Joan Koonce, Ph.D., AFC® Extension Financial Planning Specialist

Joan Koonce, Ph.D., AFC® Extension Financial Planning Specialist
Insurance Jeopardy® Joan Koonce, Ph.D., AFC® Extension Financial Planning Specialist

Terminology & Concepts Health & Disability Insurance Life Insurance Property & Liability Insurance Other/ Supplemental Insurance 100 100 100 100 100 200 200 200 200 200 300 300 300 300 300 Here are the instructions for using this file: JEOPARDY 1. To change the item questions, just go to the appropriate slide, highlight the question or answer text and type the new text. Be sure to save the file when you are finished! 2. To play the game, go to the Slide Show menu and select “View Show”. Click one of the point value buttons to get to a question. The question will come up automatically. Click anywhere on that slide to see the answer, then click the word “Back” to return to the game board. If you try to click on a previously answered question, the slide that comes up will show the answer already revealed. It may be helpful to print the game board slide, and have someone keep track of the questions already selected with a marker. That person could also keep track of the scores, as there is no scoring feature included in this game. 400 400 400 400 400 500 500 500 500 500

Terminology & Concepts - 100
This is the dollar amount you pay towards your expenses before the insurance company pays their portion. What is the deductible? Insurance Terminology and Concepts–100 points

This is the percent of your expenses you pay after the deductible.
Terminology & Concepts - 200 This is the percent of your expenses you pay after the deductible. What is coinsurance? Insurance Terminology and Concepts–200 points

What are pre-existing conditions?
Terminology & Concepts - 300 Many insurance companies will not cover these until after a waiting period has expired. What are pre-existing conditions? Insurance Terminology and Concepts–300 points

What is a coinsurance cap or stop-loss provision?
Terminology & Concepts - 400 This provision in an insurance policy puts a limit on the total amount you will pay out of pocket for your loss. What is a coinsurance cap or stop-loss provision? Insurance Terminology and Concepts–400 points

What is a coordination of benefits clause?
Terminology & Concepts - 500 This provision in an insurance contract prevents you from being reimbursed for more than 100 percent of your loss. What is a coordination of benefits clause? Insurance Terminology and Concepts–500 points

What is a flexible spending account?
Health & Disability - 100 You use this type of account to pay for medical expenses with pre-tax dollars. What is a flexible spending account? Health and Disability Insurance–100 points

Health & Disability - 200 This is the most liberal definition of disability found in disability income insurance contracts. What is own occupation? Health and Disability Insurance–200 points

What are Activities of Daily Living (ADLs)?
Health & Disability - 300 Long-term care insurance companies assess the need for long-term care by using these as benefit triggers. What are Activities of Daily Living (ADLs)? Health and Disability Insurance–300 points

What is fee-for-service or indemnity plan?
Health & Disability - 400 This type of health insurance plan costs more but provides you with the greatest choices of doctors. What is fee-for-service or indemnity plan? Health and Disability Insurance–400 points

What are managed health care plans?
Health & Disability - 500 These health care plans limit your choice of doctors. Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) are in this category. What are managed health care plans? Health and Disability Insurance-500 points

What is term life insurance?
Because it is temporary insurance protection and has no savings component, it costs less than other types of life insurance. What is term life insurance? Life Insurance-100 points

What is taking out a policy loan?
Life Insurance - 200 Doing this will cause the death benefit of a life insurance policy to be less than the original face value when purchased. What is taking out a policy loan? Life Insurance-200 points

Lump sum, interest only and life annuity are examples.
Life Insurance - 300 Lump sum, interest only and life annuity are examples. What are settlement options? Life Insurance-300 points

What is a convertibility feature?
Life Insurance - 400 This feature in a life insurance policy allows you to exchange a term life insurance policy for one that has a cash value. What is a convertibility feature? Life Insurance-400 points

What is variable life and variable-universal life?
Life Insurance - 500 These two types of life insurance have a savings component and allow you to choose your own investments. What is variable life and variable-universal life? Life Insurance-500 points Click light colored box for question. Click blue box for answer

