Chapter 14Chapter 14Automobile Automobile

and and

Home InsuranceHome Insurance

Insurance Basics 14.1Insurance Basics 14.1

Insurance: Insurance: Risk management tool that limits Risk management tool that limits financial loss due to illness, injury or damage in financial loss due to illness, injury or damage in exchange for a Premium.exchange for a Premium.How Insurance WorksHow Insurance Works

Risk ManagementRisk Management Premiums and StatisticsPremiums and Statistics What Insurance ProtectsWhat Insurance Protects The Insurance Trade OffThe Insurance Trade Off Role of Insurance in the EconomyRole of Insurance in the Economy

• Limits possible financial loss amounts you can handle

• Shared Risk: Insurance principle of using premiums from many policyholders to reimburse the losses of a few, so that no one suffers a financially devastating loss.

• Premium: Regular payment required to purchase insurance.

• Claim: Formal request made to an insurance company for payment of loss.

• Insurance is designed to restore your financial position to where it was before the loss – not to allow you to profit from a loss.

• To insure something you must have an Insurable Interest in it: (Something of value that, if lost, would cause you financial harm.)

• The insurable interest must be yours.

If you try to cover all your risk then you will end up putting yourself at financial risk by paying your premiums. So you must shoulder some of the risk yourself and only insure those things that would really put you at a detriment.

• Insurance allows business to proceed. Businesses need insurance to recover loss, banks need insurance to protect their investments, professionals need insurance to protect them in their professions.

• If there were no insurance, businesses would be very limited in the amount of risk they could afford themselves and that would hurt production & jobs and in turn hurt the economy

Types of InsuranceTypes of Insurance Property Insurance – losses you sustain from things Property Insurance – losses you sustain from things

you own being stolen, damaged or destroyedyou own being stolen, damaged or destroyed Market Value: How much the item is worth now taking into Market Value: How much the item is worth now taking into

consideration depreciation or appreciationconsideration depreciation or appreciation Replacement Value: How much the item would cost if you went to Replacement Value: How much the item would cost if you went to

replace/rebuy it right nowreplace/rebuy it right now

Liability Insurance – Other people’s losses caused by Liability Insurance – Other people’s losses caused by youyou

Personal Insurance – You/your family’s bodily Personal Insurance – You/your family’s bodily insurance to protect against loss due to illness, insurance to protect against loss due to illness, disability, or deathdisability, or death

Auto Insurance BasicsAuto Insurance Basics

Auto Insurance 14.2Auto Insurance 14.2

Types of CoverageTypes of Coverage Bodily Injury Liability CoverageBodily Injury Liability Coverage Property Damage Liability CoverageProperty Damage Liability Coverage Medical Payments CoverageMedical Payments Coverage Uninsured/underinsured Motorist CoverageUninsured/underinsured Motorist Coverage Comprehensive CoverageComprehensive Coverage Collision CoverageCollision Coverage No-Fault InsuranceNo-Fault Insurance Additional OptionsAdditional Options

Auto InsuranceAuto Insurance

How Much Insurance Should You Buy?How Much Insurance Should You Buy? In Illinois according to In Illinois according to DMV.org

• 25/50/2025/50/20

Costs of Auto InsuranceCosts of Auto Insurance

Causes of Increasing Insurance CostsCauses of Increasing Insurance Costs Assigned Risk: Driver who has been assigned Assigned Risk: Driver who has been assigned

an insurance company by the state because a an insurance company by the state because a bad driving record makes every other bad driving record makes every other company unwilling to insure the person.company unwilling to insure the person.

Factors Affecting Your PremiumFactors Affecting Your Premium Reduce Your PremiumsReduce Your Premiums

Deductible: Amount you pay for a loss before Deductible: Amount you pay for a loss before the insurance company pays anythingthe insurance company pays anything

Math Activity 14 – Auto Math Activity 14 – Auto InsuranceInsurance

Of the six basic types of auto insurance coverage, only Of the six basic types of auto insurance coverage, only two apply to the policyholder’s vehicle: comprehensive two apply to the policyholder’s vehicle: comprehensive physical damage coverage and collision coverage. physical damage coverage and collision coverage.

When you file an insurance claim, the amount your When you file an insurance claim, the amount your insurance company will actually pay depends on your insurance company will actually pay depends on your policy. Most insurance companies offer a choice of policy. Most insurance companies offer a choice of deductible. After the deductible is paid, the insurance deductible. After the deductible is paid, the insurance company will cover any balance, up to the policy limits.company will cover any balance, up to the policy limits.

Ex: If a person has a claim that amounts to $2000 and their Ex: If a person has a claim that amounts to $2000 and their policy calls for a $500 deductible. The policy holder must policy calls for a $500 deductible. The policy holder must pay the first $500 and then the insurance company will pay the first $500 and then the insurance company will pay the remaining $1500.pay the remaining $1500.

