PROTECTING YOUR WEALTH
PROTECTING YOUR WEALTH
Auto and Homeowner’s Insurance
Health and Disability Insurance
Life Insurance
AUTO AND HOMEOWNER’S INSURANCE
I can…
 Explain the role of risk management
 Outline provisions of auto insurance
 Describe financial coverage provided by homeowners insurance
BACKGROUND ON INSURANCE
Property Insurance ensures that damages to home and auto are covered and personal
assets are protected from liability
 Liability- you are required to pay someone for damages that you caused
Primary function of insurance- maintain existing level of wealth
Benefit of insurance is peace of mind knowing your assets are protected
MANAGING RISK
In the context of insurance, Risk- exposure to events or perils that can cause financial
loss
Risk management are decisions about whether and how to protect against risk,
alternatives include:
 Avoid risk
 reduce risk
 insurance against risk
AVOID RISK
Avoid risk of property damage if you don’t own property
If you lease a car you are still expose to liability and financial loss if an accident
Exposed to financial loss if you require medical attention or become disabled
REDUCE RISK
Purchase a small home rather than a large home in order to reduce the maximum
possible financial loss
Purchase an inexpensive car to limit possible financial loss due to property damage
Getting periodic health check ups
INSURE AGAINST RISK
If you cannot avoid or reduce risk and you do not want to be exposed to a financial
loss
Premium is the cost of obtaining insurance
WHAT IMPACT DOES THE ECONOMY HAVE ON THE
DECISION TO INSURE AGAINST RISK?
Give one, get one.
Think about this question and develop an answer. Then, turn to your partner and
discuss both of your answers.
ROLE OF INSURANCE COMPANIES
Offer insurance policies that can protect you against financial loss.
Many different types of insurance
Insurance companies generate revenue from receiving payments for policies
Insurance underwriters are hired to calculate the risk of specific insurance policies,
decide what policies to offer, and what premiums to charge.
Event
Financial Loss
Protection
You have a car accident and
damage your car
Car repairs
Auto Insurance
You have a car accident in which
another person in your car is
injured
Medical bills and liability
Auto Insurance
You have a car accident in which
another person in the other
driver’s car is injured
Medical bills and liability
Auto Insurance
Your home is damaged by a fire
Home repairs
Homeowner’s Insurance
Your neighbor is injured while in
your home
Medical bills and liability
Homeowner’s Insurance
You become ill and need medical Medical bills
attention
Health Insurance
You develop an illness that
requires long-term car
Medical bills
Long-term care Insurance
You become disabled
Loss of income
Disability insurance
You die while family members
rely on your income
Loss of income
Life Insurance
ROLE OF INSURANCE AGENTS
Insurance agent recommends insurance policies for customers
Captive (exclusive) agent works for one particular company
 ex. State Farm insurance agents
Independent agent represents many different insurance companies
AUTOMOBILE INSURANCE
Insures damage to an automobile and expenses associated with accidents
 Protects your car and limits your potential liabilities (expenses due to an accident)
 Prices vary between states
 Much larger in highly populated states
Insurance policy is a contract between an insurance company and policyholder
Auto insurance policy specifies the coverage provided by the insurance company for a
particular individual and vehicle
Bodily insurance liability coverage protects against liability associated with injuries
caused by the policyholder
BASIC TYPES OF AUTO INSURANCE
Liability
 Bodily injury liability
 Property damage liability
Uninsured Motorists
Underinsured Motorists
Collision
Comprehensive
HOW MUCH DOES AUTO INSURANCE COST?
