1 INSURANCE BASICS 1.1 Insurance and Risk 1.2 Basic Policy Types Banking 5/23/2019 INSURANCE BASICS 1 1.1 Insurance and Risk 1.2 Basic Policy Types 1.3 Purchasing Considerations Chapter 1

Banking Define risk. Describe how insurance works. 5/23/2019 1.1 INSURANCE AND RISK GOALS Define risk. Describe how insurance works. Chapter 1

Standards BMA-IBT-10 Research and interpret the various risks involved in operating a business while determining the role of insurance for a business. 10.1 Identify possible business threats and employ risk management strategies and techniques to minimize potential financial loss. 10.2 Identify types of business insurance and the need for insurance in a business. 10.3 Explain basic insurance concepts: insurance, policyholder, premium, probability, risk, claim, coverage, deductible, policy, insured, insurer, and liability. 10.4 Analyze risks to make insurance decisions.

TERMS Risk Insurance Insured Premiums Insurer Insurance policy Coverage Claim Uninsured Underinsured

Insurance Scene Pg. 4 Do you agree with Aaron or Susan? What are some other options they should consider?

Types of Insurance Health Automobile Life Disability Homeowners/Renters

LIFE CARRIES RISK Risk - Involved in any situation in which some kind of loss or misfortune is possible Financial Physical Material Insurance - Provides compensation for loss and spreads the cost of sharing risk Indiv that are concerned about potential risks pay insurance companies for protection against specific types of risk such as floods, medical costs, car accidents. Is intangible—you cannot actually see or touch what you are getting. Some are not motivated to purchase insurance. Risks are intangible too—many times are not realized until you experience a loss or survive a close call.

WTBS… Write down 3 risks you may face. List whether they are Financial, Physical, or Material. 5 minutes

DEALING WITH RISK Insurance transfers risk. Ways to deal with risk include: Avoid Reduce Ignore Transfer For example: Avoid risk– By not smoking Reduce risk – by limiting the number of cigarettes you smoke Ignore risk – by smoking 3 packs a day Transfer – by buying health insurance to compensate you for medical treatment for conditions caused by smoking. Insurance transfers risk.

WTBS… List 1 risk and write down how you can avoid, reduce, ignore, and transfer the risk. 7 minutes Why do you think people ignore risk?

checkpoint List and describe four ways to deal with risk. Avoid Reduce Ignore Transfer

Insured - Individuals who buy insurance HOW INSURANCE WORKS Insured - Individuals who buy insurance Premiums - Periodic payments for an insurance policy Depending on the type of insurance, premiums are paid monthly, every 6 months, or once a year. Premiums create a pool of money that the insurer invests to earn more money, which is used to compensate the insured for losses Insurer - The company providing insurance

Insurance policy - Written contract between the insurer and the insured Each individual contract covers a specific losses such as theft, accident, fire, flood, illness, or death. Coverage -A specific type of loss such as flood coverage or fire coverage. Individuals agree to pay premiums on an insurance policy, the insurer agrees to reimburse them for their loss on the specific coverage included in their policy. When a loss occur, the insured files a claim. Claim - Written request for reimbursement to cover loss or damage that occurred from a specific event.

WHO PROVIDES INSURANCE? Most insurance is provided by private, for-profit corporations. Other sources of insurance coverage include: The U.S. government Joint programs from the federal and state governments Most recipients of government insurance pay minimal or no premiums for coverage.

INCREASING COSTS High cost of insurance causes many Americans to be: Uninsured - Having no insurance Underinsured - Not having enough insurance Premiums for most types of insurance have increased dramatically. Catastrophic events such as earthquakes, hurricanes, floods, and wildfires have cause premiums to become high. Insurance companies have excluded wildfires or floods from customer’s coverage or charge higher premiums, if customers built houses in an area that is prone to wildfires or flooding .

checkpoint Who do you think has more responsibility for the rising cost of insurance: the insurance companies or consumers? Why?

