Chapter 14 Automobileand Home Insurance

Insurance Basics 14.1 Insurance: Risk management tool that limits financial loss due to illness, injury or damage in exchange for a Premium.  How Insurance Works Risk Management Risk Management Premiums and Statistics Premiums and Statistics What Insurance Protects What Insurance Protects The Insurance Trade Off The Insurance Trade Off Role of Insurance in the Economy Role of Insurance in the Economy Limits possible financial loss amounts you can handle Shared Risk: Insurance principle of using premiums from many policyholders to reimburse the losses of a few, so that no one suffers a financially devastating loss. Premium: Regular payment required to purchase insurance. Claim: Formal request made to an insurance company for payment of loss. Insurance is designed to restore your financial position to where it was before the loss – not to allow you to profit from a loss. To insure something you must have an Insurable Interest in it: (Something of value that, if lost, would cause you financial harm.) The insurable interest must be yours. If you try to cover all your risk then you will end up putting yourself at financial risk by paying your premiums. So you must shoulder some of the risk yourself and only insure those things that would really put you at a detriment. Insurance allows business to proceed. Businesses need insurance to recover loss, banks need insurance to protect their investments, professionals need insurance to protect them in their professions. If there were no insurance, businesses would be very limited in the amount of risk they could afford themselves and that would hurt production & jobs and in turn hurt the economy

Types of Insurance  Property Insurance – losses you sustain from things you own being stolen, damaged or destroyed Market Value: How much the item is worth now taking into consideration depreciation or appreciation Market Value: How much the item is worth now taking into consideration depreciation or appreciation Replacement Value: How much the item would cost if you went to replace/rebuy it right now Replacement Value: How much the item would cost if you went to replace/rebuy it right now  Liability Insurance – Other people’s losses caused by you  Personal Insurance – You/your family’s bodily insurance to protect against loss due to illness, disability, or death

Auto Insurance Basics

Auto Insurance 14.2  Types of Coverage  Bodily Injury Liability Coverage  Property Damage Liability Coverage  Medical Payments Coverage  Uninsured/underinsured Motorist Coverage  Comprehensive Coverage  Collision Coverage  No-Fault Insurance  Additional Options

Auto Insurance  How Much Insurance Should You Buy? In Illinois according to DMV.org In Illinois according to DMV.orgDMV.org 25/50/2025/50/20

Costs of Auto Insurance  Causes of Increasing Insurance Costs Assigned Risk: Driver who has been assigned an insurance company by the state because a bad driving record makes every other company unwilling to insure the person. Assigned Risk: Driver who has been assigned an insurance company by the state because a bad driving record makes every other company unwilling to insure the person.  Factors Affecting Your Premium  Reduce Your Premiums Deductible: Amount you pay for a loss before the insurance company pays anything Deductible: Amount you pay for a loss before the insurance company pays anything

Math Activity 14 – Auto Insurance  Of the six basic types of auto insurance coverage, only two apply to the policyholder’s vehicle: comprehensive physical damage coverage and collision coverage.  When you file an insurance claim, the amount your insurance company will actually pay depends on your policy. Most insurance companies offer a choice of deductible. After the deductible is paid, the insurance company will cover any balance, up to the policy limits. Ex: If a person has a claim that amounts to $2000 and their policy calls for a $500 deductible. The policy holder must pay the first $500 and then the insurance company will pay the remaining $1500.

Math Activity 14 – Insurance Claims and Depreciation  If your vehicle were stolen or damaged beyond repair, the insurance company would pay you the current value of a comparable vehicle, not what you paid for your vehicle originally. The loss in a vehicle’s value over time is called depreciation. Depreciation varies depending on the type of vehicle and its condition. Typically, the larges loss in value comes in the first year of ownership. Ex: DepreciationAmountNew Value Original Value$18,000 First Year: depreciates 25%$4,500$13,500 Second Year: depreciates 15%$2,025$10,475 Third Year: depreciates 15%$1,571.25$8,903.75

Math Activity 17 Evaluating Computer Prices  Shopping for a computer and the additional components that you need to make use of it can be challenging. There might be several brands and models that will fulfill your needs and wants, several options for where to buy, and various package deals to evaluate.

Fractions to Decimals If you need to know what 3/5 of a number (1500) is: 1. Divide 3 by 5 to get a decimal =.6 2. Multiply the number by.6 = 1500 *.6 = 900.

Subtracting Mixed Numbers Change mixed number to a fraction: Ex: 3 5/8 and 2 6/8 (multiply denominator by the whole number and add the numerator) Ex: 29/8 – 22/8 = 7/8

Homeowner’s Insurance

Home Insurance Coverage 14.3 Homeowner’s Insurance: Insurance that provides personal property and liability protections for your home.  Types of Coverage Personal Property: protects against damage or loss of your house and its contents Personal Property: protects against damage or loss of your house and its contents Exclusions: collectables, lap-top computers, silverware, valuable jewelry, cash (you can buy riders for these items)Exclusions: collectables, lap-top computers, silverware, valuable jewelry, cash (you can buy riders for these items) Liability: covers bodily injury or damage you cause to others while on your property. It also covers damage you do to someone else’s property (even if you are not at home) But it doesn’t cover damage you do with your car. Liability: covers bodily injury or damage you cause to others while on your property. It also covers damage you do to someone else’s property (even if you are not at home) But it doesn’t cover damage you do with your car.

Renter’s Insurance

Policies  Umbrella Policy  Special Risk Coverage  Basic Forms of Homeowner’s Insurance  Renter’s Insurance/Condominium Insurance  Rider

Cost of Home Owners Insurance  How Much Insurance Should I Buy? 80% Rule: Insurance company rule that you must buy homeowner’s coverage for at least 80% of your home’s actual value at the time of your loss in order to receive full reimbursement for any loss. 80% Rule: Insurance company rule that you must buy homeowner’s coverage for at least 80% of your home’s actual value at the time of your loss in order to receive full reimbursement for any loss.  Factors Affecting Your Premium Location – Age of Home – Distance to Fire Station or Hydrant Location – Age of Home – Distance to Fire Station or Hydrant  Reduce Your Premium

Providers and the Claims Process 14.4  How to Choose an Insurance Provider How to Choose an Agent How to Choose an Agent Company representativesCompany representatives Independent AgentsIndependent Agents How to Choose an Insurance Company How to Choose an Insurance Company Financial Health of the companyFinancial Health of the company Claims Service for processing claims and claim payoutClaims Service for processing claims and claim payout Claim AgentsClaim Agents Appraisals: an expert’s determination of the value of a piece of property Appraisals: an expert’s determination of the value of a piece of property

How to File a Claim  Making a Claim: Formal request made to an insurance company for payment of loss  Home Owner’s Claim Have a home inventory to prove what you owned Have a home inventory to prove what you owned  Automobile Claims Always call the police and have an official police report so that there is a non-partial third party report Always call the police and have an official police report so that there is a non-partial third party report  Insurance Fraud