Factors that affect your auto insurance premium…
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Value of a car
Repair record of the car
Your age
Your mileage
Your driving record
Your location
Your driver training
Your school performance
HOW CAN YOU LOWER YOUR INSURANCE
Get good grades
Choose your wheels carefully
Consider the age and condition of your vehicle
Consider letting your parents insure you on their policy
Ms. Vandiver says…Don’t text and drive 
COVERAGE LIMITS ON YOUR POLICY
Policy may show 50/100/25
That means…
 $50,000 of bodily injury liability if one person is injured
 $100,000 total for all bodily injury liabilities for all injured
 $25,000 of property damage coverage
HOMEOWNER’S INSURANCE
Provides insurance in the event of property damage, theft, or personal liability
Protects most valuable assets but limits potential expenses associated with a home
Provides a certain amount of liability coverage, which pays for injury or death of
others caused by you on your property
WHAT ELSE DOES HOME INSURANCE COVER?
The building/residence
Home furnishings
Most personal belongings
Lawn, trees, and shrubs in limited cases
Garage
Some external structures, like sheds
Fence
Swimming pool
WHAT ARE PERILS?
Things or events that can damage or destroy a home or its contents, a homeowners policy may
cover these perils:
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Fire
Lightening
Wind
Hail
Theft
Explosion
Smoke
Glass breakage
Vandalism
Riot
Falling aircraft
DOES NOT COVER FLOOD!
PROPERTY DAMAGE
Cash-value policy pays you for the value of the damaged property after considering
its depreciation (wear and tear)
Replacement cost policy pays you for the actual cost of replacing the damaged
property
ADDITIONAL COVERAGE: PERSONAL PROPERTY
Normally covers furniture, computers, clothing up to a specified amount
Home inventory includes detailed information about your personal property that can
be used when filing a claim
 Create a list of personal assets and estimate the market value of each, take pictures or video of items
Personal property floater (personal articles floater) is an extension of the
homeowner’s policy that allows you to itemize your valuables, if assets are very
valuable and are not fully covered by your policy
HOW MUCH DOES HOMEOWNER’S INSURANCE
COST?
Factors that affect the premium of homeowner’s insurance policy:
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Value of insured home
Deductible
Location
Degree of protection
Discounts
HOW CAN YOU LOWER THE COST OF
HOMEOWNER’S INSURANCE?
Improve protection
Use one insurer for all types of insurance
 Bundling discounts
Stay with the same insurance company
Shop around
WHAT DOES RENTER’S INSURANCE COVER?
Renters insurance is a policy that protects your possessions within a house, condo, or
apartment that you are renting
Does not insure the structure itself because the insurance is for the renter only, not the
property owner
Covers personal assets such as furniture, television, computer equipment, and stereo
equipment
ETHICAL DILEMMA
You teach Personal Finance at a local community college. The state in which you
teach requires proof of liability insurance in order to renew your license plates.
During the discussion of this topic in class, several students admit that they obtain
a liability policy just prior to the renewal of their license plates and then cancel
it immediately thereafter. They do this because they know that the state has no
system for following up on the cancellation of the liability policies once the
license plates are issued. These students, who are out of work as a result of a
local plant shutdown, indicate that they cannot afford to maintain the insurance,
but they must have access to cars for transportation
oWrite a paragraph discussing whether you consider the conduct of the students to be unethical.
oHow does the conduct of these students potentially impact other members of the class who maintain
liability insurance on their vehicles?
QUIZ OVER HOME AND AUTO 3/28
Includes the slides above and the vocabulary
HEALTH AND DISABILITY INSURANCE
I can…
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Identify and compare the types of private health care plans
Explain the use of government health care plans
Describe long-term care insurance
Explain the benefits of disability insurance
HEALTH INSURANCE
Covers healthcare expenses incurred by policyholders for necessary medical care
Largest issuers: Blue Cross and Blue Shield
Without healthcare medical expenses can eliminate your wealth
1 in 5 workers are uninsured
Healthcare is expensive!
 Technological advancements
 Increased age of the average population
Healthcare is necessary!
