InsuranceInsurance Property, Health, Life

Personal Risks and Insurance

Insurance Method of spreading the risk to protect assets and income

Risk Possibility of a loss that faces a person or property covered by insurance

Insurer Business that charges a fee to issue a policy to protect individuals and companies against loss

How Insurance Companies Make Money How Does Insurance Work video Premiums are collected under the assumption that only a few policyholders will have financial losses. The amount of premiums collected will be more than what is paid out

Indemnification Putting the policyholder back in the same financial condition they were in before the loss occurred

Probability Mathematics of chance Root of indemnification Every event can be described in terms of probability or likelihood of something happening

RisksRisks 3 major categories

Personal Risks Involve income and standard of living Type of insurance to purchase –Life –Health –Disability –Unemployment You insure against personal risk when others are depending on your income

Property Possibility of loss or harm to property –Home, car, possessions damaged or destroyed

Liability Protecting your income and your assets from liability arising out of your errors and negligence

Risk Management Organized strategy for protecting assets and people to help reduce financial loss

Pure Risk Always a chance of loss if certain events occur Accidental, unpredictable, unavoidable Financial loss can be determined

Speculative Risk A risk in which there may be either a gain or a loss Not accidental, not unpredictable, and not unavoidable Uninsurable Examples:

Insurable Interest Any interest in life or property that if lost you would suffer financially

Property and Liability Insurance

Homeowners Face Three Basic Risks

Physical Damage Damaged caused by hazards such as fire, wind, water, smoke Covers attached buildings, shrubs, trees, plants

Loss or Theft Coverage Threat of robbery, burglary, arson, vandalism Protects household property and personal belongings that are in your home or with you when you are away from home—vacation, college

Liability Protects against expensive lawsuits All homeowners and landlords should carry Homeowners are responsible for acts occurring on their property, even acts involving uninvited guests

Attractive Nuisance Dangerous place, condition or object particularly attractive to children Examples: –Swimming pools –Trampolines

Health and Life Insurance

Health Insurance Plan for sharing the risk of financial loss due to accidents or illnesses that result in large medical bills

Group Health Insurance Most common Shares the risk among large group of people All have same coverage Greater coverage, lower premiums Employers pay some or all of premium for employee

Individual Coverage For those who don’t have group insurance More costly

What A Good Health Plan Covers Basic coverage for hospital and doctor bills Cost of prescriptions At least 120 days in hospital Deductibles of $150/person & $450/family Reasonable dental/vision care

Types of Health Insurance

Basic Health Insurance Physician care, not involving surgery –Office visits, routine services Hospital coverage –Room, board, drugs Surgical –Surgeon fees –Surgery must be limited and necessary

Major Medical Expense Protection against large and catastrophic expenses of a serious illness or injury Coverage beyond basic health insurance

Dental and Vision

Health Plans

Preferred Provider Organization (PPO) Group of health care providers who ban together to provide health services for set fees Patients must choose doctors in group Limits types of services provided and fees to be charged

Health Maintenance Organization (HMO) Group plan offering prepaid medical care to members Has own facilities Must choose from doctors on staff at HMO Main Idea: Preventative Medicine

Medicare Health insurance for people currently 65 and older Funded by employee payroll deductions

Medicaid People who are qualified under state welfare and public assistance program

Life Insurance

Protection from financial loss that might otherwise occur when someone dies Purpose: protect others who are dependent on you as a source of income

Mortality Tables Used to predict the likelihood of death occuring

Types of Life Insurance

Temporary Life Aka term life Protection for a specified period of time. If insured dies after protection expires, no benefit

Permanent Life Insurance Offers protection, plus cash value Can be borrowed against 4 types

Straight Life Aka whole or ordinary

Limited Pay Life Premiums paid for certain time, but coverage continues

Universal Life Coverage and savings plan

Variable Life Coverage with investment plan