Insurance Basics

Insurance Basics Sharing the Risk

Vocabulary • Risk • Is the uncertainty about a situation’s outcome • This can be an unpredictable event which leads to loss or damage • Insurance • A risk management tool that limits financial loss due to illness, injury, or damage. • Premium • Your payment for insurance. • Policy • A policy is a contract between the individual and the insurer specifying the terms of the insurance arrangements • Claim • Your request for an insurance company to pay for damages.

Vocabulary (cont.) • Shared Risk • No single policyholder must have the burden of the entire loss. • Market Value • The amount the item is worth now. • Replacement Value • The cost of replacing the item regardless of the market value. • Deductible • The amount you pay before the insurance company will pay anything. • Policyholder • A consumer who purchases the policy

Fact or Myth? • Only wealthy people who own property they could lose need insurance. • Insurance on your home covers damage caused by any storm or natural disaster. • You can’t do much to control the cost of insurance you buy.

TYPES OF INSURANCE • Automobile • Property (Home) • Health • Disability • Life

Automobile Insurance • is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.

Automobile Insurance • Automobile Insurance is an arrangement between an individual (consumer) and insurer (insurance company) to protect the individual against risk from automobile accidents

Automobile Insurance Types • There are four types of coverage for Automobile Insurance: • Liability insurance • Medical payment insurance • Uninsured or underinsured motorists insurance • Physical damage insurance • Collision • Comprehensive

Medical Payment insurance • 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 or if injured as a pedestrian

Liability 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

Uninsured motorists 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 • 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

Property Insurance • is the type of property insurance that covers private homes. • It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner • Includes liability insurance for accidents that may happen at the home.

Property Insurance • 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 • Homeowner’s insurance should cover the replacement cost which will pay to rebuild the home if it is completely destroyed

Homeowner’s/Renter’s Insurance • Homeowner’s Insurance combines property and liability insurance into one policy to protect a home from damage costs due to perils. • A peril is an event which can cause a financial loss like fire, falling trees, lightning and others

Renter’s Insurance • Renter’s Insurance protects the insured from loss of the contents of the dwelling rather than the dwelling itself • Renter’s insurance may be provided by a parent or guardian while an individual is still a full time student or under the age of 18 • However, each policy is different and should be inspected by the policy holder

Health Insurance: • is generally used to describe a form of insurance that pays for medical expenses. • It is sometimes used more broadly to include insurance covering disability or long-term nursing or custodial care needs. • It may be provided through a government-sponsored social insurance program, or from private insurance companies.

Health Insurance • In 2005 there were nearly 47 million Americans or 16 percent of the population without health insurance (http://www.nchc.org/facts/coverage.shtml ) • Health insurance provides protection against financial losses resulting from injury, illness, and disability • Health insurance may cover hospital, surgical, dental, vision, long-term care, prescription, or other major expenditures • Health insurance may be purchased by the individual or through their employer

Disability Insurance: • is a form of insurance that insures the beneficiary's earned income against the risk that disability will make working (and therefore earning) impossible. In other words, it answers the question, "How would I pay for my living expenses if I became unable to work?"

Disability Insurance • Disability Insurance replaces a portion of one’s income if they become unable to work due to illness or injury

Life Insurance • is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.

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 • The contract is a policy which states the amount to be paid to the beneficiary upon the insured person’s death

Life Insurance • A beneficiary is the recipient of any policy proceeds if the insured person dies • A dependent is a person who relies on someone else financially

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Insurance Basics