Understand what our Leaders have said about Insurance
Insurance is an important part of becoming financially self-reliant. Elder Marvin J. Ashton said:
Appropriately involve yourself in an insurance program. It is most important to have sufficient medical, automobile, and homeowner’s insurance and an adequate life insurance program. Costs associated with illness, accident, and death may be so large that uninsured families can be financially burdened for many years. ( Marvin J. Ashton, “Guide to Family Finance,” Liahona , Apr. 2000, 42.)
With rising medical costs, health insurance is the only way most families can meet serious accident, illness, or maternity costs, particularly those for premature births. Life insurance provides income continuation when the provider prematurely dies. Every family should make provision for proper health and life insurance . (N. Eldon Tanner, “ Constancy Amid Change, ” Ensign , Nov. 1979, 80.)
Insurance is a legal contract between you and an insurance firm whereby the firm agrees for a premium (fee) to pay you compensation for certain kinds of losses or events, i.e., death, sickness, compensation for accidents, loss of ability to work, legal expenses, etc.
What are the major types of insurance?
Life, Health, Auto, Home, Disability, and Liability Insurance
Balance the cost of reducing risk with the severity of the potential loss
Insure against high severity losses that rarely occur—those that could have a major impact on your financial situation
Reduce and avoid those other risks that you can
Self-insure against the smaller risks
Use insurance for what insurance does best!
Be careful in mixing insurance and investing products
Life Insurance and Your Investment Plan Cash value: with guaranteed insurability option paid up till age 65. Term: Five-year guaranteed renewable term in $50,000 and $100,000 increments; can add and drop as necessary. Investment: Includes individual and employer sponsored retirement plans
How important are correct principles when teaching about a specific subject?
The Prophet Joseph Smith said: “I teach them correct principles and they govern themselves.” ( Messages of the First Presidency, comp. James R. Clark, 6 vols., Salt Lake City: Bookcraft, 1965-75, 3:54.)
What are the key principles of insurance that can help us “govern ourselves”?
If we understand those principles, we should be able to govern, i.e. “manage” our various insurance products wisely and cost efficiently
3. What life insurance companies do you represent?
Generally, it is better to work with someone that represents at least one company with a top rating from A.M. Best for 10 consecutive years. If they work with multiple companies, they may be able to offer more competitive products
4. Are you a CLU (a Chartered Life Underwriter)?
A CLU is preferred, especially if you are seeking advice or considering insurance other than term.
5. Will I be allowed to keep the insurance proposal that you prepare for me?
You should not consider an agent that doesn’t allow you to keep the proposal. You should be able to take the proposal home and review it on your time.
6. Would you be willing to inform me of the commission you’ll receive on any policies that you recommend?
You want to make sure that the agent is working on your behalf. By knowing the agent’s commission on various policies, you may be able to avoid policies that are more of a benefit to the agent than to you. Beware the agency problem!
There are 30 million accidents in the U.S. annually, or about 1 accident for every 5 licensed drivers. This results in over $100 billion in economic losses, 2 million injuries, and over 40,000 deaths. 1
When will it be your turn?
Mine was two years ago!
My daughter’s was earlier this year!
1 Louis Boone, David Kurtz, and Douglas Hearth, Planning Your Future , 3 rd ed., Thompson Southwestern, United States, p.275.
Insurance against financial loss due to an auto accident. It is a contract where you agree to pay the premium and the insurance company agrees to pay up to a specified amount for any policy defined losses.
Losses in excess of policy limits are your responsibility
Why is auto insurance important?
In addition to safety, most states require a minimum insurance coverage before you can legally drive
It covers all reasonable medical costs and funeral expenses incurred, by the insured or the insured’s family members within 3 years of an accident. It also includes coverage for the insured when walking.
What doesn’t it cover?
It does not cover medical expenses if the insured is injured by a vehicle not designed for public streets, such as an unlicensed 3 or 4 wheeler (quad/four wheeler)
My recommended minimum coverage is $50,000.
Part C: Uninsured/Underinsured Motorist’s Coverage
What does uninsured/underinsured insurance cover?
Costs if injured by an uninsured motorist or a hit-and-run driver.
The other driver must be at fault to collect on this coverage.
Costs in excess of the other driver’s liability coverage (i.e., under-insurance), if it is inadequate to pay for your losses.
My recommended coverage is the same as your other liabililty coverage
Part D: Comprehensive Physical Damage Coverage
What does comprehensive physical damage cover?
It covers collision loss regardless of who is at fault
If the other driver was at fault and has liability insurance, your insurance company should be able to recover losses without collision coverage from the other driver’s insurance company
Other than collision, it covers comprehensive physical damages
My recommended minimum is $100,000. Remember that deductibles apply.
