How Insurance WorksHow Insurance Works Life is full of risksLife is full of risks The purpose of Insurance is to provide The purpose of Insurance is to provide

financial protection against different financial protection against different kinds of risks we face in life.kinds of risks we face in life.

Types of InsuranceTypes of Insurance Insurance Policy – A written agreement Insurance Policy – A written agreement

between you and the insurance company between you and the insurance company that explains the following:that explains the following:

what kinds of losses the company will coverwhat kinds of losses the company will cover how much it will pay to cover theses losseshow much it will pay to cover theses losses how much you will pay for this protection.how much you will pay for this protection.

How Insurance WorksHow Insurance Works Coverage limits – the maximum Coverage limits – the maximum

amount the company will pay you for amount the company will pay you for your lossyour loss

Deductible – The amount of loss that Deductible – The amount of loss that you must pay before the company will you must pay before the company will step in and pay the rest.step in and pay the rest.

How Insurance WorksHow Insurance Works Claim – a request for payment of your Claim – a request for payment of your

losseslosses For example, imagine that your car For example, imagine that your car

insurance has a $500 deductible. If you insurance has a $500 deductible. If you get into an accident and it takes get into an accident and it takes $1,500 to repair your car, you will have $1,500 to repair your car, you will have to pay $500 of the bill yourself and the to pay $500 of the bill yourself and the insurance company will pay $1,00.insurance company will pay $1,00.

How Insurance WorksHow Insurance Works Premium – Your insurance premium is Premium – Your insurance premium is

the amount of money you must pay the amount of money you must pay per month, per quarter, or per year in per month, per quarter, or per year in order to guarantee your coverage. order to guarantee your coverage.

Insurance premiums vary widely, Insurance premiums vary widely, according to certain factors.according to certain factors.

How Insurance WorksHow Insurance Works Health insurance – very expensive, Health insurance – very expensive,

while property insurance is relatively while property insurance is relatively inexpensive.inexpensive.

That is why people try to find jobs in That is why people try to find jobs in which their employer will pay for some which their employer will pay for some of their health insurance.of their health insurance.

How Insurance WorksHow Insurance Works Property Insurance – You can often Property Insurance – You can often

choose between different coverage choose between different coverage limits. If you don't own a lot of personal limits. If you don't own a lot of personal property, for example, you could property, for example, you could choose a property with a low coverage choose a property with a low coverage limit, in exchange for low premiums.limit, in exchange for low premiums.

Amount of deductible – If you choose a Amount of deductible – If you choose a policy with a higher deductible, your policy with a higher deductible, your premium will be lower, but your out-of-premium will be lower, but your out-of-pocket expense will be greater.pocket expense will be greater.

How Insurance WorksHow Insurance Works Premium costs are based on the following:Premium costs are based on the following: Your ageYour age Where you liveWhere you live Credit historyCredit history Marital statusMarital status For many types of insurance, companies For many types of insurance, companies

assume that people who are older, assume that people who are older, married, live outside of cities, and have married, live outside of cities, and have good credit scores are less risky to insuregood credit scores are less risky to insure

Types of Insurance Types of Insurance Car Insurance: The first insurance you are likely Car Insurance: The first insurance you are likely

to pay – All states require drivers to have at least to pay – All states require drivers to have at least a minimum amount of car insurance.a minimum amount of car insurance.

Liability coverage – Pays for any personal injuries Liability coverage – Pays for any personal injuries or property damage.or property damage.

Collision coverage – pays for any damage to your Collision coverage – pays for any damage to your own car.own car.

Teens pay higher rates because, statistically, they Teens pay higher rates because, statistically, they have more accidents than older drivers.have more accidents than older drivers.

Young male drivers pay more than young females Young male drivers pay more than young females because males have more accidents (according to because males have more accidents (according to statistics).statistics).

Types of InsuranceTypes of Insurance As you get older, your rates will go As you get older, your rates will go

down, as long as you keep a safe down, as long as you keep a safe driving record.driving record.

As you get older, you need to invest in As you get older, you need to invest in other kinds of insurance protection.other kinds of insurance protection.