Math Activity 14 – Insurance Math Activity 14 – Insurance Claims and DepreciationClaims and Depreciation

If your vehicle were stolen or damaged beyond repair, If your vehicle were stolen or damaged beyond repair, the insurance company would pay you the current value the insurance company would pay you the current value of a comparable vehicle, not what you paid for your of a comparable vehicle, not what you paid for your vehicle originally. The loss in a vehicle’s value over time vehicle originally. The loss in a vehicle’s value over time is called depreciation. Depreciation varies depending on is called depreciation. Depreciation varies depending on the type of vehicle and its condition. Typically, the larges the type of vehicle and its condition. Typically, the larges loss in value comes in the first year of ownership.loss in value comes in the first year of ownership.

Ex: Ex: Depreciation Amount New Value

Original Value $18,000

First Year: depreciates 25% $4,500 $13,500

Second Year: depreciates 15% $2,025 $10,475

Third Year: depreciates 15% $1,571.25 $8,903.75

Math Activity 17 Evaluating Math Activity 17 Evaluating Computer PricesComputer Prices

Shopping for a computer and the additional Shopping for a computer and the additional components that you need to make use of it can components that you need to make use of it can be challenging. There might be several brands be challenging. There might be several brands and models that will fulfill your needs and wants, and models that will fulfill your needs and wants, several options for where to buy, and various several options for where to buy, and various package deals to evaluate.package deals to evaluate.

Fractions to DecimalsFractions to Decimals

If you need to know what 3/5 of a number If you need to know what 3/5 of a number (1500) is:(1500) is:

1.1.Divide 3 by 5 to get a decimal = .6Divide 3 by 5 to get a decimal = .6

2.2.Multiply the number by .6 = 1500 * .6 = 900.Multiply the number by .6 = 1500 * .6 = 900.

Subtracting Mixed NumbersSubtracting Mixed Numbers

Change mixed number to a fraction:Change mixed number to a fraction:Ex: 3 5/8 and 2 6/8 (multiply denominator by the whole Ex: 3 5/8 and 2 6/8 (multiply denominator by the whole number and add the numerator)number and add the numerator)

Ex: 29/8 – 22/8 = 7/8Ex: 29/8 – 22/8 = 7/8

Homeowner’s InsuranceHomeowner’s Insurance

Home Insurance Coverage 14.3Home Insurance Coverage 14.3Homeowner’s Insurance: Homeowner’s Insurance: Insurance that provides personal Insurance that provides personal property and liability protections for your home.property and liability protections for your home.Types of CoverageTypes of Coverage

Personal Property: protects against damage or loss of Personal Property: protects against damage or loss of your house and its contentsyour house and its contents• Exclusions: collectables, lap-top computers, silverware, valuable Exclusions: collectables, lap-top computers, silverware, valuable

jewelry, cash (you can buy riders for these items)jewelry, cash (you can buy riders for these items) Liability: covers bodily injury or damage you cause to Liability: covers bodily injury or damage you cause to

others while on your property. It also covers damage you others while on your property. It also covers damage you do to someone else’s property (even if you are not at do to someone else’s property (even if you are not at home) But it doesn’t cover damage you do with your car.home) But it doesn’t cover damage you do with your car.

Renter’s InsuranceRenter’s Insurance

PoliciesPolicies Umbrella PolicyUmbrella Policy Special Risk CoverageSpecial Risk Coverage Basic Forms of Homeowner’s InsuranceBasic Forms of Homeowner’s Insurance Renter’s Insurance/Condominium Renter’s Insurance/Condominium

InsuranceInsurance RiderRider

Cost of Home Owners InsuranceCost of Home Owners Insurance

How Much Insurance Should I Buy?How Much Insurance Should I Buy? 80% Rule: Insurance company rule that you must 80% Rule: Insurance company rule that you must

buy homeowner’s coverage for at least 80% of buy homeowner’s coverage for at least 80% of your home’s actual value at the time of your loss your home’s actual value at the time of your loss in order to receive full reimbursement for any in order to receive full reimbursement for any loss.loss.

Factors Affecting Your PremiumFactors Affecting Your Premium Location – Age of Home – Distance to Fire Location – Age of Home – Distance to Fire

Station or HydrantStation or Hydrant Reduce Your PremiumReduce Your Premium

Providers and the Claims Providers and the Claims Process 14.4Process 14.4

How to Choose an Insurance ProviderHow to Choose an Insurance Provider How to Choose an AgentHow to Choose an Agent

• Company representativesCompany representatives• Independent AgentsIndependent Agents

How to Choose an Insurance CompanyHow to Choose an Insurance Company• Financial Health of the companyFinancial Health of the company• Claims Service for processing claims and claim Claims Service for processing claims and claim

payoutpayout• Claim AgentsClaim Agents

Appraisals: an expert’s determination of the value of a Appraisals: an expert’s determination of the value of a piece of propertypiece of property

How to File a ClaimHow to File a Claim Making a Claim: Formal request made to Making a Claim: Formal request made to

an insurance company for payment of lossan insurance company for payment of loss Home Owner’s ClaimHome Owner’s Claim

Have a home inventory to prove what you Have a home inventory to prove what you ownedowned

Automobile ClaimsAutomobile Claims Always call the police and have an official Always call the police and have an official

police report so that there is a non-partial third police report so that there is a non-partial third party reportparty report

Insurance FraudInsurance Fraud