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Download Automobile and Home Insurance Chapter 14. Insurance Basics How Insurance Works How Insurance Works Risk Management Risk Management Risk Management means

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  • Slide 1
  • Automobile and Home Insurance Chapter 14
  • Slide 2
  • Insurance Basics How Insurance Works How Insurance Works Risk Management Risk Management Risk Management means limiting possible financial losses to amounts you can handle. Risk Management means limiting possible financial losses to amounts you can handle. To manage your risk of financial loss from illness, injury, or damage, you can buy insurance. To manage your risk of financial loss from illness, injury, or damage, you can buy insurance. In exchange for this protection, you make a regular payment to the insurance company called a premium. In exchange for this protection, you make a regular payment to the insurance company called a premium. Shared Risk Shared Risk The insurance company diversifies, not the customer. They sell to thousands of people. The insurance company diversifies, not the customer. They sell to thousands of people.
  • Slide 3
  • How Insurance Works When you buy insurance, you sign a legal contract, called a policy. When you buy insurance, you sign a legal contract, called a policy. You become the policyholder. You become the policyholder. The policy spells out the specific loss that it covers and the specific loss that covers and the financial compensation the company will provide if you suffer that loss. The policy spells out the specific loss that it covers and the specific loss that covers and the financial compensation the company will provide if you suffer that loss.
  • Slide 4
  • How Insurance Works If you do have a loss covered by the policy, you file a claim, a formal request for payment from the insurance company. If you do have a loss covered by the policy, you file a claim, a formal request for payment from the insurance company. The insurance company sells to many people. This concept is called shared risk. The insurance company sells to many people. This concept is called shared risk. Premiums and Statistics Premiums and Statistics Insurance companies use statistics from the past to predict how many losses are likely to occur within any large group of people. Insurance companies use statistics from the past to predict how many losses are likely to occur within any large group of people.
  • Slide 5
  • How Insurance Works Statistics can also help insurance companies estimate how much they will have to pay to reimburse particular types of losses. Statistics can also help insurance companies estimate how much they will have to pay to reimburse particular types of losses. What Insurance Protects What Insurance Protects Insurance is designed to restore your financial position to where it was before the loss-not allow you profit from the loss. Insurance is designed to restore your financial position to where it was before the loss-not allow you profit from the loss.
  • Slide 6
  • How Insurance Works To insure something you must have an insurable interest in the item. That is, it must be something of value that, if lost, would cause you financial loss. To insure something you must have an insurable interest in the item. That is, it must be something of value that, if lost, would cause you financial loss. Determining to Value of Insurable Interest. Determining to Value of Insurable Interest. Before you can insure your property, its value must be measured in financial terms. Before you can insure your property, its value must be measured in financial terms. An appraisal is an experts determination of the value of a piece of property. An appraisal is an experts determination of the value of a piece of property.
  • Slide 7
  • How Insurance Works Home insurance does not automatically cover some particularly valuable items, such as a diamond ring. Home insurance does not automatically cover some particularly valuable items, such as a diamond ring. To insure it, you would add a rider to your policy. To insure it, you would add a rider to your policy. A rider is a special addition to an insurance policy that covers a specific type of loss. A rider is a special addition to an insurance policy that covers a specific type of loss.
  • Slide 8
  • How Insurance Works Your life and health dont carry a price tag the same way that property does. Your life and health dont carry a price tag the same way that property does. So life and health insurance is sold in different amount. So life and health insurance is sold in different amount. You can choose the amount of protection you want. You can choose the amount of protection you want. The greater the amount of coverage you choose, the higher the premiums. The greater the amount of coverage you choose, the higher the premiums.
  • Slide 9
  • How Insurance Works Your life insurance also depend on your life expectancy. Your life insurance also depend on your life expectancy. Life expectancy is an estimate of the average number of years remaining in peoples lives, based on their gender and current age and health. Life expectancy is an estimate of the average number of years remaining in peoples lives, based on their gender and current age and health.
  • Slide 10
  • The Insurance Trade-Off Insurance should not be to protect you from any loss. Insurance should not be to protect you from any loss. So when you shop for insurance, decide how much of a loss you can reasonably cover yourself without too much financial hardship. So when you shop for insurance, decide how much of a loss you can reasonably cover yourself without too much financial hardship. For example, if you agree to pay the first $1000 of your medical insurance each year, then your premiums will be lowered than if you agree to pay the first $500. For example, if you agree to pay the first $1000 of your medical insurance each year, then your premiums will be lowered than if you agree to pay the first $500.
  • Slide 11
  • Role of Insurance in the Economy Insurance provides security. Insurance provides security. Many business activities would not be possible without insurance. Many business activities would not be possible without insurance. A bank wouldnt lend you money to buy a home if you didnt insure the home. A bank wouldnt lend you money to buy a home if you didnt insure the home. Doctors usually dont practice without insurance. Doctors usually dont practice without insurance. One lawsuit could ruin them. One lawsuit could ruin them. Our economic system relies on sharing the risk through insurance. Our economic system relies on sharing the risk through insurance.
  • Slide 12
  • Types of Insurance Property Insurance Property Insurance Insurance that protects you from financial loss when things you own are stolen, damaged, or destroyed. Insurance that protects you from financial loss when things you own are stolen, damaged, or destroyed. This is for cars, homes, and valuable possessions This is for cars, homes, and valuable possessions Designed two ways Designed two ways It pays based on items market value It pays based on items market value It pays based on items replacement value It pays based on items replacement value
  • Slide 13
  • Types of Insurance Property Insurance Property Insurance Market Value is the amount an item is worth now. Market Value is the amount an item is worth now. Replacement value is the cost of replacing the item. Replacement value is the cost of replacing the item. Liability Insurance Liability Insurance Sometimes your actions cause losses to other people Sometimes your actions cause losses to other people This insurance protects you from losses that you caused others. This insurance protects you from losses that you caused others.
  • Slide 14
  • Types of Insurance Personal Insurance Personal Insurance Insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death. Insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death.
  • Slide 15
  • How to Choose Automobile Insurance Types of coverage Types of coverage Bodily Injury Liability Coverage Bodily Injury Liability Coverage The amount of coverage is typically described by two numbers The amount of coverage is typically described by two numbers The might be shown as $250,000/$500,000 or 250/500 The might be shown as $250,000/$500,000 or 250/500 This means you policy will pay up to a maximum of $250,000 to any one person in a given accident. This means you policy will pay up to a maximum of $250,000 to any one person in a given accident. The policy will pay up to $500,000 for all injuries to other people in a given accident. The policy will pay up to $500,000 for all injuries to other people in a given accident.
  • Slide 16
  • How to Choose Automobile Insurance Types of Coverage Types of Coverage Property damage liability coverage Property damage liability coverage It pays for damage you caused to another persons property It pays for damage you caused to another persons property The policy may state this number after the bodily injury numbers as 250/500/50 The policy may state this number after the bodily injury numbers as 250/500/50 The company will pay $50,000 for property damage. The company will pay $50,000 for property damage.
  • Slide 17
  • How to Choose Automobile Insurance Types of coverage Types of coverage Medical payments coverage Medical payments coverage It pays medical and funeral expenses for you, your family members, and other passengers in your car because of injuries sustained in an accident-no matter who caused the accident. It pays medic

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