1. Automobile and Home Insurance
Chapter 14

2. Insurance Basics How Insurance Works Risk Management Shared Risk
Risk Management means limiting possible financial losses to amounts you can handle.
To manage your risk of financial loss from illness, injury, or damage, you can buy insurance.
In exchange for this protection, you make a regular payment to the insurance company called a premium.
Shared Risk
The insurance company diversifies, not the customer. They sell to thousands of people.

3. How Insurance Works
When you buy insurance, you sign a legal contract, called a policy.
You become the policyholder.
The policy spells out the specific loss that it covers and the specific loss that covers and the financial compensation the company will provide if you suffer that loss.

4. How Insurance Works
If you do have a loss covered by the policy, you file a claim, a formal request for payment from the insurance company.
The insurance company sells to many people. This concept is called shared risk.
Premiums and Statistics
Insurance companies use statistics from the past to predict how many losses are likely to occur within any large group of people.

5. How Insurance Works
Statistics can also help insurance companies estimate how much they will have to pay to reimburse particular types of losses.
What Insurance Protects
Insurance is designed to restore your financial position to where it was before the loss-not allow you profit from the loss.

6. How Insurance Works
To insure something you must have an insurable interest in the item. That is, it must be something of value that, if lost, would cause you financial loss.
Determining to Value of Insurable Interest.
Before you can insure your property, its value must be measured in financial terms.
An appraisal is an expert’s determination of the value of a piece of property.

7. How Insurance Works
Home insurance does not automatically cover some particularly valuable items, such as a diamond ring.
To insure it, you would add a rider to your policy.
A rider is a special addition to an insurance policy that covers a specific type of loss.

8. How Insurance Works
Your life and health don’t carry a price tag the same way that property does.
So life and health insurance is sold in different amount.
You can choose the amount of protection you want.
The greater the amount of coverage you choose, the higher the premiums.

9. How Insurance Works
Your life insurance also depend on your life expectancy.
Life expectancy is an estimate of the average number of years remaining in peoples lives, based on their gender and current age and health.

10. The Insurance Trade-Off
Insurance should not be to protect you from any loss.
So when you shop for insurance, decide how much of a loss you can reasonably cover yourself without too much financial hardship.
For example, if you agree to pay the first $1000 of your medical insurance each year, then your premiums will be lowered than if you agree to pay the first $500.

11. Role of Insurance in the Economy
Insurance provides security.
Many business activities would not be possible without insurance.
A bank wouldn’t lend you money to buy a home if you didn’t insure the home.
Doctor’s usually don’t practice without insurance.
One lawsuit could ruin them.
Our economic system relies on sharing the risk through insurance.

12. Types of Insurance Property Insurance
Insurance that protects you from financial loss when things you own are stolen, damaged, or destroyed.
This is for cars, homes, and valuable possessions
Designed two ways
It pays based on items market value
It pays based on items replacement value

13. Types of Insurance Property Insurance Liability Insurance
Market Value is the amount an item is worth now.
Replacement value is the cost of replacing the item.
Liability Insurance
Sometimes your actions cause losses to other people
This insurance protects you from losses that you caused others.

14. Types of Insurance Personal Insurance
Insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death.

15. How to Choose Automobile Insurance
Types of coverage
Bodily Injury Liability Coverage
The amount of coverage is typically described by two numbers
The might be shown as $250,000/$500,000 or 250/500
This means you policy will pay up to a maximum of $250,000 to any one person in a given accident.
The policy will pay up to $500,000 for all injuries to other people in a given accident.

16. How to Choose Automobile Insurance
Types of Coverage
Property damage liability coverage
It pays for damage you caused to another person’s property
The policy may state this number after the bodily injury numbers as 250/500/50
The company will pay $50,000 for property damage.

17. How to Choose Automobile Insurance
Types of coverage
Medical payments coverage
It pays medical and funeral expenses for you, your family members, and other passengers in your car because of injuries sustained in an accident-no matter who caused the accident.
Uninsured/underinsured motorist coverage
Pays medical and damage expenses for you and your passengers caused by a driver without insurance or with to little insurance to cover loss.

18. How to Choose Automobile Insurance
Types of Coverage
Comprehensive coverage
Pays for damage to your car caused by something other than a collision.
Examples:
Earthquakes
Fire
Wind
Hail
Floods
Vandalized or stolen

19. How to Choose Automobile Insurance
Types of coverage
Collision
Pays for damage to your car caused by colliding with another car object, such as a tree or fire hydrant.
This is usually most expensive
Comprehensive and collision coverage often carry a deductible.
A deductible is the amount you pay before the insurance company pays anything.

20. How to Choose Automobile Insurance
Types of coverage
Other Coverage
Rental Car
Towing
Gap Insurance
All these will increase your premium.

