Insurance: Protecting What You Have. IN YOUR LIFE, WHAT DISASTERS COULD HAPPEN TOMORROW? PESSIMISTIC.
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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.
TrueFalseTrue
False
Types of Insurance• Automobile• Homeowners• Renters• Health• Life• Disability• Long-Term Care• Identity theft Protection
AUTO INSURANCE
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INJURYIN ACAR
ACCIDENT
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
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