The Fundamentals of Insurance Take Charge

What is Risk? Risk: The possibility of incurring a loss Economic Risk—related to property liability and one’s own personal well being Personal Risk—risks associated with illness, disability, loss of income, unemployment, old age, and premature death Property Risk—risks of damage to or loss of property due to theft, wind, fire, flood, etc. Liability Risk—potential losses to others that occur as a result of injury or damage that you may have caused

Sharing economic losses Large economic losses can be avoided by sharing the loss with other people Suppose you and nine of your friends decide to form an organization called the Golf Club Owners Insurance Association (GCOIA). The purpose of the GCOIA is to protect members from financial loss should one member’s clubs gets stolen. To provide protection, each member agrees to share the cost of any stolen clubs. Therefore, if your golf clubs are stolen, each member (including yourself) would contribute $30 to buy new ones for you If you are not a member of the GCOIA and your clubs are stolen, you would have to pay the total cost ($300) of new clubs. As a member new clubs would only cost you $30.

What is insurance? Insurance—the planned protection provided by sharing economic losses among a group of people --You are protected from economic loss Insurance Companies – Businesses that provide planned protection against economic losses Agree to assume certain economic risks for you and to pay you if a loss occurs Insured/Policyholder – The person for whom the risk is assumed

Insurance Policy — a contract issued by the insurance company for coverage for the policyholder States the conditions to which the insurance company and the policyholder have agreed --Unlicensed person to drive an insured car --Skydiving / bungee jumping

insurance Premium – The amount the policyholder must pay for insurance coverage Make payments Once a year Every 6 months Every month

Insurance Claim — a policyholder’s request for payment for a loss that is covered by the insurance policy Deductible — an amount you must pay BEFORE the insurance company pays a claim $500 $1000

Insured losses Policyholders should know exactly what protection is provided by the kinds of insurance they have Some people fail to tell their insurance companies about losses they have suffered because they did not know that their policies covered those losses Other people have assumed that losses they suffered were covered by their insurance, only to find out by reading their policies that the losses were not covered! READ THE FINE PRINT!

Self-insurance Self-insurance: The individual, family, or business assumes the total risk of economic loss No Insurance Company Is Used Place money in a savings account to cover possible financial losses Would this cover a house destroyed by fire or catastrophic illness?

coinsurance Coinsurance: The sharing of expenses by the policyholder and the insurance company Policyholder pays a deductible Insurance company pays the balance of the bill up to a maximum ceiling rate Assume you have a claim for: $5,250 Your deductible is: $250 Remaining balance after deductible $5,000 Your insurance policy says that once the deductible is subtracted from the total amount of the claim, the policyholder will pay 20% of the remaining amount You will make an additional payment of: $1,000 (5,000 X 20%)

Cost of insurance Premiums charged to a policyholder are also affected by the cost of replacing the insured item A luxury car’s premiums will be higher than they would be for a less expensive model If the insurance group that you have been categorized into has more claims for a given period of time, the premiums for everyone in that particular group will increase!! Age Occupation Geographical Location Family History Gender

Cost of insurance What can I do to help keep my premiums down? Secure all of your belongings Drive defensively (everyone else is a bad driver!) Take care of yourself! (Good health habits)

Purchasing insurance Employer provided insurance protection Much cheaper because employer will pay anywhere from 25%--100% for policyholder Life Insurance Health Insurance Dental Insurance Vision Insurance Insurance Agent provided insurance protection Type one: insurance agent works for a large insurance company and sells only policies written by that company Type two: insurance agent sells many kinds of policies from a number of different companies The insurance agent’s job is to help you select the proper kind of protection from economic loss

Insurance for economic security You decide to purchase a $100,000 home but can only make a $10,000 down payment. You will need to borrow $90,000 and have insurance on your investment to be granted the loan. WHY?

Vehicle insurance

Economic risks of owning a vehicle What are your risks? You could injure yourself You could injure someone else You could cause property damage to someone else You could cause damage to your vehicle The vehicle might be stolen or vandalized You could be sued by someone claiming to suffer damages as a result of the accident involving your vehicle

Economic risks of owning a vehicle How Do I Protect Myself From These Risks? Automobile Insurance Policy: protection provided for: Your Car The Other Car Injuries In Your Car Injuries To Others Property Damage