Property & Liability - 100 25/50/25 What is the minimum amount of automobile bodily injury/property damage liability coverage required in Georgia? Property & Liability-100 points

What is uninsured/underinsured motorist coverage?
Property & Liability - 200 This type of automobile insurance covers your losses if you are hit by a hit-and-run driver. What is uninsured/underinsured motorist coverage? Property & Liability-200 points

Property & Liability - 300 When purchasing homeowner’s insurance to cover your home, this is uninsurable. What is land? Property & Liability-300 points

Property & Liability - 400 You add these to your standard homeowner’s policy to increase coverage on items that are inadequately covered. What are floaters? Property & Liability-400 points

What is collision and comprehensive?
Property & Liability - 500 These two types of automobile insurance coverage are required by lenders. What is collision and comprehensive? Property & Liability-500 points

Other/Supplemental - 100 Low-income, blind or elderly persons can obtain health care through this program funded by the state and federal government. What is Medicaid? Other/Supplemental-100 points

This type of insurance only covers specific illnesses or accidents.
Other/Supplemental - 200 This type of insurance only covers specific illnesses or accidents. What is dread disease and accident insurance? Other/Supplemental-200 points

What is private mortgage insurance?
Other/Supplemental - 300 It is a type of insurance that must be purchased if you don’t pay at least 20 percent down when purchasing a home. What is private mortgage insurance? Other/Supplemental-300 points

Other/Supplemental - 400 This coverage pays for the difference between the vehicle’s value and what you may still owe on the loan. What is gap insurance? Other/Supplemental-400 points

Other/Supplemental - 500 People purchase these types of insurance to pay off their mortgage in the event of their death and make their mortgage payment if they become disabled. What is credit (mortgage) life and credit (mortgage) disability income insurance? Other/Supplemental-500 points

Insurance Terminology and Concepts
Risk The uncertainty that you will incur a financial loss and the uncertainty regarding the size of the financial loss Pure Risk Speculative Risk With pure risk, you have the possibility of a loss only. Insurance companies only insure pure risk. With speculative risk, there is the possibility of a gain or a loss. This is the type of risk you deal with when investing.

Ways to Manage Risk Avoid risk Example: Don’t drive Reduce risk Example: Wear seat belts Retain or accept risk Example: Pay all or a portion of the loss Transfer or share risk Example: Purchase insurance Whether you’re doing something to increase your risks or just going about your daily life, you can take steps to protect yourself. Insurance may not be necessary to cover all risks. Risk management involves the identification and evaluation of the risk that you face and determining the best way to handle them. There are several risk management strategies. You may use one or more of these strategies to deal with risk. Avoid risk If you’re worried about being injured in a plane crash, you can take the train. To prevent being hurt in a car accident, you can walk to work. Of course, if you live 20 miles from your job, walking there each day may not be a viable option. Thus avoiding all risks may not be realistic. Reduce risk You can do things to reduce the risk of being involved in an automobile accident or being seriously injured if you are in an accident. To reduce the risk of being involved in an accident, avoid doing other things that distract you while you’re driving such as talking on cell phones. To avoid being seriously injured in a car accident, wear a seatbelt and choose a heavier car with safety features like airbags. Retain or accept risk This is a good strategy when the amount of a potential financial loss is small. An example is forgoing the extended warranty on a television. If the television needs repair, you pay to have it repaired or purchase another one. Choosing to have deductibles is another way of retaining risk. If you incur a loss, you have to pay a portion the loss. Transfer or share risk When you insure your risks, you are transferring your risk to the insurance company. Many people choose this approach to manage large financial risks. In exchange for a premium, insurance companies promise to pay for a portion of your financial losses if a financial disaster occurs.

