Insurance Risk & Protection

Can you believe? Insurance claims involving teens 100% higher than adults Insurance claims involving teens 100% higher than adults Teen crash rates drop 40% 6 months after getting license Teen crash rates drop 40% 6 months after getting license 75% of Americans experience some form of disability this year 75% of Americans experience some form of disability this year At work, a disabling accident occurs every 8 seconds At work, a disabling accident occurs every 8 seconds

Risk Management Risk is the chance of financial loss from perils to property or people Risk is the chance of financial loss from perils to property or people Insurance is a method for spreading individual risk among a large group of people to make losses more affordable to all Insurance is a method for spreading individual risk among a large group of people to make losses more affordable to all Important in financial planning Important in financial planning

ExposureRisk Potential Loss Accident or Illness PropertyOwnership Liability Loss of income from inability to work; uninsured medical bills; death Your property is damaged, destroyed, lost, or stolen You are found liable for injuries to other people or damages to their property UNLIMITED UNLIMITED Amount needed to replace your property Common Exposures to Loss 6-A

My Personal Financial Risk Exposures ExposureRiskHow to EvaluatePotential Loss How much would I lose if I couldn’t work for: 1 week? 1 month? 1 year?Unlimited Accident or Illness Lost Income DeathPermanentUnlimited Medical Bills What is the most this could cost me?Unlimited 6-E-1 1 of 2

My Personal Financial Risk Exposures ExposureRiskHow to EvaluatePotential Loss Liability Liability for injuries to other people or damages to their property What is the most this could cost me?Unlimited 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) $ _______ 6-E-2 2 of 2

Different Forms of Risk Becoming sick (lost wages) Becoming sick (lost wages) Dying prematurely (loss of income for family) Dying prematurely (loss of income for family) Becoming disabled (lost wages) Becoming disabled (lost wages)

Insurance Insurer- is a company that agrees to pay the cost of potential future losses in exchange for regular fee payments Insurer- is a company that agrees to pay the cost of potential future losses in exchange for regular fee payments Policy- a written insurance contract Policy- a written insurance contract Premium- fee paid for the insurance policy. Usually paid at regular intervals by the owner of the policy (policyholder) Premium- fee paid for the insurance policy. Usually paid at regular intervals by the owner of the policy (policyholder)

Right kind, Right Time Important to have right kind of insurance at the right time Important to have right kind of insurance at the right time Beware of over insured or over insured Beware of over insured or over insured

Over insured…. Waste of current income Waste of current income Other needs might go unmet Other needs might go unmet Insurance is not meant to enrich only to compensate for actual losses incurred. This principle is called indemnification. Insurance is not meant to enrich only to compensate for actual losses incurred. This principle is called indemnification.

Indemnification Means putting the policyholder back in the same financial condition he or she was in before the loss occurred Means putting the policyholder back in the same financial condition he or she was in before the loss occurred Probability is the mathematics of chance and the root of indemnification. Every event can be described in terms of probability or likelihood that something will happen Probability is the mathematics of chance and the root of indemnification. Every event can be described in terms of probability or likelihood that something will happen

Insure…… Risks that can be big losses Risks that can be big losses –Large loss is a cost that would create financial hardship (ex. Medical bills) –Small loss is inconvenient (car repair)

Insurance….. Should change with time Should change with time –Life insurance for married spouse & kids –Disability if head of household –Liability on 1 st car (used)

Factors Affecting Automobile Insurance Costs Your age Make of car Marital status Do you take the car to work? If you’re a good student Gender Where you live How much you use the car Credit rating Driver’s education Driving record Type of car 6-F

Role of Insurance Company 1. Help manage financial losses 1. Help manage financial losses 2. Professional risk takers 2. Professional risk takers 3. Spread risk among people 3. Spread risk among people 4. Policyholders pool premium in reserves so those suffers can be compensated 4. Policyholders pool premium in reserves so those suffers can be compensated 5. Predictable cost for company 5. Predictable cost for company

Auto Insurance Coverages 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 SectionWhat It Covers Suggested Minimum Coverage 6-H-1

Auto Insurance Coverages 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. Underinsured and underinsured motorists Policy SectionWhat It Covers Suggested Minimum Coverage 6-H-2

Auto Insurance Coverage Suggested 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-G

Drop Collision? Might want to consider if driving older car Might want to consider if driving older car Deductible might be higher than insurance company will pay (car value) Deductible might be higher than insurance company will pay (car value)