PRIVATE HEALTH INSURANCE
Can be purchased from private insurance companies to provide coverage for
healthcare expenses
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Hospitalization insurance
Surgical expense insurance
Physician expense insurance
Major medical insurance
PRIVATE HEALTH INSURANCE COVERAGE
Hospitalization insurance covers the cost
of many hospital facility and service
fees
Physician expense insurance covers the
cost of many nonsurgical physician fees
 Room, meals, pharmaceuticals, nursing services,
labs, x-rays
 May be a deductible
 Covers physician fees for healthcare, lab tests,
and x-rays outside of the hospital
Surgical expense insurance covers the
cost of some surgeries
Major medical insurance serves as a
backup to basic health insurance
 Surgery, anesthetics, lab fees, x-rays
 May specify maximum reimbursement per
surgical procedure
 Typically doesn’t cover cosmetic procedures
PRIVATE HEALTH CARE PLANS
Indemnity plan- reimburses individuals
for part or all of the expenses they incur
from healthcare providers
Health Maintenance Organization
(HMO)- covers health care services
approved by doctors
 Free to decide whether to seek care from a
primary care physician or a specialist
 A primary care physician provides general
health services and refers patients to a
specialist as necessary
Managed health care plan- individuals
receive services from specific doctors or
hospitals that are part of the plan
Preferred Provider Organization (PPO)allows individuals to select a health care
provider and covers most of the fees for
services
 A referral from a doctor is not necessary to see
a specialist
PRIVATE HEALTH CARE PLANS
Type of Private Health Plan
Premium
Selection of Physician
Indemnity Plan
High
Flexibility to select physician or
specialist
Managed Care: HMO’s
Relatively low
Primary care physician refers
patients to specialist
Managed Care: PPO’s
Low, but usually higher than HMO’s
There is a greater number of
physicians to choose from in PPO’s
than HMO’s
CONTENTS OF HEALTH CARE INSURANCE
POLICIES
Identification of insured persons
Mental illness
Location
Pregnancy
Preexisting Conditions
Renewability option
Cancellation Options
Maintaining private health care
insurance coverage
Determinants of unreimbursed medical
expenses
Rehabilitation
Expenses not covered by private
insurance plans
CONTENTS OF HEALTH CARE INSURANCE
POLICIES (CONT.)
Preexisting Conditions- health conditions
that existed before your policy was
granted
 If you had a torn ligament when you applied
for the policy, you may not be allowed
coverage for surgery to repair the ligament
Flexible Spending Account- an account
established by the employer for the
employee to use pretax income to pay
for medical expenses
 Funds do not roll to next year
Maintaining private health care
insurance coverage- federal regulations
ensure continuous health care coverage
despite employment status
 COBRA- continue health insurance provided
through an employer’s plan for 18 months after
you stop working for the employer
 HIPAA- can continue health insurance coverage
if they have switched jobs
 Ex. Work in Kansas, have torn ligament… change jobs and
move to Texas. Cannot be denied the surgery for torn
ligament because of preexisting condition
GOVERNMENT HEALTH CARE PLANS
Medicare
Provides health insurance to individuals
who are 65 years or older and qualify
for Social Security benefits or who are
disabled
Provides payments to health care
providers in the case of illness
Part A- hospital insurance and is used to
cover expenses associated with inpatient
care
Part B- Optional medical insurance
(covers outpatient care, physical therapy,
some home health services)
Part C- Combination of Parts A and B
Part D- provides coverage for
prescription drugs
GOVERNMENT HEALTH CARE PLANS
Medicare
Medicaid
Medigap Insurance- provided by private
insurance companies to cover medical
expenses that are not covered by
Medicare
Provides health insurance for individuals
with low incomes and those in need of
public assistance
Health Savings Account- an account that
shelters income from taxes and that can
be used to pay health care expenses
Provide health care to the aged, blind,
disabled, and needy families with
dependent children
Must meet federal guidelines
LONG TERM CARE INSURANCE
Insurance that covers expenses associated with long-term health conditions that cause
individuals to need help with everyday tasks
More than half of all individuals in the U.S. will need long-term care at some period
during their life
The cost of having an aide provide basic care at home can exceed $1000 per week
For individuals who enter a nursing home, the cost is about $55,000 per year on
average
Medicare does not cover the cost of long term care
Medicaid might cover some of these expenses, but coverage is limited
FACTORS THAT AFFECT LONG-TERM CARE
INSURANCE PREMIUMS
Premium will depend on: types of services, amount of coverage, period to receive
benefits
Age
Health Condition
ADDITIONAL TYPES OF HEALTH CARE PLANS
Dental insurance covers part or all the fees imposed for dental serices
 Annual checkups, orthodontics, and oral surgery
Vision insurance covers part or all of the fees imposed for optician and optometrist
services
 Annual checkups, glasses, contact lenses, and surgery
DISABILITY INCOME INSURANCE
Insurance that provides income to policyholders in the event that they become
disabled.
