WHAT INSURANCE PROTECTS

1. WHAT INSURANCE PROTECTS • The purpose of insurance is to protect against the loss of something of value • Designed to restore you to your financial position to where it was before the loss • NOT to allow you to profit from the loss!

2. Insurable Interest • To insure something, you must have insurable interest on the item • It must be something of value that, if lost, would cause you financial harm.

3. Determining the Value of Insurable Interest Before you can insure your property, its value must be measured in financial terms. The insurance company can then compensate you based on its value.

4. APPRAISAL • When the value of property is not clear, you or the insurance company may have it appraised • An appraisal is an expert’s determination of the value of a piece of property. • EX: if you want to insure your diamond ring, you might have it appraised to make sure you buy enough insurance to cover it’s loss.

5. RIDER • Home insurance does not automatically cover some particularly valuable items, such as a diamond ring. • To insure it, you must purchase a RIDER • A rider is a special addition to an insurance policy that covers a specific type of loss.

6. Determining the Amount of Life and Health Insurance Your life and health don’t carry a price tag like property does. Health and Life insurance are sold in different amounts. The greater the amount of coverage you choose, the higher the premiums.

7. Life Expectancy • You life insurance premiums will depend on your life expectancy • Do you smoke? Do you drink? Do you have history of cancer? • Life expectancy is an estimate of the average number of years remaining in people’s lives based on their • Gender • Current age • And health

8. The Insurance Trade Off Your goal in buying insurance should be to protect yourself from a loss that could put you in financial difficulty. It should not be to protect from any loss. The more insurance coverage you buy, the higher the premiums. At some point, the premiums themselves could put you in financial difficulty. **You should only buy enough insurance to cover the losses you would have trouble paying for yourself.**

9. The Role of Insurance in the Economy • Insurance benefits you indirectly • Business activities wouldn’t be possible without insurance • Banks wouldn’t lend you money to buy a home or car • If your home burned down without insurance, the bank might not recover the loaned funds • Physicians usually don’t practice without insurance to protect them from lawsuits • One lawsuit could ruin them financially

10. TYPES OF INSURANCE

11. Property Insurance • Insurance that protects you from financial loss when things you own are stolen, damaged, or destroyed • Typically for homes, cars, and valuables • MARKET VALUE: the amount an item is worth now. • REPLACEMENT VALUE: the cost of replacing the item, regardless of its market value at the time of the loss.

12. Liability Insurance • Sometimes your actions cause losses to other people • You can damage someone else’s car • Protects you from losses that you cause to others • AKA Casualty Insurance • Up to a stated maximum, it will pay the cost of damage, medical expenses, and legal fees if you are sued

13. Personal Insurance • Insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death • Health and Life insurance are two examples of personal insurance • Often, employers pay part of the cost of health insurance for their employees.