Discounts reduce your costs. Apply for all discounts you can for you and your children, i.e. non-smoking, non-drinking, good grades, multiple policy, multiple vehicles, new parents, antilock brakes, passive restraints, group discounts, etc.
Always ask: “Are you sure you can’t do better than that?”
Notify police immediately. Get copies of all reports
Call your insurance company. Follow up with a written claim
Develop a list of damaged/stolen/destroyed items
Submit receipts for any additional living expenses
Provide information as requested by claims adjuster
Review the settlement steps in your policy
If you are dissatisfied with the settlement offer, request a meeting with your agent and adjuster.
If still not satisfied, contact your insurance company’s consumer affairs office or state insurance commissioner.
C. Understand the Key Areas of Personal Liability Coverage
What is a liability?
A liability is the financial responsibility one person has to another in a specific situation. Liability results from negligence, or the failure of one person to exercise the necessary care to protect others from harm
What are the cost of liability?
Every year thousands of people are sued for $1 million or more over the use of their cars or homes.
What is the purpose of Personal Liability Coverage?
Personal liability coverage protects the policyholder from the financial costs of legal liability or negligence
What are the two major forms of liability insurance?
The liability portions of homeowners and auto insurance and an umbrella liability coverage.
What is an umbrella liability coverage or umbrella policy?
An insurance policy that adds protection over and above the insured’s homeowners and auto policies, i.e., the policy becomes effective only after the limits of the homeowner’s and automotive policies have been reached.
As such, many companies require specific coverage limits, i.e., 250/500/100 insurance on all vehicles and $300,000 on the home before they will write an umbrella coverage.
Larry has split-limit 100/300/50 automobile liability insurance. Several months ago Larry was in an accident in which he was found to be at fault. Four passengers were injured in the accident and were awarded $100,000 each because of Larry’s negligence.
How much of this judgment will Larry’s insurance policy cover? What amount will Larry have to pay out-of-pocket?
Larry’s policy limits are 100/300/50. Because of this, Larry’s policy will pay up to $300,000, the maximum liability limit per accident. This amount must cover payments to all persons involved in the accident.
Unfortunately, it is not enough, because the four liability claims total $400,000. The other $100,000 awarded in the judgment will not be covered by his insurance, and would be a personal expense to Larry.
Kelly has a personal property coverage with a $250 limit on currency; a $1,000 limit on jewelry; and a $2,500 limit on gold, silver, and pewter. She does not have a personal property floater. Her deductible is $250.
a. If $500 cash, $2,500 of jewelry, and $1,500 of silverware were stolen from their home, what amount of loss would be covered by her homeowner’s policy ($4,500 total)?
B. How much will she have to pay on the claim?
Case Study #3 Answer Item Amount Insurance Pays Amount Kelly Pays Total Cash $250 $250 $500 Jewelry $1,000 $1,500 $2,500 Silverware $1,500 $0 $1,500 Totals $2,750 - $250 deductible = $2,500 $1,750 + $250 deductible = $2,000 $4,500
Catherine called her insurance agent to learn how to reduce her $1,000 annual homeowners insurance premium. The agent suggested increasing her current $250 deductible on her policy to $500. This would result in a 10% premium savings. Her agent also indicated that she would increase her deductible to $1,000 with an 18% savings, or $2,500 with a 25% savings.
a. How much will Catherine save per year in premiums by choosing the new deductibles?
b. What are the advantages & disadvantages of increasing her policy deductible?
a. Her current policy is $1,000 per year. Annual savings would be:
$500 deductible = 10% savings or $100;
$1,000 deductible = 18% savings or $180; or
$2,500 deductible = 25% savings or $250.
b. The advisability of increasing homeowner’s insurance deductibles depends on the adequacy of her emergency fund or her capacity to cover a loss from current earnings. Catherine would save $250 on her annual premium by increasing her deductible from $250 to $2,500. On the other hand, she would be responsible for the first $2,500 of losses. Catherine would need about ten claim free years ($2,500/$250) to break even. Her decision should be based primarily on her emergency fund.
Paul is confused about his umbrella policy. His insurance agent requires him to have 250/500/100 split insurance on each of his automobiles before they can be put under his umbrella policy. He also has to have a similar liability coverage for his home.
What is the purpose of an umbrella policy? Does it pay before or after Paul’s home or auto coverage?
Paul’s umbrella policy is a policy which provides protection against lawsuits and judgments
It doesn’t go into effect until after he has exhausted his homeowners and automobile liability coverage. For that reason, the insurance company requires high liability coverage on his home and automobiles before he can purchase an umbrella policy