1. 14a evaluate insurance as a risk management strategy
14b distinguish among the types, costs and benefits of insurance
coverage, including automobile, life, property, health, and professional
liability
14c Explain the role of insurance in financial planning

2. Insurance can reduce financial risk.
There are pros and cons of insurance as a risk
management strategy in financial planning.

3.  Insurance provides protection from loss due to
unforeseen or unavoidable events or
circumstances
 Example:
 Illness
 Death
 Fire
 Theft
 Liability
 Act of nature
 Automobile accident

4. There are many types of insurance including
automobile, life, property, health, and
professional liability.
Individuals have many choices to make in
selecting insurance.

5. Premium - The price an insurance company charges for
coverage, based on the frequency and cost of potential
accidents, theft and other losses. Prices vary from company to
company.
Premiums also vary depending on:
 the amount and type of coverage purchased
 the make and model of the car
 the insured’s driving record
 years of driving
 the number of miles the car is driven per year
 driver’s age and gender
 where the car is most likely to be driven and the times of day—
rush hour in an urban neighborhood or leisure time driving in rural
areas, for example.
 Some insurance companies may also use credit history related
information.
Source: http://www2.iii.org/glossary/

6.  Increase your deductible
 Cancel your collision coverage
 Garage the car
 Install a security alarm
 Maintain a good driving record
 Avoid submitting small claims

7. Insurance scores are confidential rankings based on credit information.
This includes:
 whether the consumer has made timely payments on loans,
 the number of open credit card accounts
 whether a bankruptcy filing has been made.
An insurance score is a measure of how well consumers manage their
financial affairs. It does not include information about income or
race.
People who manage their money responsibly also tend to handle
driving a car responsibly. Some insurance companies use insurance
scores as an insurance underwriting and rating tool.
Source: http://www2.iii.org/glossary/

8.  Deductible - The amount of loss paid by the
policyholder.
 Claim - a request for the insurance company to pay
 Collision - covers the damage to the policyholder’s car
from a collision.
 Comprehensive - covers damage to the policyholder’s
car not involving a collision with another car (including
damage from fire, explosions, earthquakes, floods and
riots), and theft.
 Liability - Insurance for what the policyholder is legally
obligated to pay because of bodily injury or property
damage caused to another person.
Source: http://www2.iii.org/glossary/

9.  Personal injury protection - covers the treatment of
injuries to the driver and passengers of the
policyholder’s car.
 No fault - coverage that pays for each driver’s own
injuries, regardless of who caused the accident.
 Uninsured/underinsured motorist - protects a
policyholder from uninsured and hit-and-run drivers.
 Assigned risk - Facilities through which drivers can
obtain auto insurance if they are unable to buy it in
the regular market.
Source: http://www2.iii.org/glossary/

10. 25/50/20 minimum
 $25,000 per person
 $50,000 injury or death (two or more people)
 $20,000 for property damage
Or pay the Uninsured Motorist Fee ($500)

11.  Death benefit – amount paid to beneficiary when the insured dies
 Cash value – the accumulated value of the policy
 Determining what you need:
 Dependents (children, spouse, etc. who depend on you)
 Current lifestyle
 Current financial situation (ex. debts, loans, college expenses)
 Temporary insurance:
 Term - covers the insured person for a certain period of time, the “term”
that is specified in the policy.
 Permanent insurance:
 Universal - A flexible premium policy that combines protection against
premature death with a type of savings vehicle, known as a cash value
account, that typically earns a money market rate of interest.
 Variable - A policy that combines protection against premature death
with a savings account that can be invested in stocks, bonds, and money
market mutual funds at the policyholder’s discretion.
Source: http://www2.iii.org/glossary/

12.  Its purpose is to protect a person from losses due to
damage, theft and liability.
 It includes basic coverage, broad form, special
form, renter, comprehensive, and condominium
owner.
 There are disadvantages of under-insuring and over-
insuring.
 The insured must pay a deductible toward a loss
before the insurance company contributes. Policies
with lower deductibles have higher premiums, and
vice versa.
 Replacement value – the dollar amount needed to
replace the personal property

13.  Basic health insurance covers doctor visits, routine
service, and hospital and surgical expenses.
 Major medical insurance insures a person from large and
catastrophic expenses resulting from illness or injury.
 Dental and vision care insurance are generally sold
separately from basic insurance coverage.
 Disability insurance offers workers protection in case of job-
related injury.
 Long term care insurance offers coverage for nursing home
and assisted living facilities
 Co-pays (i.e., payment by the insured for medical services)
are a requirement of most health insurance plans.
 Annual deductible – the yearly amount you may be
responsible to pay

14.  Professional liability insurance is often
purchased by attorneys, health care
providers, and educators to protect against
malpractice and other litigation.
 Umbrella liability insurance provides
additional protection should other policies not
be sufficient.

15. Insurance can play an important role in financial
planning.

16.  Protection against risk of financial loss
 Assistance for individuals and families preparing
financially for risks such as
disability, unemployment, long-term care, and
death
 Provision for retirement income
 Accumulation of savings (for family expenses)
 Provision of cash value that can be borrowed.
 It is important to make periodic reviews of
insurance coverage.