Insurance

Purpose of Insurance To mitigate risk, reduce the $$$ damage from an accident, illness – Savings not usually enough when major problems strike. – Risks are predictable based on many factors of life, such as age, location, occupation, race, eating habits, driving distance and behavior, ect. – All insurance has upper limits of payments Ex $3 million in lifetime medical expenses

Deductibles and Co-pays Insurance companies use actuary tables, which estimate your probability of having an accident or illness. – They then offer different deductibles, or dollar amounts beyond which they pay your expenses – In medical insurance, this is sometimes called a co-pay.

Darlene O’Briens’s 60 th Birthday Party

Auto Accident – My wife’s mother had moved into our apartment on April 1, June 2006 she crashed Chevy Cavalier car into a gas station, stopping 4 inches from a pump. She had Auto liability insurance to cover damages to other people’s properties She also had Collision insurance to cover damages to her car in an accident She did not have Comprehensive insurance to cover non-driving damages (ex. tree branch drops on your car)

Financial Impact The insurance paid the Market Value of her car ($4000) minus her deductible ($1500) Market Value is figured based on value of a used product, not the replacement cost Unable to get insurance on another car, she had to ride the bus. She gambled away her insurance payment at a local casino.

August Reimers went out to eat to celebrate Will’s 33 rd birthday This British public service ad shows what happened next henoilfire1.wmv henoilfire1.wmv UE UE

Renter’s Insurance Covers liability for your damages to other people’s residential property – Also covers market value for your personal possessions. – Some renters insurances also provide “relocation” which covers temporary shelter until you find a new place to live If you sign a contract to rent a apartment or house, and your roommate doesn’t pay bills, you are liable. If you have renters insurance and they damage the place, you are insured

Final Damages from fire $13,500 water, fire and smoke damage to apartment $ 12,000 fire restoration and cleaning of personal property $10,000 personal property losses (electronics, rugs, artwork, furniture) Insurance repaid only $6000 of damage.

Medical Insurance Helps pay for costs of medical treatments and prescription medications. Two Main types are – health maintenance (doctor visit) – hospital major medical Over 40 million Americans do not have medical insurance, which makes medical bills the #1 cause of bankruptcy in the USA. 4 hours in emergency room=about $1400 Poor people can get State Welfare to help.

Life Insurance Covers financial risk (income loss) of your death – Term Life covers a certain term (30 years) at a set price – Whole Life covers until death, but costs more because payout is certain. – Parents of small children must plan to protect their kids financial future if the parent dies – Parents can also plan to protect finances in case of child’s death from accident or disease.

How much is your life worth? Years of childhood education x $5000=______ Years of college education x $7,500=________ Average yearly earnings of job x years until retirement +4 years (inflation value)_________ Estimated college expense of children ($80,000x # of children)____________ Retirement income for spouse (Ave. yearly earnings x.7, then times 25 years life after their retirement)_____________

How much is Reimers life worth? – Years of childhood education x $5000=$60,000 – Years of college education x $7,500=$60,000 – Average yearly earnings of job x years until retirement +4 years (inflation value)=$2,205,000 – Estimated college expense of children ($80,000x # of children)= $240,000 (I want to leave a family education trust) – Retirement income for spouse (Ave. yearly earnings x.7, then times 25 years life after their retirement)=$787,500 – Total Life Replacement Value=$3,352,000

Questions