GOALS Describe basic property and casualty policies. Banking 5/23/2019 1.2 BASIC POLICY TYPES GOALS Describe basic property and casualty policies. Describe basic life, health, and disability policies. Chapter 1

TERMS Liability Real property Personal property

Standards BMA-IBT-10 Research and interpret the various risks involved in operating a business while determining the role of insurance for a business. 10.1 Identify possible business threats and employ risk management strategies and techniques to minimize potential financial loss. 10.2 Identify types of business insurance and the need for insurance in a business. 10.3 Explain basic insurance concepts: insurance, policyholder, premium, probability, risk, claim, coverage, deductible, policy, insured, insurer, and liability. 10.4 Analyze risks to make insurance decisions.

Insurance Scene Pg. 10 What safety and insurance issues will LaShawne have to consider? What do you it means when someone says, “You are liable for that.”?

PROPERTY AND CASUALTY INSURANCE Property and casualty insurance includes insurance policies for homes, cars, and businesses. Protects the insured against losses to his or her property or losses caused by injury to other people or damage to other’s property. Events such as fire, burglary, and other damage, are covered by policies. Liability A legal responsibility to provide compensation for certain types of injury or loss Ex. Person falls down stairs in your home b/c they were holding onto a loose railing, you may be liable for paying any medical bills incurred. Property and casualty insurance protects you from financial loss due to liability.

PROPERTY AND CASUALTY INSURANCE Both real property and personal property are covered by property and casualty insurance. Real property Permanent structures and objects such as buildings, fences, and built-in appliances. Personal property Anything not permanently attach, such as cars, RVs, furniture, clothing, and personal items.

AUTOMOBILE INSURANCE The most important automobile coverage is liability. Most states mandate a minimum amount of liability insurance individuals must carry to cover property damage and personal injury in case of an auto accident. Each state has specific regulations for types of automobile insurance policies including: No-fault Uninsured Underinsured motorist coverage

AUTOMOBILE INSURANCE No-fault insurance Uninsured motorist Provides compensation regardless of who was at fault Uninsured motorist Provides compensation for accidents caused by a driver who is either uninsured or underinsured Underinsured motorist Provides coverage for items not covered by an underinsured driver’s policy

COMPREHENSIVE COVERAGE Comprehensive auto insurance covers Theft Collision Vandalism Damage from fire Collision insurance should not exceed the value of the car.

HOMEOWNER’S INSURANCE Basic homeowner’s coverage includes damage to or loss of The dwelling Other structures (garage and sheds) Personal property on the insured premises Additional coverage may include Loss of use of the property Personal liability Medical payments in case of an accident on the property

Renter’s insurance covers Personal possessions Liability The owner of the structure should have insurance to cover the structure. Coverage depends on the circumstances of the insured.

WTBS… Write down 3 reasons you would need to purchase renter’s or homeowners insurance. 5 minutes

LIFE, HEALTH AND DISABILITY INSURANCE Life expectancy continues to rise. Varies among races and gender An increased life span increase the need for various types of insurance. http://www.worldlifeexpectancy.com/georgia-cause-of-death-by-age-and-gender

LIFE INSURANCE Life insurance pays a set amount of money to specified beneficiaries upon the insured’s death. Life insurance was an early form of insurance developed to protect families financially when their major wage earner died. Beneficiary A person or entity named in the insured’s will who should receive the benefits upon the insured’s death When purchasing life insurance, consider the standard of living you want for your beneficiaries. Life insurance funds can be used to pay funeral expenses, debts, and fees incurred in settling the estate of the deceased.

DON’T BUY WHAT YOU DON’T NEED Not everyone needs to purchase life insurance. If you do no have dependents and your assets would cover your debts and funeral expenses, you could use the money you would pay for insurance premiums for money important purposes Dependents A person who relies on you for financial support Assets The money and property you own Money not spent on premiums could be used for other investments.

WTBS… List 2 reasons to buy life insurance and 2 reasons not to purchase life insurance? 5 minutes From your own experience, can you tell if people are living longer or shorter? Explain

HEALTH AND MEDICAL INSURANCE Health/medical insurance plans provide compensation for medical care costs due to disease or injury. Managed care May cover preventive treatments Fee-for-service plans Requires individuals to pay a larger percentage of all care received.

