How insurance can help you take charge of your finances€¦ · 7.10.1.G1 Insurance Essentials How insurance can help you take charge of your finances

7.10.1.G1

Insurance Essentials

How insurance can help you take

charge of your finances

© Family Economics & Financial Education – October 2010 – The Essentials to Take Charge of Your Finances – Types of Insurance Essentials – Slide 2

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

7.10.1.G1

What is Insurance?

Insurance is an arrangement between an individual and an

insurer (insurance company) to protect the individual against risk



7.10.1.G1

Modern Insurance Started as a result of the

“Great Fire of London” in 1666

13,200 homes destroyed

Citizens formed societies to pool resources in order

to protect each other from future loss

Benjamin Franklin helped establish insurance in

American

Founded Philadelphia Contributionship

Focused on educating people about prevention

methods and refused to insure wood buildings

History of Insurance



7.10.1.G1

Helps limit financial losses when an accident occurs

Helps an individual/family be

prepared for the unexpected

Plays a large role in most financial

management plans

Why is it important to

have insurance?



7.10.1.G1

What is an Insurance

Policy? A policy is a contract

between the individual

and the insurer

specifying the terms of

the insurance

arrangements

A premium is a fee

paid to the insurer

by the policy holder

in order to have

insurance coverage

A deductible is the

amount paid out of

pocket by the

policyholder for the first

portion of a loss before

the insurance coverage

kicks in

A policyholder is

the person who

purchases the

policy



7.10.1.G1

Types of Insurance

Types of Insurance

Automobile

Health

Life Disability

Homeowners/

Renters



7.10.1.G1

Automobile Insurance

Automobile Insurance - arrangement between an individual and insurer to

protect the individual against risk from automobile accidents

Liability

insurance

Medical

payment

insurance

Uninsured or

underinsured

motorists

insurance

Physical

damage

insurance

Collision

Comprehensive



7.10.1.G1

Types of Auto Insurance

Liability Insurance covers the insured if injuries or damages are caused to other people or

their property

It is the minimum amount

of insurance required by

law for automobiles

Medical Payment Insurance

covers injuries sustained by

the driver of the insured

vehicle or any passenger

regardless of fault

It also covers family

members injured as

passengers in any car,

pedestrians, or bicyclists



7.10.1.G1

Types of Auto Insurance

Uninsured or Underinsured Motorists Insurance

covers injury or damage to the driver, passengers, or

the vehicle caused by a driver with insufficient

insurance

Physical Damage Insurance covers damages caused to

the vehicle

Collision – covers a collision with another object, car, or

from a rollover

Comprehensive – covers all physical damage losses except

collision and other specified losses

Why would an individual want automobile insurance coverage

beyond liability (the minimum required by law)?



7.10.1.G1

Shop around and compare prices

Maintain a good driving record

Take the highest deductible you can afford

Before buying a vehicle, determine the cost of insuring it

On cars worth less than $1,000, consider carrying only liability coverage

Ask about discounts such as:

Multiple cars on a policy

Good student drivers under age 25

Airbags and other safety equipment

Anti-theft devices

Auto/home insurance with same company

Keeping Your Auto Insurance

Premiums Low



7.10.1.G1

Health Insurance

Health insurance provides protection against financial losses resulting from injury, illness, and disability May cover hospital, surgical, dental, vision, long-term care,

prescription, or other major expenditures

Specific coverage depends upon the individual policy

Health care costs are extremely high

Large medical expenses could deplete an individual’s savings

Why would it be important to have health insurance?



7.10.1.G1

May be purchased by the individual or through their employer

May offer coverage for dependents (spouses and children who rely financially on the insured) If dependent coverage is offered, children may stay on their

parent’s health care plan until age 26

Federal government website to learn about health insurance and compare policies: http://www.healthcare.gov/index.html

Health Insurance

http://www.healthcare.gov/index.html



7.10.1.G1

Life Insurance

Life insurance is a contract between an insurer and policyholder specifying a sum to be paid to a beneficiary upon the insured’s death

• A beneficiary is the recipient of any policy proceeds if the insured person dies

Provides money for family members or

dependents when a wage earner dies

https://www.northwesternmutual.com/learning-center/tools/the-longevity-

game

https://www.northwesternmutual.com/learning-center/tools/the-longevity-game









7.10.1.G1

Disability Insurance

Disability Insurance replaces a portion of one’s

income if they become unable to work due to

illness or injury

Insurance typically pays between 60-70% of

one’s full-time wage

Factors such as the length or severity of a disability

influence the percentage of income a person will

receive



7.10.1.G1

Homeowner’s Insurance

Homeowner’s Insurance -combines property and

liability insurance into one policy to protect a home from damage costs due to

perils

Peril -an event which may

cause a financial loss like

fire, falling trees,

lightning and others

Property Insurance -protects the

insured from financial losses due

to destruction or damage to

property or possessions

Liability Insurance- protects

the insured party from

being held liable for other’s

financial losses



7.10.1.G1

Renter’s Insurance

Renter’s Insurance- protects the insured from loss of the contents of their dwelling rather than the dwelling itself

• Necessary because a landlord’s insurance policy on the property DOES NOT cover the renter’s personal possessions

• Covers major perils, provides liability protection, and provides for additional living expenses if the dwelling is rendered uninhabitable



7.10.1.G1

What Covers This Risk?

While driving, you hit and injure a pedestrian in

a crosswalk

Automobile!



7.10.1.G1


After losing her husband to a heart attack, a wife

is left alone to care for 2 children

Life!



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You need a cast after breaking an ankle while

roller-blading

Health!



7.10.1.G1


Your rented apartment is broken into and your

computer is stolen

Renters!



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You are injured in an automobile accident and

are unable to work for 2 months

Disability!



7.10.1.G1


Your garage was destroyed by a fire which

started by a lightning bolt hitting your home

Homeowners!



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Sick at home from food poisoning after

eating a carnival corndog

Nothing!



7.10.1.G1


While driving, you have brake failure. You hit

a telephone pole and cause damage to the

front of the car

Automobile!



7.10.1.G1


While driving to the mall, you are pulled over

and receive a speeding ticket

Nothing!



7.10.1.G1


A daughter, who is financially responsible for her

mother’s nursing home bills, dies from an

undetected heart defect

Life!



7.10.1.G1


A doctor diagnoses a child with tonsillitis

during a visit to a clinic

Health!



7.10.1.G1

Summary

What is insurance?

What is the purpose of insurance?

An arrangement between an individual (consumer)

and an insurer (insurance company) to protect the

individual against risk

The purpose of insurance is to help individuals limit

their financial losses when an accident occurs



7.10.1.G1

What is a premium and a deductible?

What are the different types of insurance?

Summary

• A premium is the fee paid to the insurer to be covered under the

specified terms

• A deductible is the amount paid out of pocket by the policy holder

for the initial portion of a loss before the insurance coverage begins

Automobile

Health

Life

Disability

Homeowner’s/Renter’s

Documents

How insurance can help you take charge of your finances€¦ · 7.10.1.G1 Insurance Essentials How insurance can help you take charge of your finances