Premium Deductible Coinsurance Co-payment Coinsurance Cap or Stop-Loss Provision Pre-existing Conditions Waiting Period Policy Limits Policy Provisions Coordination-of-benefits Clause Premium The premium is the amount you pay for the total amount of insurance coverage you purchase. It can be paid monthly, quarterly, semi-annually or annually. The insurance premium is based on the type and amount of coverage you choose and varies from one insurance company to another. In addition, for each type of insurance, there are other factors that affect your insurance premium. Credit score is one factor that affects the premium for all types of insurance. Insurance companies have found that people with higher credit scores are usually less risky to insure, so they tend to charge them lower premiums. Deductible A deductible is the amount of a loss you pay out-of-pocket before the insurance company pays their portion. Deductibles can be as low as $100 or as high as $2,000 or more. If you have health insurance with a $300 deductible and medical expenses of $2,000, you would pay the first $300 and the insurance company would pay a portion or all of the remaining $1,700 depending on your contract. The amount of your deductible affects your premium. Everything else being held constant, collision coverage on your automobile with a $100 deductible will have a higher premium than collision coverage with a $500 deductible. The higher your deductible, the lower your premium. Deductibles are normally applied on an annual basis and begin over at the beginning of each year. Coinsurance Coinsurance is the percent of the your loss you pay after the deductible and is a common feature of health insurance. If you have health insurance with a $300 deductible, 80/20 coinsurance and medical expenses of $2,000, you would pay the first $300 and 20% of the remaining $1,700. The insurance company would pay 80% of the remaining $1,700. Co-payment A co-payment is a specific dollar amount you pay each time you have certain insured expenses. Many health insurance contracts have co-payments, and they are usually required when you visit the doctor’s office or get prescriptions filled. Coinsurance cap or stop-loss provision The coinsurance cap or stop-loss provision limits the total out-of-pocket expenses incurred by the insured to a specific dollar amount each year. Once this limit is reached, the insurance company pays 100% of the insured losses. If there are limits on certain types of treatment or items, once you have reached these limits, the coinsurance cap does not apply. Pre-existing conditions Many health insurance policies contain provisions that prevent payment for medical expenses resulting from pre-existing conditions until after a certain period of time such as 3, 6 or 12 months. A pre-existing condition is any medical condition or health problems that you knew about or were diagnosed with by a physician before obtaining the insurance. Waiting period The waiting period is the time period you have to wait before the insurance company will cover your losses. Waiting periods are common in health insurance contracts and disability income insurance policies. With health insurance, the waiting period is the period of time you have to wait before the policy covers any pre-existing conditions. The waiting period in disability income insurance is the period of time you have to wait after becoming disabled before you receive disability income insurance benefits. Waiting periods can be anywhere from three months to one year or more. Policy limits Policy limits refer to the maximum amount the insurance company will pay for losses. Policies may have item limits (the maximum amount the insurance company will pay for a particular expense such as an X-ray or blood transfusion), episode limits (the maximum amount the insurance company will pay for a single episode of an illness or injury such as all expenses resulting from the same car accident), time period limits (the maximum amount the insurance company will pay for expenses during a specified period of time, usually one year) and aggregate or total limits (the maximum amount the insurance company will pay throughout the life of the contract). Many health insurance contracts have aggregate limits of one million dollars. Expenses that exceed the policy limits are your responsibility, so you should think carefully before choosing insurance coverage. Policy provisions Policy provisions refer to the terms or conditions of your coverage. It is important to know and understand the provisions before purchasing the insurance and before you incur financial losses. Coordination-of-benefits clause The coordination-of-benefits clause prevents you from collecting insurance benefits that are more than 100 percent of your insured losses. The amount you receive from one policy is offset by any benefits you receive from other policies. This clause is common in health insurance and disability income insurance contracts.

