1. Buying Insurance
Chapter 22
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2. Chapter Objectives Define some common insurance terms
List some ways to lower insurance costs
Explain the importance of owning home insurance
Describe the basic types of health, auto, and life insurance coverage
Understand group and individual health insurance plans
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3. Insurance Basics Language of insurance Insurance policy
Legal contract between person buying insurance (policyholder) and insurance company
Policy explains:
Who is covered
Types of losses for which the company will pay
Amounts the company will pay
Cost of insurance
Policies are long and technical but you should read it anyway and ask questions about any unclear parts before you sign it
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4. Insurance coverage
Refers to losses that an insurance company agrees to cover
Amount of coverage is the actual dollar amount that will be paid by the company in case of loss
All insurance policies have a list of exclusions (losses or risks that are not covered).
Benefit and beneficiary
Benefit – money paid by the insurance company for a loss
Beneficiary – who benefit is paid to (usually policyholder)
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5. Premiums Amount a policyholder pays for insurance
Usually paid in installments rather than all at once
Deductibles – portion of loss that you pay before insurance company pays remaining cost
The higher deductible that you pay, the lower the cost of your premium
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6. Claim
Oral or written notice to the insurance company to collect for a loss.
Government insurance programs
Unemployment
Workers’ compensation
Medicare
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7. Holding down insurance costs
Know what type of insurance you want
Call several insurance agencies in your area to ask about coverages and costs
Ask about differences in premium costs with different deductibles. Consider paying higher deductibles in order to lower your premium costs
Don’t buy more coverage than you need or less coverage than you need
Last…like all industries, the insurance industry is in business to make money. They are less likely to insure you if they believe you are more likely to use the insurance.
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8. Home Insurance Renter’s insurance (Apartment) Homeowner’s insurance
Covers your belongings up to a set amount, minus your deductible.
Homeowner’s insurance
Protects your house and its contents against losses due to fire and theft
Doesn’t cover floods or earthquakes
Supplemental insurance is available to cover these risks
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9. Automobile Insurance Liability Medical payments Collision
Covers damage or injury for which you’re responsible to the other driver. Doesn’t cover your injuries or property damage to your car.
Medical payments
Covers medical expenses whether or not it’s your fault. Covers your passengers too.
Collision
Covers the cost of repairs to your car if it’s your fault. Also covers damage to your car if you’re in an accident caused by a driver who is uninsured.
Comprehensive
Theft, fire, vandalism…reasons other than an accident
Uninsured motorist
Protects you against drivers who do not have liability insurance. Optional insurance
First…many states require by law that drivers have insurance.
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10. Handling auto accidents
Stay calm
Think clearly
If possible, move your car to the side of the road
Check for injuries
If you’re not injured, get out of car to see whether anyone else is hurt
Report the accident to the police
If someone is injured, request an ambulance
Record important information
Be prepared with ID, insurance, car registration
Explain the facts as you saw them.
Avoid arguing with other driver
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11. Buying Automobile Insurance
Shop Around
Drive carefully
Take driver education classes
Buy only the coverage you need
Raise your deductibles
Take advantage of insurance discounts
Try to get prices from at least three different companies.
Some companies offer safe-driver discounts to policyholders with good driving records
5. If you have a good driving record and can afford higher deductibles, this will save you money.
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12. Types of health coverage
Major medical coverage
Covers hospital and medical expenses
Required to pay a deductible
Able to choose any hospitals and physicians you prefer
Health maintenance organizations (HMO)
No deductibles
Small co-pay for doctor visits
Checkups and well-baby visits are covered
Choice of physicians is limited
Preferred provider organizations (PPO)
More freedom of choice for doctors
Often pay higher premiums and co-pays
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13. Types of plans Group plans Individual plans
Offered through employers
Keep premium costs down by spreading the risk over a large number of people.
Individual plans
Students living on their own, self-employed workers, retirees
Disability coverage – pays a percentage of your salary if you can’t work
Short-term
Long-term
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14. Types of life insurance
Term
Protects your dependents if you die.
Has no cash value and provides coverage for a set number of years.
Beneficiary receives face value of policy
Cash-value
Part insurance and part investment
You can borrow against the total amount of premiums paid on a cash-value policy
Whole life insurance
Has a savings component where you can build a reserve of money that you can borrow against or collect when you retire.
First…if others in your household count on your salary, life insurance will provide money to them in case you die. Some employers offer life insurance as a benefit, but many people buy additional coverage as well.
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15. Buying life insurance
Amount of premium will depend on factors such as age, health, and type of policy you buy
Should you buy it?
How much do you need?
Depends on how old you are, whether you have dependents, how much you can afford, and how much your family will need to pay off your debts if you die
Tips on buying life insurance
Shop around (prices vary), talk to others
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