CHAPTER 14 AUTOMOBILE AND HOME INSURANCE Sharing the Risk Economic Educatin for Consumers 4/16/2017 CHAPTER 14 AUTOMOBILE AND HOME INSURANCE Sharing the Risk WHAT’S AHEAD 14.1 Insurance Basics 14.2 Automobile Insurance 14.3 Home Insurance Coverage 14.4 Providers and the Claims Process Chapter 14

LESSON 14.1 Insurance Basics Economic Educatin for Consumers 4/16/2017 LESSON 14.1 Insurance Basics GOALS Describe how insurance works to protect consumers. Explain the basic kinds of insurance and how to determine the amount to buy. © 2010 South-Western, Cengage Learning Chapter 14

KEY TERMS insurance premium policy claim shared risk insurable interest appraisal rider property insurance liability insurance personal insurance © 2010 South-Western, Cengage Learning

Key Terms Risk – the chance of financial loss resulting from damage, illness, injury or death. Insurance – risk management tool that lim its financial loss in exchange for a premium. Premium – regular payment required to purchase insurance. Policy – legal insurance contract. Claim – Formal request for payment from the insurance company. © 2010 South-Western, Cengage Learning

Key Terms Shared Risk – insurance principle of using premiums from many policyholders to reimburse the losses of a few so that no one suffers a financially devastating loss. Insurable Interest – something of value that, if lost, would cause you financial harm. Appraisal – expert’s determination of the value of property used for insurance. (e.g, value of a diamond ring). Rider – special addition to an insurance policy covering a specific type of loss. Liability Insurance – protects you from losses that you cause to others. © 2010 South-Western, Cengage Learning

Key terms Property Insurance – protects you from financial loss when things you own are stolen, damaged or destroyed. (homes, cars, valuable possessions). Market Value – amount an item is worth now. Replacement Value – cost of replacing an item regardless of its market value at the time of the loss. Personal Insurance – protects you and your family against loss due to illness, disability or death. © 2010 South-Western, Cengage Learning

How Insurance Works Risk management Premiums and statistics Life is full of Risks You can’t eliminate risk, but you can manage it Premiums and statistics Statistics from past events predict future losses and determine premiums. What insurance protects The insurance trade-off Role of insurance in the economy © 2010 South-Western, Cengage Learning

Types of Insurance Property insurance Liability insurance Homes, Cars and valuable possessions. Market value Replacement value (higher premiums than market value) Liability insurance Losses that you cause to others. Personal Insurance Losses from illness, disability or death. © 2010 South-Western, Cengage Learning

Checkpoint 14.1 How does insurance protect individuals from losses they cannot handle on their own? What are the three basic types of insurance? What does each one cover? © 2010 South-Western, Cengage Learning

Checkpoint 14.1 answers How does insurance protect individuals from losses they cannot handle on their own? Insurance provides protection through the principle of shared risk. The insurance company collects premiums from many policyholders and uses these funds to pay insured people for their covered losses. © 2010 South-Western, Cengage Learning

Checkpoint 14.1 answers What are the three basic types of insurance? What does each one cover? Property insurance protects against financial loss when your things are stolen, damaged, or destroyed. Liability insurance protects against financial loss if your actions cause other people to suffer. Personal insurance protects you and members of your family from financial loss due to illness, disability, or death. © 2010 South-Western, Cengage Learning