1. Contemporary Mathematics for Business and Consumers Third Edition By: Robert A. Brechner COPYRIGHT © 2003 by South-Western, a division of Thomson Learning. Thomson Learning TM is a trademark used herein under license. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means–graphic, electronic, or mechanical, including photocopying, recording, taping, Web distribution or information storage and retrieval systems–without the written permission of the publisher. For permission to use material from this text or product, contact us by Tel (800) 730-2214 Fax (800) 730-2215 http://www.thomsonrights.com

2. Chapter 19 Insurance Copyright © 2003 by South-Western

3. Chapter 19, Insurance Section I Life Insurance 19-1 Understanding life insurance and calculating typical premiums for various types of policies. 19-2 Calculating the value of various non-forfeiture options. 19-3 Calculating the amount of life insurance deeded to cover dependents’ income shortfall. Section II Property Insurance 19-4 Understanding property insurance and calculating typical fire insurance premiums. 19-5 Calculating premiums for short-term policies and the refunds due on canceled policies.

4. Chapter 19, Insurance Section III, Motor Vehicle Insurance 19-8 Understanding motor vehicle insurance and calculating typical premiums. 19-9 Computing the compensation due following an accident.

5. Section II, Property Insurance 19-4 Understanding Property Insurance and Calculating Typical Fire Insurance Premiums Steps to Calculate typical fire Insurance Premiums: Step 1. From table 19-4, locate the appropriate rate, based on structural class and area rating, for both the building and the contents. Step 2. Calculate the number of $100 of insurance coverage desired for both the building and the contents by dividing the amount of coverage for each for each by $100. Step 3. Multiply the number of $100 for both the building and contents by the rates from Step 1. to find the annual premium for each. Step 4. Add the annual premiums for the building and the contents to find the total annual premium. Total annual fire premium = Building premium + Contents premium

6. Everybody’s Business Here are some rules to remember when buying life insurance:  Evaluate and understand your needs.  Buy from a company licensed in your state.  Select an agent who is competent and trustworthy.  Shop around to compare costs and benefits.  Buy only the amount you need and can afford.  Read and understand your policy.  Inform your beneficiaries about the insurance you own.  Ask about lower premiums for nonsmokers.

7. Everybody’s Business It is important to check your insurance coverage periodically or whenever your situation changes to be sure it meets your current needs. Some changes that require insurance review might include increased income, getting married, or having a change in family size. Many insurable things are tied to inflation and therefore require periodic increases.  Life insurance – Cost of living increases such as food, clothing, and transportation.  Property insurance – rising real estate values and cost of replacing materials.  Health insurance – Cost increases in physician hospital, and other medical-related items..

8. Everybody’s Business In addition to homeowners insurance companies offer similar policies to meet the needs of apartment and home renters.  Renter’s insurance – Insurance that covers the renter’s personal property and liability. The property owner pays the insurance of the building.  Condominium insurance – Insurance that covers the interior walls, wiring, and contents of the condominium. The exterior wall and rood are covered under a separate policy purchased by the condominium association and paid for from the monthly condominium maintenance fees.

9. Section III, Motor Vehicle Insurance 19-8 Understanding Motor Vehicle Insurance and Calculating Typical Premiums Steps to Calculate Motor Vehicle Insurance Premiums: Step 1. Use Table 19-6 to find the appropriate premiums for bodily injury and property damage. Step 2. Use Table 19-7 to the appropriate base premiums for collision and comprehensive. Step 3. Add all the individual premiums to find the total base premium. Step 4. Multiply the total base premium by the rating factor, if any. Total annual premium = Total base premium x Rating factor

10. Everybody’s Business Many insurance companies give money saving rating factor discounts to students who have good grade point averages, usually over 3.0 out of 4.0 or safe driving records – without tickets or accidents.

11. Chapter 19, Insurance InsuranceShared risk ActuariesProbability Insurer Policy Face valuePremium BeneficiaryLife insurance Term insurancePermanent insurance Premium factorCash value Ownership rightsLapse Non-forfeiture optionsIncome shortfall Property insuranceShort-term policy Short-rateCoverage ratio

12. Chapter 19, Insurance (Cont) Short-rateCoverage ratio Co-insurance clauseMultiple carriers Motor vehicle insuranceLiability CollisionComprehensive DeductibleRating factors

13. Chapter 19 Life Insurance Number of $1,000 = Face value of policy / 1000 Annual premium = Number of $1,000 x Rate per $1,000 Premium other = Annual premium x Premium factor than annual Income shortfall = Total living expenses - Total income Insurance needed = Income shortfall / Prevailing interest rate Copyright © 2003 by South-Western

14. Chapter 19 Property Insurance Total annual fire premium = Building Contents premium premium Short-rate premium = Annual premium x Short-rate Short-rate refund = Annual premium - Short-rate premium Regular refund = Annual premium Copyright © 2003 by South-Western + Premium for period in force 

15. Chapter 19 Property Insurance - continued Insurance carried Insurance required Amount of loss = x Amount of loss paid by insurance Amount of carrier’s policy Total amount of insurance Carrier’s share of loss = Amount of loss x Carrier’s % of total coverage Copyright © 2003 by South-Western Coinsurance coverage ratio = Carrier’s % of total coverage = Insurance carried Insurance required

16. Chapter 19, Section II Copyright © 2003 by South-Western Business Interruption Insurance Business Decision As the owner of a successful business, you would probably purchase an additional type of property insurance coverage known as “business interruption insurance.” This insurance protects the profits that a company would have earned had there been no problem. Business interruption insurance covers damages caused by all types of perils such as fires, tornadoes, hurricanes, lightning, or any other disaster except floods and earthquakes. This insurance pays for “economic” losses incurred when business operations suddenly cease. These include loss of income due to interruption and additional expenses incurred such as leases; relocation to temporary facilities; overtime to keep up with production demands; recompiling of business, financial and legal records; and even the salaries of key employees.