Insurance and Investments Lesson 5

Insurance Why is it important? –Risk: chance of loss from some type of danger Can be reduced (helmet, seatbelt, locked car, etc) Risk management: how you deal with the chance of a potential personal or financial loss –Avoid –Reduce –Accept –Share

Sharing the Risk Insurance: –a means of guaranteeing your financial protection against various risks Insurance Policy: –a written contract detailing what an insurance company will cover, how much it will pay, and how much you will pay –Premium: the amount you pay for an insurance policy Based on your age, marital status, whether you live in an urban or rural area, and your credit history –Coverage Limit: the maximum amount the insurance company will pay if you file a claim –Deductible: the amount of a loss you must pay out of your own pocket before the insurance company will step in and pay the rest

Driving Down Your Costs Choose a reasonable coverage limit –In between maximum and minimum coverage Go for a higher deductible –You’ll pay more if there’s an incident, but your premiums will be lower throughout the year Shop for your insurance policies –Changes in the insurance industry, legislation, and/or your circumstances can lead to lower premiums Make changes to lower your premiums. –Having safety equipment in place like anti-theft systems –Medical insurance is better for nonsmokers Get all of your policies from the same agent or company. –Discounts

Types of Insurance Health insurance: pays medical bills –everyone needs health coverage –You’re covered under your parents’ insurance until age19 –Receive health insurance through an employer Property insurance: protects your possessions –Protects against flood, fires, natural disasters, etc. –Homeowners’ insurance protects your stuff as well as the house itself Take pictures of your home – they will come in handy Life insurance: supports those who depend on a deceased family member –Single: don’t need life insurance –Family: extremely important Disability insurance: protects your earning power –When you can’t work for extended period due to injury/illness Liability insurance: protects you against unintentional damage

Automobile Insurance Age –Younger = higher cost Gender –Males = more expensive Marital Status –Single = higher cost Type of Car –Value, size, weight, age of your vehicle, cost of replacement parts determine the premium –Safety features such as airbags, anti-theft equipment, and anti-lock brakes = reduced cost

Automobile Insurance (cont.) How Often You Use Your Car –Less you drive = lower the cost Location –Urban residents = higher cost Driving Record –Speeding tickets, other traffic violations = higher cost Claim Record –Drivers with a clean driving history = lower cost Credit History –Didn’t we say it would follow you everywhere? –Better credit history = lower cost

Automobile Insurance (cont.) General Liability –Covers damage you cause to other people outside of your car –If sued: general liability covers the legal bills Medical Payments –Immediate compensation for bodily injury expenses to you and your passengers regardless of who is at fault Collision –Covers repairs for damage you cause to your car caused by an accident, whether it involves another vehicle or an object, such as a tree Comprehensive –Covers everything but collision (fire, break-ins, vandalism, theft) Uninsured Motorist –Covers you when other person doesn’t have auto insurance. Underinsured Motorist –Covers you when the cost exceeds the other person’s coverage limit

Multiple Choice Question 8 ___ 8.) If you have caused an accident, which type of automobile insurance would cover damage to your own car? a) Term b) Collision c) Comprehensive d) Liability

Multiple Choice Question 9 ___ 9.) Many young people receive health insurance benefits through their parents. Which of the following statements is true about health insurance coverage? a) Young people don’t need health insurance because they are so healthy b) You continue to be covered by your parents’ insurance as long as you live at home, regardless of age c) You are covered by your parents’ until you marry, regardless of age d) If your parents become unemployed, your coverage may stop, regardless of age

Investing Investment return – –the additional income earned from saving or investing money. Risk – –the uncertainty that you will receive the expected return – –The greater the risk, the higher the expected return

What Can You Invest In? Certificate of Deposit – –Money is untouched for a given amount of time with a fixed interest rate Money Market Mutual Funds – –sold by companies that sell stocks, bonds, etc. Stocks – –shares of ownership in a corporation U.S. Government Savings Bonds – –Buy from government and sell back for cash Stock mutual funds – –investing in a fund company – –Owning many stocks Real Estate – –investing in houses and property

Important Tips You’re not buying a stock; you’re buying a company Invest in stock to make money If you buy a stock when the company isn’t making a profit, you’re not investing — you’re speculating A stock should never be 100 percent of your assets. A stock’s price is dependent on the company –Company is dependent on the customer base, industry, the general economy Continue to monitor your stocks –Consider selling them if they’re not appreciating

Numbers to Review Research the company –Earnings: should be at least 10 percent higher than the year before –Sales: should be higher than the year before –Debt: should be lower than or about the same as the year before Should also be lower than the company’s assets –Equity: should be higher than the year before

Multiple Choice Question 3 ___ 3.) Which of the following types of investment would best protect the purchasing power of a family’s savings in the event of a sudden increase in inflation? a) A twenty-five year corporate bond b) A house financed with a fixed-rate mortgage c) A 10-year bond issued by a corporation d) A certificate of deposit at a bank