Types of Insurance Health, Disability Income and Long-Term Care Insurance Life Insurance Property and Liability Insurance Automobile insurance Homeowner’s insurance Personal umbrella liability insurance Health insurance pays medical bills when the insured individual becomes sick or injured. Given the high costs of medical care, everyone needs health insurance. It is generally cheaper to purchase health insurance through a group plan such as an employer. You can purchase an individual health policy for yourself or your family, but it’s usually much more expensive than the coverage an employer offers. Disability income insurance protects your earning power. Your most valuable asset is your ability to earn a living. Disability income insurance pays you an income when you become disabled as a result of an illness or injury. According to the National Association of Insurance Commissioners, people in their 30s are three times more likely to suffer a disability than they are to die. Long-term care insurance covers a variety of different services when an elderly person cannot perform certain tasks. Life insurance provides financial support for the people who depend on you in the event of your premature death. If you are single and no one is dependent on you, you probably don’t need life insurance. Once you marry and/or have children, it’s something to seriously consider. Since there are life insurance policies with cash values, some people purchase life insurance for investment purposes. Property and liability insurance includes automobile, homeowner’s and personal umbrella liability coverage. Automobile insurance combines property and liability insurance in one package. It consists of several different types of coverage that serves different purposes. Homeowner’s insurance combines property and liability coverage in one package. In addition to your home, it protects your personal property, among other things, in case of fire, flood, theft, etc. Renters can also purchase homeowner’s insurance to cover their personal property. Personal umbrella liability insurance protects you in case you are legally responsible for unintentionally injuring someone or damaging another person’s property. It covers everything from legal fees to settlements in court cases. Although homeowner’s and automobile insurance include liability coverage to some degree. You can also get additional protection through an umbrella policy, which will protect you in almost all areas of your life.

Major Types of Health Care Coverage
Health Insurance Major Types of Health Care Coverage Basic health insurance Hospital insurance Surgical insurance Medical expense insurance Major medical insurance These basic health insurance coverages usually provide reimbursement for small losses. The cost of medical expenses resulting from a serious injury or accident could easily exceed the limits for these coverages. Each of the basic health insurance coverages can be purchased separately. Hospital insurance covers hospitalization expenses including room fees, nursing fees and drug fees. Surgical insurance covers only the direct costs of surgery including the surgeon’s fees and equipment fees. Medical expense insurance covers physicians’ fees including office fees, lab fees and X-ray fees. Major medical insurance covers hospital, surgical and medical expenses and other costs beyond the basic plan. It normally requires deductibles, coinsurance and/or co-payments.

Private Health Care Plans Government-Sponsored Health Care Plans
Health care plans can be classified as private and government-sponsored health care plans. The plans in each category are discussed on the following slides.

Private Health Care Plans
Fee-For-Service or Traditional Indemnity Plans Managed Health Care Plans Health maintenance organizations (HMOs) Preferred provider organizations (PPOs) Two types of private health care plans are fee-for-service or traditional indemnity plans and managed health care plans. Fee-for-service or traditional indemnity plans are based on the concept of compensating you for your medical costs due to an illness or accident. These plans are less restrictive than managed care plans with respect to type and source of health care. They provide the greatest choices of doctors. Plan members usually have deductibles and coinsurance. Because there is more flexibility with these plans, they are more expensive than managed care plans. These plans also require more paperwork. Managed health care plans limit your choices of doctors and have more control over the conditions under which you can obtain medical care. For example, you may need pre-approval before being admitted to a hospital and/or you may be restricted to admission to certain hospitals or the use of certain physicians. These plans have become very popular today and focus on preventive health care. Depending on the type of plan, members may have deductibles, coinsurance and/or co-payments. The plans are less expensive than the traditional fee-for-service or indemnity plans because there is less flexibility with respect to medical treatment facilities and doctors. Two of the most popular types of plans are Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). HMO and PPO plan benefits vary across companies. HMOs provide a variety of medical services to its members for a flat fee on a prepaid basis. Two variations of HMOs include Individual Practice Organizations (IPOs) (HMO contracts with groups of doctors, but do not hire them. These doctors maintain their own individual practices.) and Point-of-Service (POS) plans (The insured chooses a primary care physician from an approved list of doctors, and this doctor provides treatment or refers the insured to another provider on the list. Unlike HMOs, POS plans allow the insured to choose other doctors with higher out-of-pocket deductibles and co-payments.). A PPO is a cross between fee-for-service plans and HMO plans. A group of doctors, hospitals and other health care providers contract with health insurance companies to provide health care to members at a reduced cost. There are higher deductibles, coinsurance and co-payments if members use non-member doctors.

