1. Copyright ©2004 Pearson Education, Inc. All rights reserved. Chapter 2 Auto and Homeowner’s Insurance

2. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-2 Background on Insurance Insurance protects you against potential financial losses or liability as a result of unexpected events Its primary function is to maintain your existing level of wealth Insurance is beneficial even when no payments are received from the insurance company

3. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-3 Role of Insurance Companies Role of insurance agents and brokers –Insurance agent: recommends insurance policies for customers

4. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-4 Role of Insurance Companies

5. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-5 Financial Planning Online: Reviews of Insurance Companies Go to: http://www.gomez.comhttp://www.gomez.com Click on: “Insurance Carriers: from the “Scorecards” drop-down list This Web site provides reviews and ratings of various insurance companies and descriptions of services offered by each insurance company.

6. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-6 Auto Insurance a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.assets Insurance policy: contract between an insurance company and the policy holder –Auto insurance policy: specifies the coverage provided by the insurance company for a particular individual and vehicle

7. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-7 Auto Insurance Coverage A: Liability Coverage –Bodily injury liability coverage: protects against liability associated with injuries caused by the policy holder –Property damage liability coverage: protects against losses that result when the policy holder damages another person’s property with their car

8. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-8 Auto Insurance Auto insurance policy provisions –Policy limits often described as 100/300/50 $100,000 per person injured in an accident $300,000 for all people combined $50,000 for property damage –Financial responsibility laws: laws that require individuals who drive cars to purchase a minimum amount of liability insurance

9. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-9 Auto Insurance Coverage B: Medical Payments Coverage: insures against the cost of medical care for you and other passengers in your car when you are at fault in an accident –Applies only to insured car

10. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-10 Auto Insurance

11. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-11 Auto Insurance Coverage D: Collision and Comprehensive Coverage –Collision insurance: insures against costs of damage to your car resulting from an accident in which the policy holder is at fault –Comprehensive coverage: insures you against damage to your car that results from floods, theft, fire, hail, explosions, riots and various other events

12. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-12 Auto Insurance Coverage C: Uninsured or Underinsured Motorist Coverage –Uninsured motorist coverage: insures against the cost of bodily injury when an accident is caused by another driver who is not insured –Underinsured motorist coverage: insures against bodily injury by drivers who have insufficient coverage

13. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-13 Auto Insurance –Deductible: a set dollar amount that you are responsible for paying before any coverage is provided by your insurer Other provisions are available for an additional premium Summary of auto insurance provisions –Contained in standard insurance policy

14. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-14 Financial Planning Online: How Much Car Insurance Do You Need? Go to: http://insurance.yahoo.com/auto.html http://insurance.yahoo.com/auto.html Click on: Coverage Analyzer This Web site provides a recommendation on the amount of car insurance coverage that is appropriate for you.

15. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-15 Auto Insurance

16. Cost of insurance (COI). The cost of insurance (COI) is a monthly charge which is deducted from the net cash value of the owner's policy to cover the insurer’s cost of providing the insurance coverage. In addition, the COI may be intended to cover expenses to the extent they are not covered by the other policy charges (i.e., administration fees, premium charges, etc.). Copyright ©2004 Pearson Education, Inc. All rights reserved.10-16

17. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-17 Factors That Affect Auto Insurance Premiums –Your location –Discounts –Your school performance Comparing premiums among insurance companies –Always obtain several different quotes –Several Web sites offer quotations –Compare prices at renewal time

18. Driver Rating Factor Copyright ©2004 Pearson Education, Inc. All rights reserved.10-18 The factors that affect car insurance rates are similar across the board, but the precise value each car insurance company assigns to those factors varies widely. Complex formulas are used to determine the car insurance rate for any given driver. These formulas take into account areas such as type of car, demographic and location. Contd on next page

19. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-19 Characteristics of your car –Value of car –Repair record of your car Your personal characteristics –Your age –Your mileage –Your driving record Driver Rating Factor

20. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-20 Factors That Affect Auto Insurance Premiums

21. Copyright ©2004 Pearson Education, Inc. All rights reserved.10-21 Factors That Affect Auto Insurance Premiums Focus on Ethics: Impact of Lawsuits and Fraud on Premiums –Fraudulent claims are unmerited claims –Injuries are often exaggerated –Insurance companies pass on increased costs to policyholders –No-fault insurance programs: do not hold a specific driver liable for causing the accident