Insurance: Protecting What

You Have

IN YOUR LIFE, WHAT DISASTERS COULD HAPPEN TOMORROW?

PESSIMISTIC

In this Unit, We will:• Identify ways to manage risk• Describe how insurance is used to protect against

potential financial loss• Explain the features and processes related to

automobile insurance• Examine how insurance needs vary from person to

person because of lifestyle and life situation• Assess how insurance fits into your financial plan

Exposure Risk Potential Loss

Accident or Illness

PropertyOwnership

Liability

Loss of income from inability to work; uninsured

medical bills; death

Your property is damaged, destroyed, lost, or stolen

You are found liable for injuries to other people or damages to their property

UNLIMITED

UNLIMITED

Amount needed to replace your

property

Common Exposures to Loss

Risk Management: refers to how you deal with the chance of a potential personal or financial loss.

Avoid

the Risk

Reduce the Risk

Accept the Risk

Share

the RiskRisk Management

Why is It important to have insurance?

Risk - chance of loss from an event

that cannot be entirely controlled

Emergency savings - at least six months of

expenses set aside to cover costs of

unexpected events

Insurance - transfers risk

from an individual to an

insurance organization

is managed by

What are examples of unexpected events that may result in a

financial loss?

Insurance Policy

Policy - A contract that specifies what risks are covered and how much will be paid for losses

Experts say that buying insurance is buying financial security. Do you think this is true? Why or why not?

Coverage - The risks covered and amount of money paid for losses under an insurance policy

Policyholder - Person who owns the policy

Premium - Money paid to purchase the policy

Insurance: a means of guaranteeing your financial protection against various risks

An Illustration of How Insurance Works

Suppose there are 100 people in a

group

Insurance shifts the risk of big loss from the individual to the insurance company

With a 1% chance that any one of

them could get sick and require $10,000

in medical care

But, no one knows who will

get sick

If each person pays $100 into a “pool” they will

collectively have $10,000 to cover the medical costs of the person who gets sick

So, everyone gives up $100, but nobody

loses more than $100

99 people do not collect anything, but they gain

peace of mind and important protection

against a large loss

The benefits of Insurance

• Payments received from an insurance policy can far exceed the premiums paid

• Provides financial security and peace of mind

Why is the best outcome to have insurance but

never collect on it?

Types of Insurance

Long-term Care

Health

Disability

Life

Property & Liability

The Insurance ProcessClaim - paperwork submitted to

insurance organization describing the accident, illness or injury

Deductible - amount of money paid out of pocket by policyholder before the insurance coverage

begins

Co-insurance - amount of money, after deductible, that is paid jointly by the insured and the insurance

company

Event occurs resulting in loss

Policyholder makes claim to

insurance organization

Insurance organization

determines if event is covered by policy

If so, policyholder pays a deductible

Remaining amount owed is paid by co-

insurance (if applicable)

What Do You Think?• One in 10 Americans visits the emergency room each year.• Nearly 80% of crashes and 65% of near-crashes involve some form

of driver inattention in the 3 seconds before the event.• Nearly one in three Americans will become disabled for one year or

more before the age of 65.• In the United States, an automobile is stolen every 60 seconds.• Seventy percent of all fatal bicycle crashes involve head injuries.• Using lap and shoulder safety belts reduces the risk of fatal injury to

front-seat auto occupants by 45% and the risk of moderate-to-critical injury by 50%.

• Sixteen-year-old drivers have crash rates that are three times greater than those of 17-year-old drivers and five times greater than those of 18-year-old drivers.

• A disabling injury occurs every minute.

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False

Types of Insurance• Automobile• Homeowners• Renters• Health• Life• Disability• Long-Term Care• Identity theft Protection

AUTO INSURANCE

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Driver’sLicense

What’s in Your Wallet!

Health Insurance

Auto Insurance

IT IS AGAINST THE LAW TO

DRIVE WITHOUT CAR

INSURANCE!!!

Factors Affecting Automobile Insurance Costs

Your age

Make of car

Marital status

Do you take the car to work?

If you’re a good student

GenderWhere you live

How much you use the

carCredit rating

Driver’s education

Driving record

Type of car

Auto InsuranceWhat affects your premiums?

• Age: Younger you are, the higher the premium• Gender: Males under the age of 25 have

significantly higher accident rates than females under the age of 25, therefore higher premiums

• Marital Status: Married people are more careful drivers because they tend to have fewer accidents

• Type of Car

Auto InsuranceWhat affects your premiums?

