Personal Finance- Chapter 11
What is an insurance agent?
An insurance agent works for one or more insurance companies and recommends insurance policies suited to client needs.
HO-1
Protects against fire, lightning, explosions, hail, riots, vehicles, aircraft, smoke, vandalism, theft, malicious mischief, glass breakage.
HO-3
Protects the home and any other structures on the property against all events except those that are excluded by the specific homeowner's policy, such as earthquakes, floods, termites, war, and nuclear accidents.
HO-5
Protects the home, other structures on the property, and personal assets against all events except those that are excluded by the specific homeowner's policy. Coverage is similar to HO-3, but includes slightly more coverage to personal assets.
How do no-fault insurance affect personal injury litigation?
The intent is to avoid costly court battles in which each driver attempts to blame the other driver.
What is uninsured motorist coverage?
Uninsured motorist coverage insures against the cost of bodily injury when an accident is caused by another driver who is not insured.
why is this mind-set problematic
accidents happen, even to people who are careful, and the potential costs are simply too high to avoid purchasing insurance
A "replacement cost" homeowner's policy pays you for the:
actual cost of replacing the damaged property
who should consider purchasing renter's insurance
all renters should purchase renter's insurance, if only for the liability protection
a home inventory is a listing of
all your personal assets and estimates of the market value of each of them
Some ways you can reduce risk and limit your overall exposure to loss are:
buying less expensive automobiles reducing illness or disability exposure due to health examinations installing smoke detectors and fire alarms in your home to potentially reduce losses due to fire eliminating or limiting risky behaviors such as skydiving or motocross racing limiting the size of your home
this type of coverage may be required by
car loan providers
collision coverage insures you against:
costs of damage to your car resulting from an accident in which you are not at fault
The responsibility of the insurance company that sells you a policy is to:
cover claims as described in the insurance policy.
insurance underwriters
decide what insurance policies to offer set premiums that are aligned with anticipated payouts
risk is
exposure to events that can cause a financial loss.
why is this coverage necessary
given the large number of uninsured drivers, this coverage is needed
One step you could take to reduce your homeowner's insurance premium is:
improve protection
Insurance allows you to:
maintain your existing level of wealth if there are unexpected events.
renter's insurance
protects against loss of personal assets due to burglary, which may also be specified by homeowner's insurance
some people choose to accept risk rather than purchase insurance because
they make a conscious decision to self-insure if the car or home they own has a low value they believe that if they are careful they will not incur losses they do not feel they receive a good or service when buying insurance since they do not immediately notice the benefit
The premiums paid by policyholders are priced:
to reflect the probability of a claim and the size of the claim.
What is the difference between a captive agent and an independent agent?
Captive insurance agents work for one specific company and independent insurance agents represent many different companies.
Which of the following is a factor that will affect your auto insurance premium?
Factors that can affect an auto insurance premium are:- Value of the insured vehicle: the higher the value of the car, the higher the premium. -Repair record of the car: the more easily car damage can be repaired, the lower the premium. -Your age: younger drivers have less experience and pay higher premiums. - Your mileage: the more miles you drive, the higher the premium.- Your driving record: individuals with poor driving records pay more than individuals with good driving records.- Location: insurance is higher in larger cities.- Discounts: due to discounts, premiums may be lower on cars with safety devices, for drivers who have had driver training, and students who have a high grade point.- Your school performance: good students are generally safer drivers and may pay lower premiums.- Your credit record: Individuals with poor credit records may pay higher premiums.
HO-2
Protects against fire, lightning, explosions, hail, riots, vehicles, aircraft, smoke, vandalism, theft, malicious mischief, glass breakage, along with falling objects, the weight of ice, snow, or sleet, the collapse of buildings, overflow of water or steam, power surges, and the explosion of steam of hot water systems, frozen plumbing, heating units, air conditioning systems, and domestic appliances.
What does it mean to avoid risk? How can you apply this knowledge to your personal situation?
