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PROTECTING YOUR WEALTH
PROTECTING YOUR WEALTH
Auto and Homeowner’s Insurance
Health and Disability Insurance
Life Insurance
AUTO AND HOMEOWNER’S INSURANCE I can… Explain the role of risk management Outline provisions of auto insurance Describe financial coverage provided by homeowners insurance
BACKGROUND ON INSURANCE Property Insurance ensures that damages to home and auto are covered and personal assets are protected from liability Liability- you are required to pay someone for damages that you caused
Primary function of insurance- maintain existing level of wealth
Benefit of insurance is peace of mind knowing your assets are protected
MANAGING RISK
In the context of insurance, Risk- exposure to events or perils that can cause financial loss
Risk management are decisions about whether and how to protect against risk, alternatives include: Avoid risk reduce risk insurance against risk
AVOID RISK
Avoid risk of property damage if you don’t own property
If you lease a car you are still expose to liability and financial loss if an accident
Exposed to financial loss if you require medical attention or become disabled
REDUCE RISK
Purchase a small home rather than a large home in order to reduce the maximum possible financial loss
Purchase an inexpensive car to limit possible financial loss due to property damage
Getting periodic health check ups
INSURE AGAINST RISK
If you cannot avoid or reduce risk and you do not want to be exposed to a financial loss
Premium is the cost of obtaining insurance
WHAT IMPACT DOES THE ECONOMY HAVE ON THE DECISION TO INSURE AGAINST RISK? Give one, get one.
Think about this question and develop an answer. Then, turn to your partner and discuss both of your answers.
ROLE OF INSURANCE COMPANIES Offer insurance policies that can protect you against financial loss.
Many different types of insurance
Insurance companies generate revenue from receiving payments for policies
Insurance underwriters are hired to calculate the risk of specific insurance policies, decide what policies to offer, and what premiums to charge.
Event Financial Loss Protection
You have a car accident and damage your car
Car repairs Auto Insurance
You have a car accident in which another person in your car is injured
Medical bills and liability Auto Insurance
You have a car accident in which another person in the other driver’s car is injured
Medical bills and liability Auto Insurance
Your home is damaged by a fire
Home repairs Homeowner’s Insurance
Your neighbor is injured while in your home
Medical bills and liability Homeowner’s Insurance
You become ill and need medical attention
Medical bills Health Insurance
You develop an illness that requires long-term car
Medical bills Long-term care Insurance
You become disabled Loss of income Disability insurance
You die while family members rely on your income
Loss of income Life Insurance
ROLE OF INSURANCE AGENTS Insurance agent recommends insurance policies for customers
Captive (exclusive) agent works for one particular company ex. State Farm insurance agents
Independent agent represents many different insurance companies
AUTOMOBILE INSURANCE
Insures damage to an automobile and expenses associated with accidents Protects your car and limits your potential liabilities (expenses due to an accident)
Prices vary between states Much larger in highly populated states
Insurance policy is a contract between an insurance company and policyholder
Auto insurance policy specifies the coverage provided by the insurance company for a particular individual and vehicle
Bodily insurance liability coverage protects against liability associated with injuries caused by the policyholder
BASIC TYPES OF AUTO INSURANCE Liability Bodily injury liability Property damage liability
Uninsured Motorists
Underinsured Motorists
Collision
Comprehensive
HOW MUCH DOES AUTO INSURANCE COST? Factors that affect your auto insurance premium… Value of a car Repair record of the car Your age Your mileage Your driving record Your location Your driver training Your school performance
HOW CAN YOU LOWER YOUR INSURANCE Get good grades
Choose your wheels carefully
Consider the age and condition of your vehicle
Consider letting your parents insure you on their policy
Ms. Vandiver says…Don’t text and drive
COVERAGE LIMITS ON YOUR POLICY Policy may show 50/100/25
That means… $50,000 of bodily injury liability if one person is injured $100,000 total for all bodily injury liabilities for all injured $25,000 of property damage coverage
HOMEOWNER’S INSURANCE
Provides insurance in the event of property damage, theft, or personal liability
Protects most valuable assets but limits potential expenses associated with a home
Provides a certain amount of liability coverage, which pays for injury or death of others caused by you on your property
WHAT ELSE DOES HOME INSURANCE COVER? The building/residence
Home furnishings
Most personal belongings
Lawn, trees, and shrubs in limited cases
Garage
Some external structures, like sheds
Fence
Swimming pool
WHAT ARE PERILS?
Things or events that can damage or destroy a home or its contents, a homeowners policy may cover these perils: Fire Lightening Wind Hail Theft Explosion Smoke Glass breakage Vandalism Riot Falling aircraft DOES NOT COVER FLOOD!
PROPERTY DAMAGE
Cash-value policy pays you for the value of the damaged property after considering its depreciation (wear and tear)
Replacement cost policy pays you for the actual cost of replacing the damaged property
ADDITIONAL COVERAGE: PERSONAL PROPERTY Normally covers furniture, computers, clothing up to a specified amount
Home inventory includes detailed information about your personal property that can be used when filing a claim Create a list of personal assets and estimate the market value of each, take pictures or video of items
Personal property floater (personal articles floater) is an extension of the homeowner’s policy that allows you to itemize your valuables, if assets are very valuable and are not fully covered by your policy
HOW MUCH DOES HOMEOWNER’S INSURANCE COST? Factors that affect the premium of homeowner’s insurance policy: Value of insured home Deductible Location Degree of protection Discounts
HOW CAN YOU LOWER THE COST OF HOMEOWNER’S INSURANCE? Improve protection
Use one insurer for all types of insurance Bundling discounts
Stay with the same insurance company
Shop around
WHAT DOES RENTER’S INSURANCE COVER? Renters insurance is a policy that protects your possessions within a house, condo, or apartment that you are renting
Does not insure the structure itself because the insurance is for the renter only, not the property owner
Covers personal assets such as furniture, television, computer equipment, and stereo equipment
ETHICAL DILEMMA
You teach Personal Finance at a local community college. The state in which you teach requires proof of liability insurance in order to renew your license plates.
During the discussion of this topic in class, several students admit that they obtain a liability policy just prior to the renewal of their license plates and then cancel it immediately thereafter. They do this because they know that the state has no system for following up on the cancellation of the liability policies once the license plates are issued. These students, who are out of work as a result of a local plant shutdown, indicate that they cannot afford to maintain the insurance, but they must have access to cars for transportation oWrite a paragraph discussing whether you consider the conduct of the students to be unethical.
oHow does the conduct of these students potentially impact other members of the class who maintain liability insurance on their vehicles?
QUIZ OVER HOME AND AUTO 3/28 Includes the slides above and the vocabulary
HEALTH AND DISABILITY INSURANCE I can… Identify and compare the types of private health care plans Explain the use of government health care plans Describe long-term care insurance Explain the benefits of disability insurance
LIFE INSURANCE
I can… Describe the types of life insurance that are available Identify the factors that influence insurance needs Review the factors that affect life insurance premiums Examine the decision of whether to purchase life insurance Explain settlement options available to a beneficiary