Government-Sponsored Health Care Plans
Medicaid Medicare Worker’s Compensation Medicaid is health care for low-income, blind and elderly persons. Medicaid is free to those who receive it. It is funded through federal and state tax dollars. Medicare covers medical benefits to the disabled and to those 65 and older. Part of the cost is covered through the Medicare tax. Medicare recipients pay a premium for Medicare Part B and the prescription drug coverage. Worker’s compensation insurance covers workers injured on the job. Because it covers work-related accidents and illnesses only, it is still important to have disability income insurance, so you would be covered if your illness or injury was not work-related. Coverage is determined by state law and varies by state.

Medical Flexible Spending Accounts
These accounts allow you to pay for medical expenses with pre-tax dollars. Money put into the account is used to pay for un-reimbursed medical expenses. Some expenses are not eligible for coverage. You either use the money or lose it.

Disability Insurance Disability income insurance replaces 60 to 80 percent of your income if you are unable to work due to an illness or injury. Own versus any occupation Residual clause Benefit period Elimination (waiting) period Short-term versus long-term disability There are important things you should consider before purchasing a disability income insurance policy. Some of them include the degree of disability (own versus any occupation), residual clause, elimination period, waiting period and short-term and long-term disability insurance. Own versus any occupation A disability income insurance policy that covers own occupation provides benefits if you are unable to perform the job that you had at the time of your disability. An any occupation disability policy pays benefits only if you are unable to perform any occupation. Residual clause The residual clause is a feature found in own occupation policies. It allows you to receive reduced disability income benefits if you are able to work part-time, but not full-time. Benefit period The benefit period is the maximum period of time you will receive disability income benefits after you become disabled. This could be 5 years or until retirement or death. Elimination (waiting) period Long-term disability income policies have an elimination or waiting period. This is the period of time you have to wait after you become disabled before the insurance company pays disability income benefits. The waiting period can be as short as 6 months or more than one year. Short-term versus long-term disability Most short-term disability income insurance policies provide coverage for up to two years while long-term disability income policies can provide coverage for a specified number of years greater than two, until retirement or death. Some people purchase short-term disability insurance to cover the elimination or waiting period on long-term disability insurance. Another way to deal with the elimination period is to set aside money in a emergency savings for this purpose and to accumulate as many sick days as possible.

Long-Term Care Insurance
Long-term care services are provided when a person cannot perform certain activities of daily living (ADLs) and/or is cognitively impaired. What does long-term care insurance cover? Skilled, intermediate and custodial care Home care services, physical therapy, homemakers, home health aides Assisted living, adult daycare, other care in the community Alternate care (other physician recommended services) Respite care for the caregiver These accounts allow you to pay for medical expenses with pre-tax dollars. When choosing a long-term care insurance policy, it is important to assess the degree of impairment required for the benefits to begin (how many ADLs must a person not be able to perform), the level of care covered (skilled, intermediate or custodial), the age of the person to be insured (the younger the age, the lower the premium, but you will pay for a longer period of time), the benefit amount (dollar amount paid per day for care), benefit period (number of years benefits will be paid), waiting period and inflation protection (increase in benefit amount based on inflation with a resulting increase in the premium).

Life Insurance Terms Face Value: the benefit due upon death
Insured: the person whose life is covered by the policy Policyholder or Policy Owner: the individual or business that pays for and owns the policy Beneficiary: the recipient of the benefit upon the death of the insured It is important to note that the insured and policyholder can be the same person, but they do not have to be. For example, the policyholder can be the husband, and the insured can be the wife or vice versa. The distinction is important because the policyholder owns and controls the policy, not the insured. The policyholder is the person who can change the beneficiary, take loans if it is a cash-value policy, surrender the policy for it’s cash value, etc.