• How Often You Use Your Car• Location: High populated areas = more

accidents• Driving Record: Speeding tickets and other

traffic violations = higher premiums• Claim Record: No accidents = lower premiums• Credit History: Poor credit history = higher

premiums

Did You Know?• In the first year of driving, one in five 16-yearold

drivers has an accident.• Male teens are much less likely to wear their seat

belts than female teens. And 7.7% of guys said they either rarely or never wear their seat belts compared with 2.8% of girls.

• Sixty-two percent of high school drivers say they talk on a cell phone while driving.

• Two-thirds of high school drivers say they speed.• Injury claim frequencies and overall collision losses

for cars driven by insured teenagers are more than double those of cars driven only by insured adults.

Main types of Auto Insurance Coverage's:

1. General Liability: Covers damage you cause to other people’s property and bodily injuries you cause to people outside of your car

2. Medical Payments: Cover immediate compensation for bodily injury expenses to you and your passengers regardless of who is at fault.– Also covers you and members of your household in

any accident involving an automobile, whether you are on foot, on a bicycle, or in a friend’s car

Main types of Auto Insurance Coverage's:

3. 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.

A deductible applies to collision payments. This means that you pay the deductible amount first; your insurance company pays the amount over your deductible.

Main types of Auto Insurance Coverage's:

4. Comprehensive: (other non-collision damage) This covers fire damage to your vehicle, break-ins, vandalism, or theft, as well as natural disasters such as an earthquake, hail, hurricane, or flood.

Covers everythingEXCEPT

an actual collision.

Main types of Auto Insurance Coverage's:

5. Uninsured Motorist: Covers your lost wages and medical expenses if you are in an accident with someone who doesn’t have auto insurance

6. Underinsured Motorist: Covers you when the cost of repairs from an accident caused by another driver exceeds his or her coverage limits

YES!

Can You Lose Your Insurance?

• Fail to pay your premium• Lose your driver’s license• Lied on your insurance application• Fail to report a change in your circumstances,

such as buying a sports car to replace a family sedan.

• Too many claims

HOMEOWNER’S INSURANCE

RENTER’SINSURANCE

Homeowner’s Insurance

• Insurance that protects property owners from property and liability risks– Includes coverage for the building as well as

personal possessions inside the building• 3 Types of Risks:– Fire, water, wind, and smoke– Criminal activity– Liability

Renter’s Insurance

• The landlord is responsible for the building• Personal possessions that you keep in your

rented home are YOUR responsibility to protect – not the landlord’s.

• Renter’s Policy – insurance that protects renters from property and liability risks.

• Protects from loss due to fire, smoke, water, etc• Protects items at work or in your car• Liability

HEALTHINSURANCE

Health Insurance

• Provides protection against financial losses resulting from injury, illness, and disability.

• Provide coverage for emergency or routine medical expenses.

• May cover hospital, surgical, dental, vision, long-term care, prescription, etc.

• If your parents have health insurance, it will cover you until you turn 19 years old, or until age 26 if you’re a full-time student

• May be purchased by an individual, or through their employer

Health Insurance

• Co-Payment – amount of coverage that is shared between the insured and the insurer.

• Deductible• Covered Expenses – expenses the insurer has

agreed to pay in the policy• Claims – requests for payments (doctors,

hospitals, etc)• Exclusions – exceptions to coverage agreed to

in the policy• Premiums

LIFEINSURANCE

Life Insurance• A contract between an insurer and

policyholder specifying a sum to be paid to a beneficiary upon the insured’s death.

• Beneficiary: the recipient of any policy proceeds if the insured person dies.

• Purpose is to provide money for family members or dependents when a wage earner dies.

DISABILITYINSURANCE

Disability Insurance

• Replaces a portion of one’s income if they become unable to work due to illness or injury

• Typically pays between 60% – 70% of one’s full time wage

• Many employers offer disability insurance as part of the benefits package

Employee Benefits

• Hospitalization, Medical, & Disability Insurance • Dental and Vision Insurance• Accidental Death Insurance• Sick Leave• Paid Vacation Time and Holidays• Parental Leave• Worker’s Compensation Insurance• Life Insurance• Retirement Benefits• Retirement Savings Plans• Employee Assistance Programs