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.