HEALTH AND MEDICAL INSURANCE Government health/medical plans Medicare Provides hospital, medical, and surgical benefits to individuals age 65 or older or those under 65 with certain disabilities. Medicaid Government medical assistance program based on need. Provides medical benefits to low-income families with children and others in need who cannot afford medical insurance.

LONG-TERM CARE INSURANCE Long-term care policies include compensation for: Nursing homes Home health care Institutional care Assisted living facilities Personal care Other related services for the elderly and disabled The cost of premiums for LTC insurance is affected by existing health problems, lifestyle choices, age, and family history, and desired level of care.

Social insurance may be financed by Employers Government A combination of employers and government Social insurance is provided through government-sponsored programs that provide Monthly benefits Benefits to dependents of deceased workers Disability benefits

WORKERS’ COMPENSATION AND UNEMPLOYMENT COMPENSATION Workers’ compensation pays benefits for Work-related bodily injury Occupational diseases contracted at the worksite A work-related death Unemployment insurance Provides temporary income to eligible unemployed individuals who meet certain criteria and are involuntarily unemployed or laid off.

WTBS… List 2 reasons you believe a person would be eligible for worker’s compensation. List 2 reasons you believe a person would be eligible for unemployment benefits. 7 minutes

1.3 PURCHASING CONSIDERATIONS Banking 5/23/2019 1.3 PURCHASING CONSIDERATIONS GOALS Discuss insurability and probability. Explain product options, price, and company ratings. Chapter 1

TERMS Insurability Product options Deductible

Insurance Scene Pg. 17 How can he demonstrate that he is a safe driver? Are there insurance discounts for safe drivers? If so, how do they work?

ARE YOU INSURABLE? Insurability The ability of an individual who has applied for insurance to be accepted by the insurer Insurer determines whether you are insurable and meet the company’s conditions to be insured. Insurer reviews factors such as: Health Occupation Lifestyle Age

ARE YOU INSURABLE? Insurers analyze the insurability factors and decide whether you are likely to file more claims than they would like to pay. If so, they will either refuse to sell you insurance or will charge high premiums.

PROBABILITY, INSURANCE, AND YOU To determine your insurability, the insurer draws heavily upon the laws of probability. Probability The branch of mathematics that measures the likelihood of some event occurring Life insurance is based upon probability, using Mortality (actuarial) tables Use probability to determine death rates

ARE YOU A RISK TO THE INSURER? To reduce cost to the insurer and keep premiums low as possible, a screen process is completed before an application for an insurance policy is approved. Insurers screen potential new policyholders. Personal characteristics (age, gender, family history) Lifestyle choices (smoke, points on driving record) Health insurance companies require evidence of insurability. You supply: Medical information Pre-existing medical conditions All questions must be answered honestly.

You should analyze your specific needs: BEFORE YOU BUY You should analyze your specific needs: Determine what risks you face. Determine the causes of the risks. Identify ways to handle each risk. Make a plan of action.

PRODUCT OPTIONS Product options Special features added to a basic policy Allow for policy customization Usually increase the cost of premiums For example, options for an automobile insurance policy may include collision, car rental, and comprehensive coverages.

POLICY PRICING Obtain at least three quotes before buying insurance. Compare policies carefully and thoroughly. Search the Internet, Ask friends about their policies, contact different insurance companies and seek whatever discounts you can. Obtain at least 3 quotes from insurance companies. Deductible The amount of money the insured agrees to pay in the event of a loss Prior to the insurer paying the rest of the claim amount Raising the deductible can reduce the cost of the policy.

You want to be sure the company is in stable financial health. COMPANY RATINGS To protect your investment and to ensure continuous insurance coverage, investigate the stability of your insurance company. You want to be sure the company is in stable financial health. Standard & Poor’s (S&P) A.M. Best Best 2 commonly insurance rating services.

ASK YOUR STATE Each state has an insurance department to regulate insurance. Educational material can be provided by your state.