risk ExposuresRisk Exposures
Exposure Risk How to Evaluate Potential Loss
Liability
Liability for
injuries to other
people or damages to their
property
What is the most this could cost me? UnlimitedUnlimited
Property
Owner-ship
Damaged,
destroyed
lost, or stolen
This will be the total dollar amount for the particular item(s) from your Personal Property Inventory (Part A)
$ _______
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Different Forms of RiskDifferent Forms of Risk
Becoming sick Becoming sick (lost wages)(lost wages)
Dying Dying prematurely (loss prematurely (loss of income for of income for family)family)
Becoming Becoming disabled (lost disabled (lost wages)wages)
Risky behaviorRisky behavior
HazardHazard: A condition that creates : A condition that creates or increases the likelihood of some or increases the likelihood of some loss Example: lightning or defective loss Example: lightning or defective wiring can cause a firewiring can cause a fire
PerilPeril: An event whose occurrence : An event whose occurrence can cause a loss. Example: Fire, can cause a loss. Example: Fire, storm, explosions, robbery, storm, explosions, robbery, accidentaccident
LossLoss: Unexpected reduction in : Unexpected reduction in insured property, caused by a peril.insured property, caused by a peril.
Avoid & reducing Avoid & reducing riskrisk Personal risks: Take safety Personal risks: Take safety
precautions, like wear a helmetprecautions, like wear a helmet Avoid risky behaviors altogether: Avoid risky behaviors altogether:
stop hanging out with friends who stop hanging out with friends who smoke, go camping rather than smoke, go camping rather than skiing.skiing.
Reduce/avoid property risks: install Reduce/avoid property risks: install smoke detectors in your home.smoke detectors in your home.
InsuranceInsurance
InsurerInsurer is a company that agrees to is a company that agrees to pay the cost of potential future losses pay the cost of potential future losses in exchange for regular fee paymentsin exchange for regular fee payments
PolicyPolicy a written insurance contract a written insurance contract
PremiumPremium is a fee paid for the is a fee paid for the insurance policy. Usually paid at insurance policy. Usually paid at regular intervals by the owner of the regular intervals by the owner of the policy (policyholder). These are policy (policyholder). These are determined by determined by actuariesactuaries..
Right kind, Right TimeRight kind, Right Time
Important to Important to have right kind of have right kind of insurance at the insurance at the right timeright time
Beware of under Beware of under insured or over insured or over insuredinsured
Over insured….Over insured….
Waste of current Waste of current incomeincome
Other needs might Other needs might go unmetgo unmet
Insurance is not Insurance is not meant to enrich meant to enrich only to compensate only to compensate for actual losses for actual losses incurred. This incurred. This principle is called principle is called indemnification. indemnification.
IndemnificationIndemnification Means putting the Means putting the
policyholder back in policyholder back in the same financial the same financial condition he or she condition he or she was in before the loss was in before the loss occurredoccurred
Probability is the Probability is the mathematics of mathematics of chance and the root of chance and the root of indemnification. indemnification. Every event can be Every event can be described in terms of described in terms of probability or probability or likelihood that likelihood that something will happensomething will happen
How indemnification How indemnification works with insuranceworks with insurance You suffer a You suffer a loss.loss. You (or your doctor or your You (or your doctor or your
insurance agent) make a insurance agent) make a claim, claim, a a request for reimbursement.request for reimbursement.
The insurance company pays you The insurance company pays you benefitsbenefits, sums of money to be , sums of money to be paid for losses.paid for losses.
Insurance…..Insurance…..
Should change with timeShould change with time– Life insurance for married spouse & Life insurance for married spouse &
kidskids– Disability if head of householdDisability if head of household– Liability on 1Liability on 1stst car (used) car (used)
Insure……Insure……
Risks that can be Risks that can be big lossesbig losses– Large loss is a cost Large loss is a cost
that would create that would create financial hardship financial hardship (ex. Medical bills)(ex. Medical bills)
– Small loss is Small loss is inconvenient (car inconvenient (car repair)repair)
Factors Affecting Factors Affecting Automobile Insurance Automobile Insurance CostsCosts
Your ageYour age
Make of carMake of car
Marital statusMarital status
Do you take the car to work?Do you take the car to work?
If you’re a good studentIf you’re a good student
GenderGenderWhere you liveWhere you live
How much How much you use the you use the
carcarCredit ratingCredit rating
Driver’s educationDriver’s education
Driving recordDriving recordType of carType of car
6-F6-F
Role of Insurance Role of Insurance CompanyCompany 1. Help manage 1. Help manage
financial lossesfinancial losses 2. Professional risk 2. Professional risk
takerstakers 3. Spread risk 3. Spread risk
among peopleamong people 4. Policyholders 4. Policyholders
pool premium in pool premium in reserves so those reserves so those suffers can be suffers can be compensatedcompensated
5. Predictable cost 5. Predictable cost for companyfor company
Auto Insurance Auto Insurance CoveragesCoverages
A. Liability
Bodily injury or property damages that you are responsible for
because of an accident involving your car
B. Medical Payments
Medical and/or funeral expenses for you, members of your family, and other persons injured in an accident while in your vehicle.
Also covers your family members as pedestrians if struck by an
auto.
Policy Section
What It CoversSuggested Minimum Coverage
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Auto Insurance Auto Insurance CoveragesCoverages
Bodily Injury
Your injuries caused by an uninsured, hit-and-run, or
underinsured driver.