Two Basic Types of Life Insurance
Term Insurance Cash-Value Insurance Term life insurance Term insurance provides death benefit coverage for a specific period of time (for example, 1 year term, 5 year term, 10 year term). After the term expires, the policy no longer exists unless you renew it. It is only valid if the insured dies during the term of coverage. It is less expensive than cash-value insurance when you are young. If you renew the policy at the end of the term, the premium increases because you are older. Cash-value insurance It provides a death benefit and an opportunity to accumulate savings. It is permanent insurance protection. The policy does not have to be renewed and continues as long as you pay the premium. Unlike term insurance, the premium does not increase. However, the initial premium is higher than what you would have paid for the same amount of term life insurance.

Types of Cash-Value Life Insurance
Whole Life Insurance Universal Life Insurance Variable Life Insurance Variable-Universal Life Insurance Whole life insurance Permanent protection Fixed premium payments & death benefit Fixed cash-value that grows tax-deferred At a young age, provides much less death protection than term for the same price Yield on cash value portion is not competitive with yields on alternative investments Owner does not decide how the cash value is invested Universal life insurance A combination of term and cash-value insurance Flexible premium payments and death benefit Returns are earned on a tax-deferred basis Has a guaranteed minimum rate of return Cash-value fluctuates depending on the amount paid into the policy and earnings Owner does not choose how the cash value is invested Variable life insurance Fixed premium payments and flexible death benefit Has a guaranteed minimum death benefit Fluctuating cash value, reflecting the sub-account investment performance Owner chooses how the cash value is invested Variable-universal life insurance

Life Insurance Clauses
Incontestability Clause Places a time limit, usually two years, on the right of the insurance company to deny a claim based on information provided in the application Suicide Clause Gives the insurance company the right to deny a claim if the inured dies by suicide within a certain period of time, usually two years The incontestability clause prevents the insurance company from denying claims based on information provided in the contract after a certain period of time. It does not prevent the insurance company from denying claims for other reasons such as death of the insured by the beneficiary, etc. In addition, if a policyholder puts the wrong age or gender in a contract, the insurance company can adjust the death benefit to reflect the amount of insurance that could have been purchased with the premium paid by the policyholder given the insurance rates for the correct age or gender. If the insured commits suicide within the time period specified in the contract, the beneficiary will receive a return of the premiums paid by the policyholder, not the death benefit. There are other clauses in life insurance contracts; these are just two important clauses I wanted to highlight.

Life Insurance Settlement Options
Lump-Sum Settlement Interest-Only Settlement Period-Certain Settlement Installment-Certain Settlement Life-Annuity or Life Income Settlement The settlement option can be chosen by the policyholder or made by the beneficiary if not decided by the policyholder. Lump-sum settlement A one time payout of the total death benefit upon the death of the insured is paid to the beneficiary. Interest-only settlement Periodic payments of the interest earned on the principal is paid to the beneficiary. Principal is given to another beneficiary after the death of the first beneficiary who received the interest on the principal. Period-certain settlement Periodic payments are made over a certain number of years to the beneficiary. The amount of the payments is determined by the number of years payments are to be made and the principal and earnings. Installment-certain settlement Periodic payments of a certain amount are made to the beneficiary for as long as the principal and earnings last. Life-annuity or life income settlement Periodic payments are made to the beneficiary for their entire life.

