Unit11:ManagingRisk

PersonalFinancialLiteracy

Objec-ves

•  Inves-gatesourcesofinsuranceandhowtogetthebestcoverageandrates.

•  Iden-fytypesofinsurance.•  Matchthetypesofautomobileinsurancetotheirdefini-ons.

•  Stateconsequencesofnothavingautomobileinsurance.

Objec-ves-Con-nued

•  Selectfromalistfactorsthatinfluencethecostofautomobileinsurancepremiums.

•  Discusstheimportanceofrenter’sinsurance.

InsuranceSources

•  Government•  Employer•  Professionalorganiza-ons•  Insurancecompanies

Shoparound!

InsuranceSources-Con-nued

•  Insurance•  OnlineSomepeopleprefergoingthroughanagenttopurchaseorfileaclaim.

HealthInsurance

•  Majormedicalrequiresco-payment,pluspercentageofmedicalbillsorpaymentsun-lannualdeduc-bleismet.

•  Deduc-ble:amountyoumustpaybeforetheinsurancecompanypaysanything

•  Co-payment:amountyoupayforeachservice,regardlessofwhetheryou’vemetyourdeduc-ble)

ManagedCarePlans

•  TypicallyPPOsandHMOs•  Paysmorein-network•  Mayhavelowerout-of-pocketfees•  Tendstohavesmallernetwork;won’tpayoutofnetwork

•  Mayrequiregoingthroughprimaryphysician

Life-meCap

•  Policiesmayhavealife-mecap,suchas$750,000or$1million.

•  Wheninsuredreachescap,coveragestops.

DoYouNeedLifeInsurance?•  Importantifyouhelpsupportothers,e.g.childrenorparents

•  Paysmoneytoyourbeneficiarywhenyoudie

•  Ifyoudon’tfinanciallysupportanyone,youmaynotneedlifeinsurance

TermLife

•  Purchaseforasetamountof-me•  Paysvaluetobeneficiarywhenyoudie•  Endsatexpira-onunlessyourenew•  Sometermlifecanbeconvertedtowholelife•  Tendstobelessexpensivethanwholelife;costsincreasewithage

WholeLife

•  Life-longinsurancepolicies;buildcashvalue•  Premiumsinvestedtoprovidesavings•  Whenusedforre-rement,cashvaluemaybetax-exempt– Universallifeinsurance:canmakechangestopolicy

DisabilityInsurance

•  Youngpeople-morelikelytobecomedisabledfromaccidentorillnessthandie.

•  Disabilityo\enresultsinlossofincome

•  Usuallyavailablethroughemployer

DisabilityInsurance-Con-nued

•  Typicallyprovides67to80percentofpre-disabilityincome

•  Somepoliciesonlycoverwork-relateddisability

HomeownersInsurance

•  Liabilitycoverageifapersonisinjured;wouldalsopaylegalfees

•  Insureshomeandcontents•  Mayrequirespecialinsuranceforflood,earthquakeorotherrisks

TypesofAutoInsurance

•  Liability:Coversdamagetoothers,(propertyorinjuries);requiredinmoststates

•  Medical:Paysforhealthcarebillsifyou,immediatefamily,orpassengersinyourvehicleareinjured,regardlessofwhoisatfault.Includesridingabicycleorwalking.

TypesofAutoInsurance-Con-nued

•  Collision:Coverscarrepairsfromaccidentwithcarorobject

•  Comprehensive:Coversvandalism,the\,naturaldisasters

•  UninsuredMotorist:Coversotherpeopledrivingyourcaroraccidentscausedbyotherpeoplewhodon'thaveinsurance

•  GAP:Coversgapbetweenwhatyouoweandwhatvehicleisworth

YourInsuranceResponsibili-es

•  ContactinsurancecompanyASAPwithaccidentdetails.

•  Providecopiesofaccidentreportsandinsuranceinforma-onfromotherdrivers.

•  No-fycarrierwhenyouchangevehicles.•  Knowexactlywhatiscovered.

CancellingYourPolicy

•  Manyinsurerscancancelyourinsuranceifyou:– loseyourdriver’slicense– forgettopayyourpremium– lieonapplica-onorclaimform

InsuranceisImportant

Oneoutofeveryfourdriversisinvolvedinanaccidenteachyear.– Ifyou’reinanautoaccident,you’refinanciallyandlegallyresponsible– Youcanbesued;nolimitsforhowmuch– Ifyou’vefinancedyourcar,lendermayrequireaddi-onalcoverage

ReduceYourRisk

•  Drivedefensively•  Followtrafficrules•  Avoidhightrafficareas

•  Buteventheverybestdriversriskanautoaccident…

AutoInsuranceRates

FactorsAffec-ngPremiums

•  Age•  Gender•  Maritalstatus•  Mileage•  Typeofcar•  Zipcode•  Credithistory•  Deduc-ble

LowerYourPremium

•  Shoparound•  Mul-ple-policydiscounts•  Goodstudentdiscounts•  Higherdeduc-ble•  Rightamountofcoverage

Renter’sInsurance

•  Coversyouforfireorbreak-ins.

•  Protectyouifsomeoneisinjuredinyourhome.

•  Neitherpossessionsnorliabilityinyourrentedhomeislandlord’sresponsibility.

UnitReview

1.  Discusswhatriskis,andwhyit’simportanttoprotectyourselffromitfinancially.

2.  Whatisawidelyacceptedwayofreducingfinancialrisk?

3.  Listsourcesofinsurance.4.  Namethemostcommontypesofinsurance.5.  Whatisthedifferencebetweenaco-payand

deduc-ble?

UnitReview-Con-nued6.  Ifyoucanonlyaffordlifeinsuranceordisability

insurance,whatshouldyouconsiderbeforemakingyourdecision?

7.  Howcanlifeinsurancehelpwithyoursavingsandinvestmentgoals?

8.  Whattypeofpolicyisusefulforprotec-ngyourselfagainstanotherperson’sinjuriesordamagetoanother’sproperty?Inwhattypeofinsurancearethesepoliciesfound?

9.  Discussthesixtypesofautoinsurance.

UnitReview-Con-nued10.  DiscusswhatGAPinsuranceisandwhy

someonemightwantit.11.  Whyisautoinsurancepartofasmartfinancial

plan?12.  Explainhowadeduc-bleaffectstheamountof

apremium.13.  Whatotherfactorsinfluencetheamountofa

premium?14.  Whataresomeofthewaystodecreasethe

amountofapremium?

UnitReview-Con-nued

15.  Explaintheconsidera-onsapersonshouldlookatwhendeterminingwhattypesofinsurancetopurchase.

16. Dis-nguishbetweenhomeowner’sinsuranceandrenter’sinsurance.