Property
Damages to your vehicle caused by uninsured or underinsured
driver
C. Uninsured and underinsured motorists
Policy Section
What It CoversSuggested Minimum Coverage
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Auto Insurance CoverageAuto Insurance CoverageSuggested MinimumsSuggested Minimums
Coverage Type Suggested Minimum Coverage
Liability
Medical Payments
Uninsured / Underinsured
Motorist
$100,000 per person $300,000 per accident
$100,000 per person $300,000 per accident
$10,000 per person
6-G6-G
Drop Collision?Drop Collision?
Might want to Might want to consider if consider if driving older cardriving older car
Deductible might Deductible might be higher than be higher than insurance insurance company will pay company will pay (car value) (car value)
How to Save Money on How to Save Money on InsuranceInsurance Shop at least three places; compare Shop at least three places; compare
rates and policies; ask about discounts rates and policies; ask about discounts and special rates.and special rates.
Read sources of information such as Read sources of information such as Consumer ReportsConsumer Reports®®..
Purchase more than one type of Purchase more than one type of insurance from the same company; insurance from the same company; insure all cars with the same company.insure all cars with the same company.
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Insurance contractInsurance contract
1. 1. Declarations Declarations page:page: basic basic info about info about policypolicy
Period of coverage, Period of coverage, premium, limits, premium, limits, & deductibles& deductibles
Contract con’tContract con’t
2. 2. Copy of policy:Copy of policy: spells out coverage in spells out coverage in detaildetail
3. 3. ExclusionsExclusions: : Spells Spells out what is not covered out what is not covered or circumstances in or circumstances in which coverage does which coverage does not applynot apply
Hurricane insurance does Hurricane insurance does not cover inside flood not cover inside flood damage due to damage due to hurricanehurricane
Disability InsuranceDisability Insurance
Importance: Single greatest Importance: Single greatest asset is potential earning powerasset is potential earning power
Pays income if policy holder gets Pays income if policy holder gets sick and can’t worksick and can’t work
Limited to 2/3 gross incomeLimited to 2/3 gross income Designed to encourage return to Designed to encourage return to
work ASAPwork ASAP
HomeownersHomeowners
Protects from losses to:Protects from losses to: House, garage, furniture, other House, garage, furniture, other
personal propertypersonal property Cover losses due to fire, weather Cover losses due to fire, weather
damage, theft, vandalismdamage, theft, vandalism Also pays cost of living elsewhere Also pays cost of living elsewhere
while home is being rebuilt or repairedwhile home is being rebuilt or repaired Can buy additional coverage against Can buy additional coverage against
floods, earthquakes, jewelry, floods, earthquakes, jewelry, expensive paintings etc. called a riderexpensive paintings etc. called a rider
Never covers acts of warNever covers acts of war
HomeownersHomeowners
Typically insure Typically insure structure for 80% of structure for 80% of its valueits value
Renters insurance Renters insurance same coverage as same coverage as homeowner’s policy homeowner’s policy except doesn’t except doesn’t cover structure just cover structure just contents insidecontents inside
BUY RENTERS BUY RENTERS INSURANCEINSURANCE
Get Best DealGet Best Deal
Your teacher told Your teacher told you--you’d better you--you’d better shop around!shop around!
The way to get the The way to get the best deal is to shop best deal is to shop around the different around the different companies. Their companies. Their prices and prices and coverage vary coverage vary greatly!greatly!
Life InsuranceLife Insurance Provides financial security for your family if Provides financial security for your family if
you die.you die. Money received not subject to federal or Money received not subject to federal or
state income taxstate income tax You buy a contract- policyYou buy a contract- policy Join a risk-sharing group at time of death the Join a risk-sharing group at time of death the
company promises to pay a set sum of company promises to pay a set sum of money to the person named in your policymoney to the person named in your policy
This person is called a beneficiaryThis person is called a beneficiary You promise to pay set sum of money over You promise to pay set sum of money over
certain period of time (premium)certain period of time (premium) Amount is determined by age, gender, Amount is determined by age, gender,
health, occupationhealth, occupation
Whole vs TermWhole vs Term
Whole life is in force as long as you liveWhole life is in force as long as you live Same premium throughout your whole lifeSame premium throughout your whole life Builds up cash value over timeBuilds up cash value over time You can borrow against the cash value that You can borrow against the cash value that
you have built up.you have built up. Can cash in at retirement age or continue to Can cash in at retirement age or continue to
pay premium and receive death benefitpay premium and receive death benefit Monthly payment is based on value of policyMonthly payment is based on value of policy If you stop paying your policy- your policy is If you stop paying your policy- your policy is
still good it just does not accumulatestill good it just does not accumulate
Term InsuranceTerm Insurance Protection for a specific and finite period of Protection for a specific and finite period of
time (5, 10, 20 years and up)time (5, 10, 20 years and up) Initially less expensive, greatest immediate Initially less expensive, greatest immediate
coverage per dollarcoverage per dollar Good if need large coverage for a known Good if need large coverage for a known
period of timeperiod of time Allows for maximum coverage with Allows for maximum coverage with
minimum premiumsminimum premiums Pays benefits only if you die during period Pays benefits only if you die during period
covered in policycovered in policy If you stop paying policy, policy stopsIf you stop paying policy, policy stops No cash valueNo cash value
If you don’t use it, you lose it!
Renewable vs Renewable vs ConvertibleConvertible Renewable term means that at end of Renewable term means that at end of
coverage, you can renew it for another coverage, you can renew it for another term will not have to provide evidence term will not have to provide evidence of insurabilityof insurability
Premiums will increase because you Premiums will increase because you are olderare older
Convertible means it converts to a Convertible means it converts to a whole life policy without having to whole life policy without having to have a medical physicalhave a medical physical
