How Insurance Works

1. How Insurance Works • Life is full of risks • The purpose of Insurance is to provide financial protection against different kinds of risks we face in life.

2. Types of Insurance • Insurance Policy – A written agreement between you and the insurance company that explains the following: • what kinds of losses the company will cover • how much it will pay to cover theses losses • how much you will pay for this protection.

3. How Insurance Works • Coverage limits – the maximum amount the company will pay you for your loss • Deductible – The amount of loss that you must pay before the company will step in and pay the rest.

4. How Insurance Works • Claim – a request for payment of your losses • For example, imagine that your car insurance has a $500 deductible. If you get into an accident and it takes $1,500 to repair your car, you will have to pay $500 of the bill yourself and the insurance company will pay $1,00.

5. How Insurance Works • Premium – Your insurance premium is the amount of money you must pay per month, per quarter, or per year in order to guarantee your coverage. • Insurance premiums vary widely, according to certain factors.

6. How Insurance Works • Health insurance – very expensive, while property insurance is relatively inexpensive. • That is why people try to find jobs in which their employer will pay for some of their health insurance.

7. How Insurance Works • Property Insurance – You can often choose between different coverage limits. If you don't own a lot of personal property, for example, you could choose a property with a low coverage limit, in exchange for low premiums. • Amount of deductible – If you choose a policy with a higher deductible, your premium will be lower, but your out-of-pocket expense will be greater.

8. How Insurance Works • Premium costs are based on the following: • Your age • Where you live • Credit history • Marital status • For many types of insurance, companies assume that people who are older, married, live outside of cities, and have good credit scores are less risky to insure

9. Types of Insurance • Car Insurance: The first insurance you are likely to pay – All states require drivers to have at least a minimum amount of car insurance. • Liability coverage – Pays for any personal injuries or property damage. • Collision coverage – pays for any damage to your own car. • Teens pay higher rates because, statistically, they have more accidents than older drivers. • Young male drivers pay more than young females because males have more accidents (according to statistics).

10. Types of Insurance • As you get older, your rates will go down, as long as you keep a safe driving record. • As you get older, you need to invest in other kinds of insurance protection.

11. Types of Insurance • Health Insurance – Pays medical bills • Parents' policy will cover you until you are 26 • Cheapest way to get health insurance is through your job, if you are lucky enough to have an employer who either pays your premium or a portion of your premium

12. Types of Insurance • Property Insurance – If you live in an apartment, you can get renters' or owner's insurance to help you replace your belongings in case they are stolen or destroyed by fire. • If you buy a house, you need homeowners' insurance to protect your belongings, as well as the value of your house.

13. Types of Insurance • Disability Insurance – If you suffer an injury that keeps you from working for an extended period of time. • Disability Insurance will pay you approximately 75% of your monthly income until you recover.

14. Types of Insurance • Life insurance – This insurance provides money to family members. • When you buy life insurance you name a beneficiary (the person you want to receive the money)‏

15. Types of Insurance • Two major types of life insurance: • Term insurance • Whole life insurance

16. Types of Insurance • Term Insurance • Usually cheaper • Pays a higher death benefit • You can only buy a policy for a limited term or period of time • When that term is over, you must purchase a new policy (at a higher rate). • Premiums increase as you get older • Pays off only when you die (No cash value).

17. Types of Insurance • Whole life insurance • More expensive and pays less of a death benefit than term • It provides coverage for your whole life and premiums never increase • Also is an investment with a cash value that increases over time • Policy entitles you to withdraw or borrow against the accumulated cash value.

18. Define The Following Terms: • Insurance • Insurance policy • Insurance Premium • Coverage limit • Whole Life Insurance • Deductible • Liability coverage • Collision Coverage • Insurance Claim • Term Life Insurance

19. If you switched to an insurance policy with a higher deductible, you could probably expect • A. a higher premium • B. a lower premium • C. A higher coverage limit • D. no coverage limit

20. Which of the following is NOT a disadvantage of term life insurance, as compared to whole life insurance? • A. a lower death benefit • B. Increasing premiums as you get older • No cash value • No guarantee of lifelong coverage

21. Of the following people, which one would probably pay the highest rates for car insurance? • A. a 50-year old single man • B. a 30-year old married woman • C. an 18-year old boy • D. an 18-year old girl

22. Which kind of insurance pays a monthly income to people who are unable to work for an extended period of time? • A. health insurance • B. disability insurance • C. Life insurance • D. Homeowners’ insurance