Types of InsuranceTypes of Insurance Health Insurance – Pays medical billsHealth Insurance – Pays medical bills Parents' policy will cover you until you Parents' policy will cover you until you

are 26are 26 Cheapest way to get health insurance is Cheapest way to get health insurance is

through your job, if you are lucky through your job, if you are lucky enough to have an employer who either enough to have an employer who either pays your premium or a portion of your pays your premium or a portion of your premiumpremium

Types of InsuranceTypes of Insurance Property Insurance – If you live in an Property Insurance – If you live in an

apartment, you can get renters' or apartment, you can get renters' or owner's insurance to help you replace your owner's insurance to help you replace your belongings in case they are stolen or belongings in case they are stolen or destroyed by fire.destroyed by fire.

If you buy a house, you need homeowners' If you buy a house, you need homeowners' insurance to protect your belongings, as insurance to protect your belongings, as well as the value of your house.well as the value of your house.

Types of InsuranceTypes of Insurance Disability Insurance – If you suffer an Disability Insurance – If you suffer an

injury that keeps you from working for injury that keeps you from working for an extended period of time. an extended period of time.

Disability Insurance will pay you Disability Insurance will pay you approximately 75% of your monthly approximately 75% of your monthly income until you recover.income until you recover.

Types of InsuranceTypes of Insurance Life insurance – This insurance Life insurance – This insurance

provides money to family members.provides money to family members. When you buy life insurance you When you buy life insurance you

name a name a beneficiarybeneficiary (the person you (the person you want to receive the money)want to receive the money)

Types of InsuranceTypes of Insurance Two major types of life insurance:Two major types of life insurance:

Term insuranceTerm insurance Whole life insuranceWhole life insurance

Types of InsuranceTypes of Insurance

Term Insurance Term Insurance Usually cheaperUsually cheaper Pays a higher death benefitPays a higher death benefit You can only buy a policy for a limited You can only buy a policy for a limited

term or period of timeterm or period of time When that term is over, you must When that term is over, you must

purchase a new policy (at a higher rate).purchase a new policy (at a higher rate). Premiums increase as you get olderPremiums increase as you get older Pays off only when you die (No cash Pays off only when you die (No cash

value).value).

Types of InsuranceTypes of Insurance Whole life insurance Whole life insurance

More expensive and pays less of a death More expensive and pays less of a death benefit than termbenefit than term

It provides coverage for your whole life It provides coverage for your whole life and premiums never increaseand premiums never increase

Also is an investment with a cash value Also is an investment with a cash value that increases over timethat increases over time

Policy entitles you to withdraw or borrow Policy entitles you to withdraw or borrow against the accumulated cash value.against the accumulated cash value.

Define The Following Define The Following Terms:Terms:

InsuranceInsurance Insurance policyInsurance policy Insurance PremiumInsurance Premium Coverage limitCoverage limit Whole Life InsuranceWhole Life Insurance

DeductibleDeductible Liability coverageLiability coverage Collision CoverageCollision Coverage Insurance ClaimInsurance Claim Term Life InsuranceTerm Life Insurance

If you switched to an insurance policy with a If you switched to an insurance policy with a higher deductible, you could probably expecthigher deductible, you could probably expect

A. a higher premiumA. a higher premium B. a lower premiumB. a lower premium C. A higher coverage limitC. A higher coverage limit D. no coverage limitD. no coverage limit

Which of the following is NOT a disadvantage of Which of the following is NOT a disadvantage of term life insurance, as compared to whole life term life insurance, as compared to whole life insurance?insurance?

A. a lower death benefitA. a lower death benefit B. Increasing premiums as you get B. Increasing premiums as you get

olderolder No cash valueNo cash value No guarantee of lifelong coverageNo guarantee of lifelong coverage

Of the following people, which one would Of the following people, which one would probably pay the highest rates for car insurance?probably pay the highest rates for car insurance?

A. a 50-year old single manA. a 50-year old single man B. a 30-year old married womanB. a 30-year old married woman C. an 18-year old boyC. an 18-year old boy D. an 18-year old girlD. an 18-year old girl

Which kind of insurance pays a monthly income Which kind of insurance pays a monthly income to people who are unable to work for an to people who are unable to work for an extended period of time?extended period of time?

A. health insuranceA. health insurance B. disability insuranceB. disability insurance C. Life insuranceC. Life insurance D. Homeowners’ insuranceD. Homeowners’ insurance