Auto insurance Automobile Liability Insurance: protects you against financial loss if you injure someone else or damage someone else’s property in an automobile accident Minimum Car Insurance Requirements in Nebraska $25,000 for bodily injury to one person in a crash $50,000 for bodily injury in a crash if more than one person is hurt $25,000 in property damage coverage. Why is it important to determine who is at fault for an accident? Payment is determined by who is at fault Regardless of who is at fault you can still sue the other party involved

Auto insurance Personal Injury Coverage: deals with injuries to people (the source of most of the money paid in claims by automobile insurance companies) Bodily Injury Liability Medical Payments Uninsured Motorist Protection

Auto insurance Bodily Injury Liability Protection: protects the insured from claims resulting from injuries or deaths for which the insured is found to be at fault THIS COVERS People In Other Cars Passengers Riding With The Insured Any Pedestrians THE INSURED AND IMMEDIATE FAMILY ARE NOT COVERED!!! Dollar amounts of bodily injury coverage are expressed as two numbers divided by a slash ($100,000 / $300,000) The first number refers to the limit, in thousands of dollars, that the insurance company will pay for injuries to any one person in an accident The second number, refers to the limit, in thousands of dollars, that the insurance company will pay if more than one person were injured

Auto insurance Medical Payments Protection: policyholders and their family members are covered if they are injured while riding in their car or in someone else’s car COVERAGE MAY INCLUDE: If you are a pedestrian Guests riding in the insured car Medical payments insurance also covers the costs of: Medical Dental Ambulance / Airlift Hospital Nursing Funeral Services Payment, up to the limit stated in the policy, is made regardless of who is at fault in the accident

Auto insurance Uninsured Motorist Protection: protects against injuries caused by hit-and-run drivers or by drivers who have no insurance or money to pay claims Available only to those people who carry bodily injury liability coverage Covers policyholder and family members Covers guests riding in the policyholder’s car Uninsured Motorist protection covers only the insured person ONLY if the uninsured motorist is AT FAULT!!! Approximately 10% of the nation’s motorists drive illegally without automobile insurance

Auto insurance Property Damage Coverage: designed to protect you from economic loss due to damage to the property of others and to your car Property Damage Liability Coverage Collision Insurance Coverage Comprehensive Coverage Property Damage Liability Coverage: protects the insured against claims if the insured’s car damages someone else’s property and the insured is at fault Another Car Telephone Pole Light Pole ($2,250) Fire Hydrants ($1,000 + installation) Houses / Buildings Trees / Landscaping ($750 Per Tree x 3 Trees) THIS DOES NOT COVER DAMAGE TO THE INSURED PERSON’S CAR!!!

Auto insurance Collision Insurance Coverage: protects a car owner against financial loss associated with damage resulting from a collision with another car or object (very expensive) DOES NOT COVER INJURIES / DAMAGE TO THE PROPERTY OF OTHERS Collision coverage does not provide for payment of damages greater than the car’s assessed value (Kelly’s Blue Book Value) Assessed Value Of Car New Paint Job New Engine Components (Audio) Antique value

Auto insurance Comprehensive Coverage: protects the insured car against almost all damage losses except those caused from a collision or from the car turning over Fire Tornado Hail Flood Windstorm / Tree Damage Vandalism / Breaking In / Keying Falling Objects / Asteroid / Plane If the insured’s car is totally destroyed or stolen, the amount paid out by the insurance company is not necessarily equal to the amount paid for the car, it is equal to the car’s estimated value at the time of the loss DEPRECIATION AMOUNT

Buying auto insurance People in the United States spend more than $115 billion a year insuring over 143 million vehicles This expenditure is about 45% of all of the money spent on property and casualty insurance FYI: Always ask for the Good Student Discount! 3.0 GPA or better

Buying auto insurance Insurance companies use several factors to determine the cost of your automobile insurance, some of those factors include: Your age and other characteristics (female / male) The purpose for which you use your car (pleasure / work) The number of miles you drive your car each year The value and type of your car (sedan / sport / sport utility) The community in which you live (Lincoln / North Platte) Types of coverage and deductibles To determine premium rates, drivers are classified according to: Age (25 Years) Marital Status Driving Record Scholastic Achievement (Higher Education)

Reduce your cost Taking an approved driver education course can reduce the cost of a teenager’s car insurance by as much as 25% of the premium If you insure several vehicles under the same company you may receive a discount Motorcycles Recreational Vehicles (4 runners) Jet Skis / Boats Snowmobiles BODILY INJURY LIABILITY INSURANCE IS A MUST!!!