21. In September of last year, Donna Redman, a college student from Austin, Texas, caused a serious accident when she failed to yield to an approaching vehicle while attempting to make a left turn. Donna suffered a broken arm and facial cuts, resulting in medical costs of $ Her passenger, Philip Windsor, was seriously injured with head and neck wounds requiring surgery, a two- week hospital stay, and rehabilitation. Philip’s injuries generated medical costs of $ 17,650. The driver of the other car, John Monk, suffered serious back and internal injuries and facial burns that resulted in some disfigurement. His medical care costs totaled $ 22,948. His passenger, Annette Monk, suffered cuts and bruises requiring minor medical care at a cost of $ 423. Both cars were completely destroyed in the accident. Donna’s 10- year- old Buick was valued at $ John’s Mazda Miata was valued at $ 19,350. The force of the impact spun John’s car around, causing it to destroy a traffic- signal control box ( valued at $ 3650).

22. How Much Insurance Should You Buy
All States set a minimum amount of liability insurance that you must buy.
For a few states, this amount is as low as 10/20/5.
The least you should consider buying is 50/100/25.
Liability and Medical
Paying for basic liability coverage is expensive.
Increasing this to a larger amount does not cost that much

23. VA Requirements Bodily injury/death of one person $25,000
Bodily injury/death of two or more persons $50,000
Property damage $20,000

24. How Much Insurance Should You Buy
Collision and Comprehensive
The collision and comprehensive insurance depends on the value of the car and the size of the deductible you choose.
If you have an old car collision may not even be worth buying

25. Cost of Automobile Insurance
Causes of Increasing Insurance Cost
One reason for the growing costs is that cars are more complicated today.
New technology
More expensive to repair
Medical technology also adds to the cost of automobile insurance.
Also, today, injured Americans are more likely to sue than in the past.

26. Factors Affecting Your Premium
From an insurance company’s point of view, risk means the chance that the policyholder will have a loss that requires reimbursement.
Driver Classification
Age
Gender
Marital Status

27. Factors Affecting Your Premium
Rating Territory
Statistics show that more claims come from some locations than others.
Driving Record
Your driving record is an official list of your accidents and traffic violations.
Points are added to your record
More points higher premium

28. Factors Affecting Your Premium
You can get dropped from your company and find that no other company will insure you.
Because state law require all drivers to carry insurance the state will assign you to a company.
You become an assigned risk, you will have to pay very high premiums.

29. Factors Affecting Your Premium
Type of car
Some cars are more expensive than others
Some cars are stolen more than others
Claims History
The more claims you make on your policy, the more you cost the company, so your premiums will be higher.

30. Factors Affecting Your Premium
You can reduce your premiums:
Good Driving Record
Good Grades
Increase the size of your deductibles
Living outside of city in safe neighborhoods
Take a driver education course

31. Home Insurance Coverage
How to Choose Home Insurance
Homeowners Insurance provides personal property and liability protection for your home.
Types of Coverage
Personal Property
The personal property portion of homeowner's insurance covers damage to or loss of your house and its contents

32. How to Choose Home Insurance
Types of Coverage
Exclusions
Some items are specifically excluded or are not covered for their full value.
Examples: stamp or coin collections, silverware, laptop computers
You may have to buy special riders to cover these items
Liability
Covers bodily injury or damage you cause to others.

33. How to Choose Home Insurance
Umbrella Policy
An umbrella policy provides additional liability protection beyond that included in an homeowners policy.
A $1,000,000 dollar umbrella policy typically cost less that $500 a year.
Special Risk Coverage
Hurricanes
Floods
Earthquakes

34. Basic Forms of Homeowner’s Insurance
Renter’s Insurance
This provides about the same property and liability coverage as a homeowner’s policy.
It is not expensive – typically $200 to $300 per year.
How Much Insurance Should You Buy?
80% Rule
Buys at least 80% coverage of your houses replacement

35. Cost of Homeowner’s Insurance
Factors Affecting Your Premium
Location
Age of House
Distance to a Fire Station
Reduce Your Premium
Increase Your Deductible
Upgrade Your Home
Install Smoke Detectors
Install More Security
Special Discounts – Non Smokers

36. Providers and the Claim Process
How to Choose an Insurance Provider
Insurance is a service
How to Choose and Agent
Two Types
Work for one agency
Independent agent – work for many insurance offices
Ask Friends
Ask Family
Their income is based on how much they sell

37. How to choose an Insurance Company
Check Financial Health
Best Insurance Reports in most libraries
A.M. Best Company Web Site for a fee
Standard & Poor’s and Duff & Phelps offer ratings online for free.
Check speed and ease of claims process
Check Consumer Reports

38. How to File a Claim Homeowners Claim Car Insurance Home Inventory
Call Insurance Agent to report loss
Agent will send an adjuster to assess the damage
The check will be written to you to pay the contractor.
Car Insurance
No-fault Insurance. Who pays?

39. Insurance Fraud
Studies show that 20 percent of insurance claims involve some amount of fraud.
All this cost is passed on to the customers causing insurance premiums to go up.