Understanding Types of Insurance

1
Understanding Types of Insurance

• Karen Rhodes
• Mulberry High School

2
What is Insurance?

• An arrangement between an individual (consumer)
  and an insurer (insurance company) to protect the
  individual against risk.

3
Insurance is

• Insurance should play a large role in an
  individuals financial management plan.
• 1 in 12 dollars in the US economy is spent on
  insurance.

4
Purpose of Insurance

• Limits financial loss.
• Prepares for the unexpected.
• Transfers part of the risk of financial loss to
  the insurance company.

5
Insurance Terminology

• Policy contract between individual and insurer
  specifying terms of insurance arrangement.
• Premiums fee paid to the insurer to be covered
  under the specified terms.

6
Terminology Cont

• Deductible amount paid out of pocket by policy
  holder for portion of a loss before insurance
  coverage begins.
• Policyholder consumer who purchased policy.

7
Types of Insurance

• Automobile
• Health
• Life
• Disability
• Homeowners/Renters

8
1. Automobile Insurance

• Purpose of auto insurance is
• to help individuals limit their financial
  losses when an auto accident occurs.
• Insurance Education Foundation (IEF) states there
  is 70 chance a person will be involved in an
  auto accident within the first three years of
  driving.

9
Four Types of Auto Coverage

• 1. Liability Insurance
• Covers the insured if injuries or damages are
  caused to other people or their property.
• Minimum amount of insurance required by law for
  automobiles.

10
Types of Auto Coverage cont

• 2. Medical Payment Insurance
• Covers injuries sustained by the driver of the
  insured vehicle or any passenger regardless of
  fault.
• Covers insured family members injured as
  passengers in any car or if they are injured
  while on foot as a pedestrian or while riding a
  bicycle.

11
Types of Auto Coverage cont

• 3. Uninsured or Underinsured Motorists
• Insurance
• Covers injury or damage to
• the driver, passengers, or the
• vehicle caused by a driver with
• insufficient insurance.
• Does not cover the other driver.

12
Types of Auto Coverage cont

• 4. 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.

13
Types of Auto Coverage cont

• Comprehensive and Collision Coverage
• Often carries a deductible.
• Example, suppose collision damage to your car
  costs 1,200 to fix. Your deductible is 500.
  You would have to pay the first 500, and the
• insurance company would
• pay the remaining 700.

14
Factors Affecting Auto Premium

• 1. Driver Classification
• Age, gender, marital status
• Statistics prove that young males have more
  accidents than young females under the age
• of 21. Young males pay more for insurance.
• Married people have fewer accidents than single
  people. Single people pay more for insurance.

15
Factors Affecting Auto Premium cont

• 2. Rating Territory
• Might be cities, parts of a city or rural areas.
• If you live in a territory that generates more
  claims than others, than you will pay more for
  insurance.
• Example More accidents take place in urban than
  rural areas.
• A basic insurance policy in rural Nebraska can be
  purchased for less than 500 a year. The same
  policy in Boston, Washington, D.C. or Los Angeles
  costs more than 1,200.

16
Factors Affecting Auto Premium

• 3. Driving Record
• Your driving record is an official list of your
  accidents and traffic violations.
• Points will be added to your record.
• 1 point - increase premium 10
• 2-3 points increase premium 25-100
• Accumulation of too many points can cause
  insurance company to drop policy
• Trouble reinsured high risk high premium.

17
Factors Affecting Auto Premium cont

• 4. Type of Car
• Some cars are more expensive to repair or replace
  than others.
• Thieves tend to steal expensive sports cars and
  luxury cars more often than other types of cars.
• Premiums reflect this risk.
• 5. Claims History
• More claims make premiums higher

18
2. Health Insurance

• Health care costs are extremely high.
• Large medical expenses can wipe out savings.
• Health insurance provides protection against
  financial losses resulting from injury, illness,
  and disability.
• Purpose is to provide coverage for medical
  expenses, emergency and routine.

19
2. Health Insurance

• Health Coverage
• Hospital
• Surgical
• Dental
• Vision
• Long-term care
• Prescription
• Major expenditures

20
Health Insurance cont

• Coverage depends on terms of policy.
• Policy Purchased
• Individual
• Family
• Employer-Based
• 61 of Americans through employer

21
3. Life Insurance

• 70 of American
• adults have life insurance.
• Life insurance provides
• money for family members or dependents when a
  wage earner dies.
• Dependent is a person who relies on someone else
  financially.

22
Life Insurance Terminology

• Contract policy which states the amount to be
  paid to beneficiary upon death of insured.
• Beneficiary recipient of policy proceeds if the
  insured person dies.

23
Who Needs Life Insurance?

• Not necessary if a person is single with no
  dependents.
• Necessary for people who have a dependent spouse,
  dependent children, an aging or disabled
  dependent relative, or business owners.

24
4. Disability Insurance

• One out of ten people will become disabled before
  age 65.
• Disability insurance replaces a portion of ones
  income if he/she becomes unable to work due to
  illness or injury.

25
4. Disability Insurance cont

• Benefit Package
• Pays between 60-70
• of ones full time wage.
• Never pays 100 of the wages because there is no
  incentive to return to work.

26
Disability Insurance cont

• Factors that Influence Benefit Package
• Length or severity of a disability will impact
  the percentage of income a person will receive.
• Employers may offer a portion of the benefits
  package.

27
5. Homeowners/Renters Insurance

• Property and liability insurance policy will
  protect a home from damage costs due to perils.
• Peril is an event which can cause a financial
  loss.
• Fire
• Falling trees
• Lightning
• Others

28
5. Homeowners/Renters

• Property Insurance
• Protects from financial losses due to destruction
  or damage to the property or possessions.
• Liability Insurance
• Protects the insured from financial losses due to
  being held liable for others losses

29
Homeowners Insurance cont

• Insurance should cover the replacement cost to
  rebuild the home if it is completely destroyed.

30
5. Renters Insurance

• Protects insured from loss to contents rather
  than the dwelling itself.
• Covers major perils.
• Liability protection.
• Additional living expenses.
• Landlords insurance policy on the dwelling does
  not cover the renters personal possessions.

31
Resources

• Southwestern Publishers, Economic Education for
  Consumers 2000
• Glenco McGraw-Hill Publishers, Consumer Education
  and Economics 2003
• www.ConsumerReports.org
• www.quicken.com
• www.farmersinsurance.com