1. Insurance Basics Introduction to Insurance & Risk Chapter Two1

2. What is Risk ?  Risk is involved in any situation in which some kind of loss or misfortune is possible.  When you are exposed to the chance of loss or damage, whether personal or material, risk is involved.  Risk is a part of life. Chapter Two 2

3. What about Insurance ?  Insurance is designed to protect against risk, because individuals who buy insurance are financially compensated in case of loss.  Dealing with risk by transferring it is the underlying principle of insurance. Insurance transfers risk.  Individuals who are concerned about potential risks pay insurance companies for protection against specific types of risk such as floods, medical costs, car accidents, and many others. Chapter Two 3

4. Insurance & Risk are related  Purchasing insurance does not remove risk. It merely provides compensation for the loss and spreads the cost of sharing the risk.  Because insurance is intangible —you cannot actually see or touch what you are getting—some individuals are not motivated to purchase insurance.  Risks are intangible, too, and many times are not realized until you experience a loss or survive a close call. Chapter Two 4

5. Dealing with Risk  To deal with risks associated with smoking, you can choose to do one of the following: Avoid risk, by not smoking Reduce risk, by limiting the number of cigarettes Ignore risk, by smoking three packs a day Transfer risk, by buying health insurance Chapter Two 5

6. How Insurance Works ? Individuals who buy insurance are the insured. The insured agrees to transfer risk by paying periodic payments, called premiums, to the insuring company, the insurer. These premiums create a pool of money that the insurer invests to earn more money, which is used to compensate the insured for losses. Chapter Two 6

7. How Insurance Works ? Individuals who pay premiums to the insurer are protected against the risk of financial loss by transferring the risk to a large group of individuals who then share the financial loss. Depending on the type of insurance, premiums are paid as follows: monthly, once each month semiannually, every six months annually, once a year Chapter Two 7

8. How Insurance Works ? An insurance policy is a written contract between the insurer and the insured. Each individual contract is designed to cover specific future losses such as theft, accident, fire, flood, illness, or death. Each kind of specific loss is identified as a type of coverage on an insurance policy. For example, you may have flood or fire coverage. Individuals agree to pay premiums on an insurance policy, and the insurer agrees to reimburse them for their loss on the specific coverage included in their policy.  Chapter Two 8

9. What is a claim ? When a loss occurs, the insured files a claim. A claim is a written request for reimbursement to cover loss or damage that occurred from a specific event. Chapter Two 9

10. The increasing cost of insurance  Increasing Costs Over the past years, insurance premiums for most kinds of insurance have increased dramatically.  Growth in premiums continues to proceed at a higher rate than growth in workers’ earnings and growth in the economy.  Consequently, the high cost of insurance causes many people to be uninsured (having no insurance at all) or underinsured (not having enough insurance).  Chapter Two 10

11. interesting facts An underwriter : is a person who reviews and evaluates the eligibility and risk factors of insurance applicants. Chapter Two 11

12. Basic Policy Types  Property and Casualty Insurance  Includes insurance policies for homes, cars, and businesses. It protects the insured against losses to his or her property or losses caused by injury to other people or damage to others’ property  Events such as fire, burglary, and other damage, as well as liability, are covered by such policies Chapter Two 12

13. Property and Casualty Insurance  Liability refers to a legal responsibility to provide compensation for certain types of injury or loss. For example,  if a person falls down stairs in your home because they were holding onto a loose railing, you may be liable for paying any medical bills incurred.  Therefore, property and casualty insurance protect you from a financial loss due to liability. Chapter Two 13

14. Property and Casualty Insurance  Both real property and personal property are covered by property and casualty insurance policies.  Real property includes permanent structures and objects such as buildings, fences, and built-in appliances.  Personal property includes anything not permanently attached, such as cars, RVs, furniture, clothing, and personal items. Chapter Two 14