Risk avoidance is the practice of limiting your exposure to financial loss by not taking certain actions. For example, you can avoid the risk of financial loss due to damaged property by not owning property.
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, say that they cannot afford to maintain the insurance, but they must have access to cars for transportation. a. Discuss whether you consider the conduct of the students to be unethical. b. How does the conduct of these students potentially impact other members of the class who maintain liability insurance on their vehicles?
a. The conduct of the students is: unethical since an uninsured motorist creates problems for all motorists b. those uninsured students potentially impact other members of the class who maintain liability insurance on their vehicles because: students who properly maintain liability insurance are paying higher premiums and are thus subsidizing those students who do not.
Geographic location impacts the cost of automobile insurance because:
automobile insurance premiums vary based on location. Premiums are higher in large cities since the probability of an accident is higher. Premiums are also higher in geographic regions that have a higher incidence of auto theft.
an umbrella personal liability policy becomes effective when your auto and homeowner's policy limits are
exhausted
It is important to keep a detailed inventory of your household possessions outside your home because:
in the event of a loss you will need to be able to provide a detailed list of your possessions in order to be reimbursed for your loss. Unless you keep this record of your possessions in a location outside of your home it may be destroyed in the fire, tornado, or other event that caused the loss.
captive agents works for one particular company, whereas
independent agents, insurance brokers, represent many different insurances
insurance companies have identified an
inverse relationship between your credit score and the likelihood you will file a loss claim. People with lower credit scores are more likely to file a claim than persons with high credit scores. For this reason many insurance companies will pull a credit report and charge higher premiums to persons with lower credit scores
It is important to carefully review the types of perils covered by your homeowner's insurance policy because:
not all perils are covered under most homeowner's policies. For example, floods and earthquakes are two perils that require additions to your typical homeowner's policy.
Minimum limits of liability are:
not suitable for all drivers since they would not cover the liability in many accidents.
standard polices
often include a deductible that is applied to the personal property
If you were in an accident, your medical insurance coverage would cover:
only the passengers injured in your insured automobile.
collision and comprehensive coverage are
optional in most states
A standard homeowner's insurance policy covers damage to
personal assets such as furniture and computers, up to one-half of the coverage of the dwelling.
an umbrella personal liability policy
provides additional liability coverage to auto and homeowner's insurance policies
The first step in risk management is to:
recognize the risks to which you are exposed.
Geographic location impacts the cost of homeowner's insurance because:
some geographic regions are more prone to certain types of natural disasters. For this reason homeowner's premiums will vary depending on the overall likelihood of loss in a given region.
liability is
the responsibility for damages.
homeowners insurance provides insurance in the event of
theft
what steps should you take if you are in a car accident
to file a claim with your insurance company. to contact the police. to request relevant information from any other driver(s) in the accident.
which of the following is a factor that will affect your auto insurance premium
value of the insured vehicle; the higher the value of the car, the higher the premium
homeowners insurance premiums are normally paid on a
yearly basis or are included with your home mortgage payment
You should consider insurance if
you do not wish to be exposed to a financial loss as a result of the risk. you cannot reduce the risk. you cannot avoid the risk.
Medical payments coverage can be valuable even if you have health insurance because:
your health insurance policy would not cover non-family passengers in your car who could be injured.
Policy limits of 25/50/25 means:
$25,000 for bodily injury for each person injured in an accident you caused; $50,000 for all bodily injury (for all persons combined); and $25,000 for property damage (to the car or other property).
What is a no-fault auto insurance program?
No-fault insurance programs do not hold a specific driver liable for causing the accident. In general, insurance companies in states with no-fault programs provide coverage up to specified limits to their respective policyholders for direct costs incurred due to bodily injury, medical bills, replacement of lost income due to an insured's inability to work, and funeral expenses. They typically do not pay for indirect expenses such as emotional distress or pain and suffering due to an accident.
