14 role of insurance
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  • 1. 14a evaluate insurance as a risk management strategy14b distinguish among the types, costs and benefits of insurancecoverage, including automobile, life, property, health, and professionalliability14c Explain the role of insurance in financial planning
  • 2. Insurance can reduce financial risk.There are pros and cons of insurance as a riskmanagement strategy in financial planning.
  • 3.  Insurance provides protection from loss due to unforeseen or unavoidable events or circumstances Example:  Illness  Death  Fire  Theft  Liability  Act of nature  Automobile accident
  • 4. There are many types of insurance includingautomobile, life, property, health, andprofessional liability.Individuals have many choices to make inselecting insurance.
  • 5. Premium - The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to company.Premiums also vary depending on: the amount and type of coverage purchased the make and model of the car the insured’s driving record years of driving the number of miles the car is driven per year driver’s age and gender where the car is most likely to be driven and the times of day— rush hour in an urban neighborhood or leisure time driving in rural areas, for example. Some insurance companies may also use credit history related information. Source: http://www2.iii.org/glossary/
  • 6.  Increase your deductible Cancel your collision coverage Garage the car Install a security alarm Maintain a good driving record Avoid submitting small claims
  • 7. Insurance scores are confidential rankings based on credit information.This includes: whether the consumer has made timely payments on loans, the number of open credit card accounts whether a bankruptcy filing has been made.An insurance score is a measure of how well consumers manage their financial affairs. It does not include information about income or race.People who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool. Source: http://www2.iii.org/glossary/
  • 8.  Deductible - The amount of loss paid by the policyholder. Claim - a request for the insurance company to pay Collision - covers the damage to the policyholder’s car from a collision. Comprehensive - covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft. Liability - Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person. Source: http://www2.iii.org/glossary/
  • 9.  Personal injury protection - covers the treatment of injuries to the driver and passengers of the policyholder’s car. No fault - coverage that pays for each driver’s own injuries, regardless of who caused the accident. Uninsured/underinsured motorist - protects a policyholder from uninsured and hit-and-run drivers. Assigned risk - Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular market. Source: http://www2.iii.org/glossary/
  • 10. 25/50/20 minimum $25,000 per person $50,000 injury or death (two or more people) $20,000 for property damageOr pay the Uninsured Motorist Fee ($500)
  • 11.  Death benefit – amount paid to beneficiary when the insured dies Cash value – the accumulated value of the policy Determining what you need:  Dependents (children, spouse, etc. who depend on you)  Current lifestyle  Current financial situation (ex. debts, loans, college expenses) Temporary insurance:  Term - covers the insured person for a certain period of time, the “term” that is specified in the policy. Permanent insurance:  Universal - A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest.  Variable - A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder’s discretion. Source: http://www2.iii.org/glossary/
  • 12.  Its purpose is to protect a person from losses due to damage, theft and liability. It includes basic coverage, broad form, special form, renter, comprehensive, and condominium owner. There are disadvantages of under-insuring and over- insuring. The insured must pay a deductible toward a loss before the insurance company contributes. Policies with lower deductibles have higher premiums, and vice versa. Replacement value – the dollar amount needed to replace the personal property
  • 13.  Basic health insurance covers doctor visits, routine service, and hospital and surgical expenses. Major medical insurance insures a person from large and catastrophic expenses resulting from illness or injury. Dental and vision care insurance are generally sold separately from basic insurance coverage. Disability insurance offers workers protection in case of job- related injury. Long term care insurance offers coverage for nursing home and assisted living facilities Co-pays (i.e., payment by the insured for medical services) are a requirement of most health insurance plans. Annual deductible – the yearly amount you may be responsible to pay
  • 14.  Professional liability insurance is often purchased by attorneys, health care providers, and educators to protect against malpractice and other litigation. Umbrella liability insurance provides additional protection should other policies not be sufficient.
  • 15. Insurance can play an important role in financialplanning.
  • 16.  Protection against risk of financial loss Assistance for individuals and families preparing financially for risks such as disability, unemployment, long-term care, and death Provision for retirement income Accumulation of savings (for family expenses) Provision of cash value that can be borrowed. It is important to make periodic reviews of insurance coverage.