15. Automobile Insurance  The most important automobile coverage is liability. Most states mandate a minimum amount of liability insurance individuals must carry to cover property damage and personal injury in case of an auto accident.  Each state has specific regulations for types of automobile insurance policies including no- fault, uninsured, and underinsured motorist coverage. Chapter Two 15

16. Automobile Insurance  No-fault insurance coverage provides compensation in the case of an accident regardless of who was at fault.  Uninsured motorist coverage provides compensation through an individual’s insurer to recover damages caused by a driver who is not insured—uninsured.  Underinsured motorist coverage provides compensation through an individual’s insurer for amounts not covered by the insurance company of the driver at fault because he or she is underinsured. Chapter Two 16

17. Automobile Insurance  A comprehensive automobile insurance policy protects an individual against automobile theft, collision, vandalism, and damage from fire.  The policy covers an individual’s liability in an accident that is his or her fault, and it provides uninsured and underinsured motorist coverage. Chapter Two 17

18. Homeowner’s and Renter’s Insurance  Homeowner’s policies provide several basic coverages, including damage to or loss of the dwelling itself, other structures such as garages and sheds, and personal property on the insured premises.  Coverage might also include loss of use of the property, personal liability, and medical payments in case of an accident on the property. Chapter Two 18

19. Homeowner’s and Renter’s Insurance  Renter’s insurance provides coverage for those renting an apartment, condo, or home, but typically does not cover the dwelling itself.  Renter’s insurance covers personal possessions and liability. If a loss occurs, typically the policy will compensate the insured for the replacement value of the possessions lost. Chapter Two 19

20. Life Insurance  Life insurance pays a set amount of money to specified beneficiaries upon the insured’s death.  A beneficiary is a person or entity named in the insured’s will who should receive the benefits upon the insured’s death.  Loans can even be obtained against a life insurance policy during the life of the insured. Chapter Two 20

21. Life Insurance  Life insurance was an early form of insurance developed to protect families financially when their major wage earner died. The life insurance funds can be used to pay funeral expenses, debts, and fees incurred in settling the estate of the deceased.  Life insurance is a viable and important tool for family protection, but it is also used for financial planning as well. Chapter Two 21

22. Health and Medical Insurance  Typically the terms health insurance and medical insurance are used interchangeably. Health/medical insurance plans provide compensation for medical care costs due to disease or injury.  These plans range from managed care to more traditional fee-for-service plans and can be purchased by individuals or on a group basis through your employer. Chapter Two 22

23. Health and Medical Insurance  Managed care plans may cover preventive treatments for a nominal fee, while traditional fee- for-service plans require individuals to pay a larger percentage of all care received. Most plans offer options from which to choose.  Federal health and medical programs are provided by the government for those in need of health and medical care. Chapter Two 23

24. What Is Travel Insurance?  Travel Insurance is designed to cover those who elect coverage with financial safeguards in the case of events ranging from inconveniences to calamities.  Coverage may include both costs incurred before your trip, such as nonrefundable event tickets or hotel stays, and during your trip, including travel interruptions and medical expenses. Chapter Two 24

25. Travel Insurance  A lost, damaged or even stolen luggage benefit is just one small benefit of most travel insurance offerings. Others may include: Trip Cancellation Protection : This is the big one, and includes reimbursement for non-refundable trip payments and deposits. Trip Interruption Protection: Sometimes trips start on time and end prematurely due to forces of nature and other circumstances beyond your control. This benefit includes reimbursement for unused costs and transportation costs to return home. Chapter Two 25

26. Travel Insurance 24-Hour Hotline Assistance: While this doesn’t come with a dollar amount, getting real-time help when you’re in a pickle is invaluable. Especially if you don’t speak the native tongue. This can include arrangement of evacuations for medical emergencies, pre-trip assistance, etc. Coverage for financial default: What if the tour operator for your upcoming family vacation stops answering your calls? then the line is disconnected and the company is out of business. Travel insurance may be your most reliable means of financial recourse. Chapter Two 26