How to Save Money on Insurance Shop at least three places; compare rates and policies; ask about discounts and special rates. Shop at least three places; compare rates and policies; ask about discounts and special rates. Read sources of information such as Consumer Reports ®. Read sources of information such as Consumer Reports ®. Purchase more than one type of insurance from the same company; insure all cars with the same company. Purchase more than one type of insurance from the same company; insure all cars with the same company. 6-J-1 1 of 3 321

Insurance contract 1. Declarations page: basic info about policy 1. Declarations page: basic info about policy Period of coverage, premium, limits, & deductables

Contract con’t 2. Copy of policy: spells out coverage in detail 2. Copy of policy: spells out coverage in detail 3. Exclusions: Spells out what is not covered or circumstances in which coverage does not apply 3. Exclusions: Spells out what is not covered or circumstances in which coverage does not apply Hurricane insurance does not cover inside flood damage due to hurricane

Disability Insurance Importance: Single greatest asset is potential earning power Importance: Single greatest asset is potential earning power Pays income if policy holder gets sick and can’t work Pays income if policy holder gets sick and can’t work Limited to 2/3 gross income Limited to 2/3 gross income Designed to encourage return to work ASAP Designed to encourage return to work ASAP

Homeowners Protects form loses to: Protects form loses to: House, garage, furniture, other personal property House, garage, furniture, other personal property Cover losses due to fire, weather damage, theft, vandalism Cover losses due to fire, weather damage, theft, vandalism Also pays cost of living elsewhere while home is being rebuilt or repaired Also pays cost of living elsewhere while home is being rebuilt or repaired Can buy additional coverage against floods, earthquakes, jewelry, expensive paintings etc. called a rider Can buy additional coverage against floods, earthquakes, jewelry, expensive paintings etc. called a rider Never covers acts of war Never covers acts of war

Homeowners Typically insure structure for 80% of its value Typically insure structure for 80% of its value Renters insurance same coverage as homeowner’s policy except doesn’t cover structure just contents inside Renters insurance same coverage as homeowner’s policy except doesn’t cover structure just contents inside BUY RENTERS INSURANCE BUY RENTERS INSURANCE

Get Best Deal Your teacher told you--you’d better shop around! Your teacher told you--you’d better shop around! The way to get the best deal is to shop around the different companies. Their prices and coverage vary greatly! The way to get the best deal is to shop around the different companies. Their prices and coverage vary greatly!

Life Insurance Provides financial security for your family Provides financial security for your family Money received not subject to federal or state income tax Money received not subject to federal or state income tax You buy a contract- policy You buy a contract- policy Join a risk-sharing group at time of death the company promises to pay a set sum of money to the person named in your policy Join a risk-sharing group at time of death the company promises to pay a set sum of money to the person named in your policy This person is called a beneficiary This person is called a beneficiary You promise to pay set sum of money over certain period of time (premium) You promise to pay set sum of money over certain period of time (premium) Amount is determined by age, gender, health, occupation Amount is determined by age, gender, health, occupation

Whole vs Term Whole life is in force as long as you live Whole life is in force as long as you live Same premium throughout your whole life Same premium throughout your whole life Builds up cash value over time Builds up cash value over time You can borrow against the cash value that you have built up. You can borrow against the cash value that you have built up. Can cash in at retirement age or continue to pay premium and receive death benefit Can cash in at retirement age or continue to pay premium and receive death benefit Monthly payment is based on value of policy Monthly payment is based on value of policy If you stop paying your policy- your policy is still good it just does not accumulate If you stop paying your policy- your policy is still good it just does not accumulate

Term Insurance Protection for a specific and finite period of time (5, 10, 20 years and up) Protection for a specific and finite period of time (5, 10, 20 years and up) Initially less expensive, greatest immediate coverage per dollar Initially less expensive, greatest immediate coverage per dollar Good if need large coverage for a known period of time Good if need large coverage for a known period of time Allows for maximum coverage with minimum premiums Allows for maximum coverage with minimum premiums Pays benefits only if you die during period covered in policy Pays benefits only if you die during period covered in policy If you stop paying policy, policy stops If you stop paying policy, policy stops No cash value No cash value

Renewable vs Convertable Renewable term means that at end of coverage, you can renew it for another term will not have to provide evidence of insurability Renewable term means that at end of coverage, you can renew it for another term will not have to provide evidence of insurability Premiums will increase because you are older Premiums will increase because you are older Convertible means it converts to a whole life policy without having to have a medical physical Convertible means it converts to a whole life policy without having to have a medical physical