Personal Finance Chapters 25-26

Policy

A written insurance contract

Risk assumption

Accepting the consequences of risk

Grace period

Additional time after premium due date, allows policyholder to make payment w/o penalty

Deductible

Amount of loss that a policyholder pays before the insurer is obligated to pay anything

Insurable interest

Any financial interest in life/property that the insured would suffer financially

Personal injury protection

Automobile insurance, pays for medical, hospital and funeral costs of the insured

Risk shifting

Buy insurance to cover financial losses caused by events, premium payments shift risk of major financial loss to the insurance company

Investment risk

Chance of financial loss from a decline in an investment's value

Personal risk

Chance of loss involving your income and standard of living ex. Life, health, disability insurance

Property risk

Chance of loss or harm to personal or real property ex. Car, home

Liability risk

Chance of loss that may occur when your errors or actions result in injury or damages to their property

Pure risk

Chance of loss with no chance for gain ex. Accidents, Illnesses, Acts of nature

Liability

Cost of another person's losses for injuries at your property

Replacement value

Cost of replacing an item regardless of its actual market value

Attractive nuisance

Dangerous place, condition, object that is particularly attractive to children

Claims adjusters

Determine value of property destroyed

No-fault insurance

Drivers receive reimbursement for their expenses no matter who caused it

Economic risk

Gain or loss because of changing economic condictions

Reducing insurance costs

Higher deductibles=lower premiums, purchase group insurance, payment options

Premium

Identified risk for fee, payed at intervals

3 steps of risk assesment

Identify risk of loss, assess seriousness of risks, handle risks

Insurer

Insurance company who provides insurance coverage for a policy holder

Personal property floater

Insurance coverage for the insured's movable property wherever it may be located

Collision coverage

Insurance that protects your own car against damage from accidents/ overturning

Renters policy

Insurance, protects renters from property and liability risks. Protects from damage to personal property, injuries for your guests

Risk avoidance

Lowers change loss by not doing the activity that could result in the loss

Hedging

Making an investment to help offset against loss

Speculative risk

May result in either loss or gain. Not random/accentual. ex.

Insurance

Method for spreading individual risk among a large group of people to make losses more affordable for all.

Driving record

Number and type of traffic tickets you've received for driving infractions and misdemeanors

Risk management

Organized strategy for controlling financial loss from pure risks and insurable risks

Decline/Recession

Period of time when economy is slowing, jobs lost, people pessimistic. Company layoff.

Recovery/Growth

Period of time where economy is growing, jobs created, optimistic.

Trough

Period when economy has hit bottom, things are as slow as they can, many businesses fail.

Peak

Period when economy has hit the top, people can't pay more for products; limit.

Beneficiary

Person named on an insurance policy to receive benefits from the policy

Insured

Person or company protected against loss

Major insurable risks

Personal, property, liability

Uninvited guest

Presumed to have permission to be on your property

Liability coverage

Protect against bodily injury to another person or damage to another person's property

Comprehensive coverage

Protects for reasons other than accidents

Homeowner's policy

Protects property owners from property and liability risks. Includes coverage for building and personal possessions

Co-insurance clause

Provision requiring policyholders to insure their building for a stated percentage of its replacement value in order to receive full reimbursement for a loss

Insurable risk

Pure risk faced by a large number of people which the amount of loss can be predicted

Indemnification

Putting policyholder back in same financial condition he/she was in before the loss occured

Package policies

Several types of coverage in a single contract with a lower premium

Exclusions

Specified losses that the insurance policy does not cover

Risk

State of uncertainty where some of the possibilities may result in loss or another undesirable outcome

Umbrella liability insurance

Supplements basic auto and property liability coverage, expands limits includes more risks

Risk reduction

Taking measures to lessen frequency/severity of losses that may occur

Risk assesment

Understanding types of risk you will face and their potential consequences

Endorsement

Written amendment to an insurance policy