Risk & Protection

Insurance claims involving teens 100% higher than adults Teen crash rates drop 40% 6 months after getting license 75% of Americans experience some form of disability this year At work, a disabling accident occurs every 8 seconds

Risk is the chance of financial loss from perils to property or people Insurance is a method for spreading individual risk among a large group of people to make losses more affordable to all Important in financial planning

Common Exposures to Loss Accident/Illness Loss of income from inability to work Uninsured medical bills Death Potential Loss UNLIMITED Property Ownership Your property is damaged, destroyed, lost, or stolen Potential Loss: AMOUNT NEEDED TO REPLACE YOUR PROPERTY Liability You are found liable for injuries to other people OR damages to their property Potential Loss UNLIMITED

Potential Loss Evaluate Risk Exposure Accidents/IllnessLoss of Income How much will I lose if I can’t work? Medical Bills What is the most this could cost me? DeathPermanent UNLIMITED LOSS

Exposure Property Ownership Risk Damaged, destroyed, lost, or stolen Evaluate? Specific dollar amount from your Personal Property Inventory Potential Loss $ ________

Liability for injuries to other people or damages to their property Risk What is the most this could cost me? Evaluate? Unlimited Potential Loss

Becoming sick (lost wages) Dying prematurely (loss of income for family) Becoming disabled (lost wages)

 Insurer is a company that agrees to pay the cost of potential future losses in exchange for regular fee payments  Policy a written insurance contract  Premium is a fee paid for the insurance policy. Usually paid at regular intervals by the owner of the policy (policyholder). These are determined by actuaries.

Important to have right kind of insurance at the right time Beware of under insured or over insured

Hazard: A condition that creates or increases the likelihood of some loss Example: lightning or defective wiring can cause a fire Peril: An event whose occurrence can cause a loss. Example: Fire, storm, explosions, robbery, accident Loss: Unexpected reduction in insured property, caused by a peril. Example: Crushed car caused by a storm

Waste of current income Other needs might go unmet Insurance is not meant to enrich; only to compensate for actual losses incurred. This principle is called indemnification.

Personal risks Take safety precautions, like wear a helmet Avoid risky behaviors altogether Stop hanging out with friends who smoke or drink; go do something else Reduce/avoid property risks Install smoke detectors in your home Use your burglar alarm

Means putting the policyholder back in the same financial condition he or she was in before the loss occurred Probability is the mathematics of chance and the root of indemnification. Every event can be described in terms of probability or likelihood that something will happen

You suffer a loss Someone (you, your doctor, or insurance agent) makes a claim Requesting reimbursement The insurance company pays you benefits, sums of money to be paid for losses

Risks that can be big losses  Large loss is a cost that would create financial hardship ▪ Medical bills  Small loss is inconvenient ▪ car repair

Should change with time  Life insurance for married spouse & kids  Disability if head of household  Liability on 1 st car (used)

Factors Affecting Automobile Insurance Costs Your age Make of car Marital status Do you take the car to work? If you’re a good student Gender Where you live How much you use the car Credit rating Driver’s education Driving record Type of car 6-F

1. Help manage financial losses 2. Professional risk takers 3. Spread risk among people 4. Policyholders pool premium in reserves so those suffers can be compensated 5. Predictable cost for company

Policy A: Liability Bodily injury or property damages that you are responsible for because of an accident involving your car Suggested Minimum Coverage MINIMUM COVERAGE REQUIRED by LAW in MISSOURI $25,000/person for bodily injury $50,000/accident for total bodily injury (multiple people injured) $10,000/accident for property Policy B: Medical Coverage Medical and/or funeral expenses for you, members of your family, and other persons injured in an accident while in your vehicle. Also covers your family members as pedestrians if struck by an auto. OPTIONAL in Missouri BUT Suggested Minimum Coverage $10,00 per person Would help pay your accident- related medical bills Policy C: Uninsured/Underinsured Two Types: Bodily Injury: Your injuries caused by an uninsured, hit-and-run, or underinsured driver. Property: Damages to your vehicle caused by uninsured/underinsured driver Suggested Minimum Coverage MINIMUM COVERAGE REQUIRED by LAW in MISSOURI $25,000/person for bodily injury $50,000/accident for bodily injury

 Might want to consider if driving older car  Deductible might be higher than insurance company will pay  The cars value

Shop at least three places; compare rates and policies; ask about discounts and special rates. Read sources of information such as Consumer Reports ®. Purchase more than one type of insurance from the same company; insure all cars with the same company. Let’s get ready to BUNDLE!

Declarations Page Basic info about policy Period of coverage, premium, limits, & deductibles Copy of Policy Spells out coverage Exclusions Spells out what is NOT covered AND under what circumstances are items NOT covered Hurricane insurance does not cover flooding inside the home; only covers exterior

 Importance?  Single greatest asset is potential earning power  Pays income if policy holder gets sick and can’t work  Limited to 2/3 gross income  Designed to encourage return to work ASAP

Protects from losses to: House, garage, furniture, other personal property Cover losses due to fire, weather damage, theft, vandalism Also pays cost of living elsewhere while home is being rebuilt or repaired Can buy additional coverage against floods, earthquakes, jewelry, expensive paintings etc. called a rider Never covers acts of war

Typically insure structure for 80% of its value Renters insurance same coverage as homeowner’s policy except doesn’t cover structure just contents inside BUY RENTERS INSURANCE

You better shop around! WHY? Because I said so! The way to get the best deal is to shop around the different companies. Their prices and coverage vary greatly!

Whole Same premium your entire life Builds cash value over time You can borrow against the cash value Can cash in at retirement age OR continue to pay premium & receive death benefits Monthly payment is based on value of policy If you stop paying, your policy is still good-it just doesn’t accumulate Term Protection for a specific and finite period of time (5, 10, 20 years and up) Initially less expensive, greatest immediate coverage per dollar Good if need large coverage for a known period of time Allows for maximum coverage with minimum premiums Pays benefits only if you die during period covered in policy If you stop paying policy, policy stops No cash value

Renewable At the end of coverage, you can renew it for another term Won’t have to provide evidence of insurability Premiums will increase as you get older Convertible Converts to a whole life policy No medical physical