Types of Automobile Insurance
Bodily Injury and Property Damage Liability Required coverage in the amount of 25/50/25 in Georgia Medical Payments Bodily injury and property damage liability Covers bodily injury damage you cause to other people outside of your car and damages to their property. If you injure someone (outside of your car) in an accident, bodily injury liability covers their medical expenses up to your policy limits. If you damage someone else’s car in an accident, your property damage liability coverage pays, up to your policy limits, the cost to have it repaired. Liability also covers any legal bills associated with the bodily injury and property damage losses. Georgia law requires drivers to maintain 25/50/25 of bodily injury and property damage liability coverage. That means in an accident caused by you, the insurance policy will cover bodily injury losses up to $25,000 for one person per accident, up to $50,000 total for bodily injury losses per accident and up to $25,000 per accident for damage to another person’s property. However, these are only minimums, and higher levels of protection are strongly recommended, especially if you have assets to protect. After all, accidents can get very expensive, especially if injury is involved. Medical Payments While liability covers bodily injuries you cause to people outside of your car, medical payments cover immediate compensation for bodily injury expenses to you and your passengers regardless of who is at fault. However, if the accident is someone else’s fault, you should get paid under their liability coverage. Medical payments also cover you and members of your household in any accident involving an automobile, whether you are on foot, on a bicycle or in someone else’s car. It is purchased in single limits on a per person, per accident basis. For example, $10,000 per person, per accident.

Uninsured and Underinsured Motorist Bodily Injury and Property Damage Collision and Comprehensive Deductibles apply to this coverage Required by lenders if your car is financed Uninsured and underinsured motorist bodily injury and property damage Covers you and your passenger’s medical expenses and property damages if you are in an accident with someone who doesn’t have automobile liability insurance, is a hit-and-run driver or does not have sufficient automobile liability insurance to cover all of losses. The other driver has to be at fault in the accident. In Georgia it covers medical expenses and property damage and is bought in split limits like liability insurance. The property damage portion of this coverage comes with deductibles. Collision covers repairs for damage you cause to your car if you collide with another vehicle or an object, such as a tree or building. This coverage comes with deductibles. This means that you pay the deductible, and the insurance company pays the amount over your deductible. Collision will cover you regardless of who is at fault. However, if the other driver is at fault, you should seek to be paid under the other driver’s liability coverage. Comprehensive covers damages to your car as a result of fire, break ins, vandalism or theft, as well as acts of nature such as an earthquake, hail, hurricane or flood. Basically, it covers everything except an actual collision. This coverage also comes with a deductible. If you finance your automobile, both collision and comprehensive are required by the lender. Some lenders also require that your deductibles on these coverages not exceed a certain amount such as $500. You can also purchase automobile insurance that covers towing expenses and renting a car while yours is being repaired. Whether or not you purchase these coverages will depend on the cost relative to the benefit.

No-Fault Insurance Only available in “no-fault” states Your insurance pays for your losses and their insurance pays for their losses – no legal battles.

Homeowner’s Insurance Terms
Replacement Cost/Value: the amount necessary to repair, rebuild or replace an asset at today’s prices Current Market Value (CMV): Original purchase price minus depreciation, also referred to as actual cash value Floater Policies Inflation Protection Endorsement Standard homeowner’s policies have limits for certain items such as jewelry, cash, collectibles, antiques, etc. In addition some of the standard coverages for things like personal property and liability may not be sufficient. Floater policies allow you to add additional coverage to your standard homeowner’s policy or purchase a separate policy to add additional coverage. If you have property that is not adequately covered under your standard policy, you should purchase a floater policy. Because your home increases in value over time, it is important to make sure your home is adequately insured as it’s value increases. You can have your home appraised each year and increase the value with your insurance company. However, if you add an inflation protection endorsement to your policy, the value of your home will increase each year based on inflation. Remember, as your home’s value increases, so will your premium.

Six Basic Forms of Homeowner’s Insurance
Broad Form Homeowner’s Insurance Special Form Homeowner’s Insurance Renter’s Insurance Condominium Owner’s Insurance Older Homes Homeowner’s Insurance Policies differ based on the type of property, amount of coverage and number of perils (events that cause a loss such as fire, tornado, etc.) covered.