Vehicle insurance laws Compulsory Insurance Laws: require you to carry certain types of automobile insurance before your car can be licensed Personal Injuries Property Damage Compulsory Insurance Laws state that you may not register a car or obtain a license to drive without presenting proof of having the minimum amounts of insurance coverage required Financial Responsibility Laws: if you cause an accident and cannot pay for the damages either through insurance, your savings, or the sale of property… Your driver’s license will be suspended!

Health insurance

Health insurance Hospital Insurance: type of insurance that covers an illness or injury that requires you to be hospitalized (most popular type of health insurance) Room ($500—Up) Operating Room ($3000—Up) Anesthesia ($600—Up) X-Rays ($160—Up) Laboratory Tests ($150--Up) Medicines ($100—Up) Surgical Insurance: type of insurance that covers all or part of the surgeon’s fees for an operation, usually bought in combination with hospital insurance (very expensive) $2,500 C-Section (30 minutes) $500 Doctor Assists (30 minutes) $50,000 Open Heart Surgery (2-4 hours)

Blue cross/blue shield Non-profit organizations that cover mainly medical and surgical treatment rather than hospital care These plans list the maximum amounts that will be paid for different types of surgery Generally, you are not provided coverage for pre-existing conditions or illnesses or injuries that are covered by other insurance

Health insurance Regular medical insurance: type of insurance that pays part of or all of the fees for non-surgical care given in the doctor’s office, the patient’s home, or a hospital Amount payable for each visit or call Maximum number of visits allowed Payments for diagnostic and lab expenses The protection provided by regular medical, hospital, and surgical coverage is referred to as Basic Health Coverage

Health insurance Major medical insurance: type of insurance that provides protection against the high costs of serious illnesses or injuries (compliments the big three) Health care prescribed by a doctor Treatment in and out of the hospital Special nursing care X-rays Psychiatric care Medicine Maximum benefits range up to $250,000 and higher

Health insurance Coinsurance Clause: the policyholder will be expected to pay a certain percentage of the total medical bill (generally 20—25% of the costs over and above the deductible amount) Comprehensive Medical Policy: insurance policy that combines the features of hospital, surgical, regular, and major medical insurance Features of the individual insurance are the same There is only one deductible Less expensive (package deal)

Health insurance Dental Insurance: type of insurance that helps pay for normal dental care (annual claims now approaching $10 billion) Examinations X-rays Cleanings Fillings Dental injuries resulting from accidents Other dental work Some dental plans contain deductibles and coinsurance provisions while others pay for all claims

Health insurance Vision Insurance: type of insurance that helps pay for normal eye care (provided by many employers) COVERED NOT COVERED -Eye examinations -Tinted lenses -Prescription lenses -Coated / Plastic lenses -Frames -Nonprescription lenses -Contact lenses -Vision training

Health insurance Disability Income Insurance: type of health insurance that provides periodic payments if the policyholder becomes disabled (the insured receives weekly or monthly payments until the person is able to return to work) Long illness Accident A waiting period provision is required before the policyholder can collect on the disability Health insurance is available from several sources and in many different forms Individual Policies Group Policies Health Maintenance Organizations Preferred Provider Organizations State Government Assistance

Insurance fraud Being dishonest when applying for insurance or filing dishonest claims (fines and or jail time) Not disclosing existing medical conditions Number of miles a policyholder drives their car per year Exaggerated or nonexistent injuries as a result of an accident

Government assistance Workers’ Compensation: an insurance plan that provides medical and survivor benefits for people injured, disabled, or killed on the job Workers’ Compensation Laws provide medical benefits to employees who are injured on the job or become ill as a direct result of their working conditions (Employers are required to provide and pay for this type of insurance) Mold Asbestos

Government assistance Medicaid: federal and state government health insurance plan administered to low income families (meet certain criteria with income) Hospital Care Doctors’ Services X-Rays Lab Tests Nursing Home Care Diagnosis and treatment of children’s illnesses Home Health Care Services

Government assistance Medicare: an insurance program designed to help people age 65 and older and some disabled people pay the high cost of health care (partially funded by Social Security) Hospital Insurance Medical Insurance The hospital insurance plan includes coverage for: Hospital care Care in an approved nursing home Home health care up to a certain number of visits No premium payments are required for hospital insurance, and almost everyone 65 years old and older may qualify The medical insurance plan includes coverage for: Doctors’ services Medical services and supplies Home health services The insured will have to pay a small monthly premium for this type of coverage

Cost of health insurance The cost of health insurance is usually determined by at least four factors: Extent of the coverage Number of claims filed by the policyholder Age of the policyholder Number of dependents