“Own Occupation” definition
 If you are unable to do the duties required of your occupation
“Any Occupation” definition
 If you cannot do the duties of any job that fits your education and experience
SOURCES OF DISABILITY INCOME INSURANCE
Individual disability insurance
Employer disability insurance
Insurance from Social Security
Insurance from Worker’s Compensation
DISABILITY INSURANCE PROVISIONS
Amount of coverage
Probationary period
Waiting period
Length of time for Disability Benefits
Non-cancelable provision
Renewable provision
HEALTH CARE IN THE NEWS
Find an article on the internet that discusses Obama Care. Identify:
What is Obama Care?
What are the advantages of Obama Care?
What are the disadvantages of Obama Care?
After reading the article, write a paragraph explaining how YOU feel about Obama
Care.
LIFE INSURANCE
I can…
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Describe the types of life insurance that are available
Identify the factors that influence insurance needs
Review the factors that affect life insurance premiums
Examine the decision of whether to purchase life insurance
Explain settlement options available to a beneficiary
LIFE INSURANCE
Provides a payment to a specified beneficiary when the policyholder dies
 Ex. If Bob has a $100,000 policy, then if he passes away his wife Sue will receive $100,000 (nontaxable)
 Critical to protect a family's financial situation
 Covers burial or medical expenses not covered by health insurance
If no one else relies on your income life insurance may not be necessary
TYPES OF LIFE INSURANCE
Term Life Insurance
 Decreasing Term
 Mortgage Life Term
 Group Term
Permanent Life (Whole Life)
 Limited Payment Policy
Universal Life Insurance-combination of term life and savings plan; provides insurance
over a specified period of time and accumulates a savings plan
 Variable life insurance
HOW DO YOU KNOW HOW MUCH YOU NEED?
Income method- a method that determines how much life insurance is needed based
on the policyholder’s annual income
Budget method- determines how much life insurance is needed based on household’s
expected future expenses
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Annual Living Expenses
Special Future Expenses
Debt
Job Marketability of Spouse
Value of Existing Savings
CONTENTS OF A LIFE INSURANCE POLICY
Beneficiary
 Can name multiple beneficiaries
 Can change any time you wish
Living benefits
 Receive a portion of benefits prior to death under special circumstances
Nonforfeiture Clause
 Allows you to receive the savings you accumulated if you terminate your whole life policy
Renewability option
 Allows you to renew the term once the current term expires
 Premium for the next term is higher since you are older
Conversion option
 Allows you to convert your term insurance policy into a whole life policy
Settlement option
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Alternative way to receive life insurance benefits
Lump sum settlement
Installment payment settlement
Interest payment settlement
DECISION TO PURCHASE INSURANCE
Bart is a college student. Since his plan is to get a job
immediately after graduation, he determines that he will
need about $250,000 in life insurance to provide for his
future wife and children. Bart has obtained a quote over
the internet that would require him to pay $200 annually
in life insurance premiums. As a college student, this is a
significant expense for Bart, and he would likely have to
borrow money to pay for the insurance premiums. Advise
Bart on the timing of his life insurance purchase.