Homeowner’s Insurance Coverage
Property Home Other detached buildings Personal property Landscaping Loss of use Liability Comprehensive personal liability No-fault medical payments No-fault property damage Standard homeowner’s policies protect the home and any attachments. It does not cover the land the home is built on. When you purchase insurance to cover your home, you get a certain amount of coverage for other items as well as liability. It covers other detached buildings on the property as well as landscaping such as trees, shrubs and other plants. It covers you and your family’s personal property regardless of location. It also covers losses incurred as a result of your home being uninhabitable called loss of use. Loss of use covers any amounts that exceed your normal living expenses up to your policy limits. Comprehensive personal liability protects you and your family members against bodily injury and property damage liability for which you are legally responsible. It covers damages as well as legal costs associated with the damages. The standard limit for this coverage is $100,000 per accident. No-fault medical payments covers small medical expenses up to a dollar amount per person regardless of fault. No-fault property damage covers small property losses of others regardless of fault. These coverages will not pay for medical expenses and property damages of you and your immediate family members.

Personal Umbrella Liability Insurance
Covers liability costs after the underlying automobile and homeowner’s policies have been exhausted Standard amount of coverage is $1 million although higher amounts can be purchased The need for personal umbrella liability coverage is determined by your risk exposure (chance of being sued) and your wealth (what you stand to lose if you are sued).

Other/Supplemental Insurance
Dental and Vision Insurance Dread Disease and Accident Health and Life Insurance Private Mortgage Insurance Gap Insurance Credit Life and Disability Income Insurance Children’s Life Insurance You may choose to purchase or not purchase these types of insurance. With some of these, you need to weigh the costs with the benefits. Circumstances may require you to purchase others, and some should not be purchased at all. Dental and vision insurance Depending on the plan, dental and vision insurance cover dental work, dentures, eye exams, glasses and contact lenses. These types of insurance can be expensive, even through an employer plan, relative to the benefits received, so you need to weigh the costs with the benefits. It may make more sense to pay for these expenses out-of-pocket. Dread disease and accident health and life insurance Dread disease and accident health and life insurance cover medical expenses and death due to specific illnesses (for example, heart attack and cancer) and accidents (accidents resulting from car or plane crashes). These policies usually provide a set dollar amount of reimbursement. This type of insurance is not cost effective. If you need health insurance or life insurance, you need it regardless of the type of illness, injury or accident. If you can’t afford to pay medical expenses out-of-pocket and if your family members need money when you die, it is needed regardless of the situation surrounding your illness, injury or death. Private mortgage insurance Private mortgage insurance is sometimes necessary when you are purchasing a home. It is required if your down payment is less than a certain percent (usually 20 percent). If you fail to make your payments, the insurance pays the lender. This insurance can be canceled or is canceled automatically (depending on the year you obtained your mortgage) once your equity in your home reaches 20 percent. Your equity increases as you pay down your mortgage and your home increases in value. Gap insurance Gap insurance pays for the difference between your automobile’s value and what you may still owe on the loan. This type of insurance may be necessary if you lease an automobile, but is not recommended if you purchase your car. It may be necessary if you are upside down on your car when you purchase it, meaning you paid more for the car than it was worth at the time. This happens when you trade a car in that is not paid for and the amount owed on that car loan is added to the new car loan. Credit life and disability income insurance Credit life insurance pays off the debt that you purchased it to cover (mortgage, credit cards, etc.) if you die and credit disability income insurance makes your debt payments if you become disabled. If you need life insurance, you should purchase one life insurance policy to cover all of your life insurance needs including your debt. You should also buy one disability income insurance policy to cover your expenses and monthly debt obligations if you become disabled. Children’s life insurance Purchasing life insurance on your children’s life is probably a waste of money. If you are purchasing it for funeral expenses, you can save and invest money for that purpose. The primary purpose of life insurance is to provide for your dependents in the event of your premature death. It is more important to have sufficient life insurance on the breadwinner’s life. Your children will need lots of money to cover living expenses, college expenses, etc. if the breadwinner dies. When you lose a child, you have lost a lot emotionally, but you are not dependent on your children financially to live.

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Joan Koonce, Ph.D., AFC® Extension Financial Planning Specialist

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Joan Koonce, Ph.D., AFC® Extension Financial Planning Specialist

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