Protecting Your Wealth

1. Protecting Your Wealth

2. Protecting your wealth • Auto and Homeowner’s Insurance • Health and Disability Insurance • Life Insurance

3. Auto and homeowner’s insurance • I can… • Explain the role of risk management • Outline provisions of auto insurance • Describe financial coverage provided by homeowners insurance

4. Background on Insurance • Property Insurance ensures that damages to home and auto are covered and personal assets are protected from liability • Liability- you are required to pay someone for damages that you caused • Primary function of insurance- maintain existing level of wealth • Benefit of insurance is peace of mind knowing your assets are protected

5. Managing risk • In the context of insurance, Risk- exposure to events or perils that can cause financial loss • Risk management aredecisions about whether and how to protect against risk, alternatives include: • Avoid risk • reduce risk • insurance against risk

6. Avoid risk • Avoid risk of property damage if you don’t own property • If you lease a car you are still expose to liability and financial loss if an accident • Exposed to financial loss if you require medical attention or become disabled

7. Reduce risk • Purchase a small home rather than a large home in order to reduce the maximum possible financial loss • Purchase an inexpensive car to limit possible financial loss due to property damage • Getting periodic health check ups

8. Insure against risk • If you cannot avoid or reduce risk and you do not want to be exposed to a financial loss • Premium is the cost of obtaining insurance

9. What impact does the economy have on the decision to insure against risk? • Give one, get one. • Think about this question and develop an answer. Then, turn to your partner and discuss both of your answers.

10. Role of insurance companies • Offer insurance policies that can protect you against financial loss. • Many different types of insurance • Insurance companies generate revenue from receiving payments for policies • Insurance underwriters are hired to calculate the risk of specific insurance policies, decide what policies to offer, and what premiums to charge.

12. Role of insurance agents Insurance agent recommends insurance policies for customers Captive (exclusive) agent works for one particular company • ex. State Farm insurance agents Independent agent represents many different insurance companies

13. Automobile insurance • Insures damage to an automobile and expenses associated with accidents • Protects your car and limits your potential liabilities (expenses due to an accident) • Prices vary between states • Much larger in highly populated states • Insurance policy is a contract between an insurance company and policyholder • Auto insurance policy specifies the coverage provided by the insurance company for a particular individual and vehicle • Bodily insurance liability coverage protects against liability associated with injuries caused by the policyholder

14. Basic types of auto insurance • Liability • Bodily injury liability • Property damage liability • Uninsured Motorists • Underinsured Motorists • Collision • Comprehensive

15. How much does auto insurance cost? • Factors that affect your auto insurance premium… • Value of a car • Repair record of the car • Your age • Your mileage • Your driving record • Your location • Your driver training • Your school performance

16. How can you lower your insurance • Get good grades • Choose your wheels carefully • Consider the age and condition of your vehicle • Consider letting your parents insure you on their policy • Ms. Vandiver says…Don’t text and drive 

17. Coverage limits on your policy • Policy may show 50/100/25 • That means… • $50,000 of bodily injury liability if one person is injured • $100,000 total for all bodily injury liabilities for all injured • $25,000 of property damage coverage

18. Homeowner’s insurance • Provides insurance in the event of property damage, theft, or personal liability • Protects most valuable assets but limits potential expenses associated with a home • Provides a certain amount of liability coverage, which pays for injury or death of others caused by you on your property

19. What else does home insurance cover? • The building/residence • Home furnishings • Most personal belongings • Lawn, trees, and shrubs in limited cases • Garage • Some external structures, like sheds • Fence • Swimming pool

20. What are perils? • Things or events that can damage or destroy a home or its contents, a homeowners policy may cover these perils: • Fire • Lightening • Wind • Hail • Theft • Explosion • Smoke • Glass breakage • Vandalism • Riot • Falling aircraft • DOES NOT COVER FLOOD!

21. Property damage • Cash-value policy pays you for the value of the damaged property after considering its depreciation (wear and tear) • Replacement cost policy pays you for the actual cost of replacing the damaged property

22. Additional coverage: personal property • Normally covers furniture, computers, clothing up to a specified amount • Home inventory includes detailed information about your personal property that can be used when filing a claim • Create a list of personal assets and estimate the market value of each, take pictures or video of items • Personal property floater (personal articles floater) is an extension of the homeowner’s policy that allows you to itemize your valuables, if assets are very valuable and are not fully covered by your policy

23. How much does homeowner’s insurance cost? • Factors that affect the premium of homeowner’s insurance policy: • Value of insured home • Deductible • Location • Degree of protection • Discounts

24. How can you lower the cost of homeowner’s insurance? • Improve protection • Use one insurer for all types of insurance • Bundling discounts • Stay with the same insurance company • Shop around

25. What does renter’s insurance cover? • Renters insurance is a policy that protects your possessions within a house, condo, or apartment that you are renting • Does not insure the structure itself because the insurance is for the renter only, not the property owner • Covers personal assets such as furniture, television, computer equipment, and stereo equipment

26. Ethical Dilemma • You teach Personal Finance at a local community college. The state in which you teach requires proof of liability insurance in order to renew your license plates. • During the discussion of this topic in class, several students admit that they obtain a liability policy just prior to the renewal of their license plates and then cancel it immediately thereafter. They do this because they know that the state has no system for following up on the cancellation of the liability policies once the license plates are issued. These students, who are out of work as a result of a local plant shutdown, indicate that they cannot afford to maintain the insurance, but they must have access to cars for transportation • Write a paragraph discussing whether you consider the conduct of the students to be unethical. • How does the conduct of these students potentially impact other members of the class who maintain liability insurance on their vehicles?

27. Quiz over home and auto 3/28 • Includes the slides above and the vocabulary

28. Health and disability insurance • I can… • Identify and compare the types of private health care plans • Explain the use of government health care plans • Describe long-term care insurance • Explain the benefits of disability insurance

29. Life insurance • I can… • Describe the types of life insurance that are available • Identify the factors that influence insurance needs • Review the factors that affect life insurance premiums • Examine the decision of whether to purchase life insurance • Explain settlement options available to a beneficiary