Consumer Education
Unit 6, Insurance
Auto, Home, Health, Life, Property
Insurance Basics
 To manage your risk of financial loss from illness, injury, or
damage, you can buy insurance.
 In exchange for this protection, you make a regular
payment to the insurance company called a premium.
 When you purchase insurance, you sign a legal contract
called a policy.
 A formal request for payment from an insurance company
occurs when one files a claim. A claim is filed when an
individual incurs loss covered by a policy.
What can be Insured?
What Insurance Protects
 The goal of insurance is to restore your financial position to where you
were before the loss – not to allow you to profit from the loss. What is
wrong with insuring a $300,000 house for $400,000?
 You must have an insurable interest in an item to insure that item. The
item must be something of value that, if lost, would cause you financial
harm. If unclear, insurable interest is determined by an appraisal, or an
expert’s determination of the value of a piece of property.
 A rider can also be used to cover special additions to an insurance
policy that covers a specific type of loss (wedding rings, art work,
memorabilia, etc.)
The Insurance Trade-Off
 The more insurance coverage
you buy, the higher the
premiums, or money spent on
insurance. At some point, the
premiums themselves could put
an individual in financial
difficulty. A consumer must
always analyze the costs and
benefits before making
important decisions.
Role of Insurance in the Economy
 Many Businesses Would not Exist Without
the Insurance Industry
Banks would not lend money to homeowners for fear of fire
ruining the investment
Doctors would not practice medicine for fear of lawsuits
A capitalistic economy relies on an insurance system to
protect financial holdings.
The Three Basic Types of Insurance
Designed for Consumers:
 Property Insurance
insurance that protects you from financial loss when things
you own are stolen, damaged, or destroyed (home, car,
and valuable possessions)
 Liability Insurance
protects you from losses that you cause others (car, home)
 Personal Insurance
insurance that protects you, your spouse, and your children
against financial loss due to illness, disability, or death
(health and life insurance)
What Insurance Company Should An Individual Choose?
 Considerations:
1. The company’s ability to explain insurance language
and policy options (ability to answer questions)
2. Quality of advice about the amount and kinds of
coverage to buy
3. Availability in time of need
4. Helpfulness in guiding you through the claims process
5. Speed in getting claims paid
6. Overall friendly, patient, and cooperative nature
7. Financial health of the company and price of coverage
Automobile Insurance
Automobile Insurance
 Types of Coverage
Bodily Injury Liability
Protects a consumer against financial
loss, including legal defense, when a
consumer is legally responsible for
injuring other people in an automobile
accident
Property Damage Liability
Pays for damage you caused to another
person’s property. It does not cover
damages to your car.
Medical Payments Coverage
Pays for medical and funeral expenses
for you , your family members, and other
passengers in your car because of
injuries sustained in an accident – no
matter who caused the accident.
Uninsured/Underinsured Motorist Coverage
Pays medical and damage expenses for
you and your passengers caused by a
driver without insurance or with too little
insurance to cover the loss. It does not
cover the other driver
Automobile Coverage Continued
Comprehensive Coverage
Pays for damage to your car caused by something other than a collision
Ex. Earthquakes, fire, wind, hail, floods, vandalism, stolen
Riders may have to be purchased to cover items that are commonly stolen
within a car (phone or stereo)
Collision Coverage
Pays for damage to your car caused by colliding with another car or object,
such as a tree or fire hydrant. Can be the most expensive part of an
automobile policy – cost depends on the value of the car and the size of the
deductible chosen.
Both collision and comprehensive coverage often carry a deductible, or the
amount of money you pay before the insurance company pays anything
Why Is Automobile Insurance So
Expensive?
 Answers the Textbook Provide:
Cars are more complicated and fixing
them costs more money.
Medical technology/new treatments
lead to saved lives = expensive
medical equipment, life saving
treatments and drugs
Reduced weight of cars leads to better
fuel efficiency but heavier damage
during accidents/expensive repairs
Greater Number of Lawsuits – costs
passed on to consumers
Factors Affecting Your Premium

Risk – (from an insurance company’s
point of view) the chance that the
policyholder will have a loss that
requires reimbursement. Insurance
companies will charge higher
premiums to policyholders who have
risky characteristics.
The following characteristics are influential
in deciding premiums:
1.
Age
2.
Gender
3.
Marital Status
4.
Rating Territory – where one lives
5.
Driving Record
6.
Type of Car
7.
Claims History
Home Insurance
Home Insurance Coverage

Types of Coverage
Personal Property
Includes the damage to your house and its contents. Also includes the following items:
furniture, appliances, curtains, clothes, items from a car, living expenses incurred if your house is
uninhabitable after a loss.
Exclusions
stamp or coin collections, laptop computers, silverware, jewelry, cash, antiques – special riders need
to be purchased for the previous listed items
Liability
covers bodily injury or damage you cause to others while on your property or in other
locations
Textbook Examples: Working with a ladder and a neighbor kid climbs the ladder and falls
injuring himself or herself, hitting a baseball through a neighbor’s window breaking the
window, hitting a baseball through a car window at a park
Homeowner’s insurance does not cover damage or injuries you cause with your car.
Four Homeowner’s Policies – What Do They Cover?
 Page 474 will aid your personal understanding of the following types of
homeowner’s policies:
Basic Form
Covers 11 Perils named in the policy: fire and lightning; windstorm or
hail; explosion; riot or civil commotion; vehicles; aircraft; smoke;
vandalism; glass breakage; theft; and volcanic eruption
Broad Form
Covers the 11 Perils named for the basic form plus six more: falling
objects; weight of ice, snow or sleet; building collapse, leakage or
overflow of water or steam from plumbing, heating, or air-conditioning
systems; damage to appliances caused by electrical surges; discharge
of steam or water.
Homeowner’s Policies Continued
Comprehensive Form
Covers all perils except those specified. Most all-perils
policies exclude nuclear accident, flood, earthquake, war,
and other events specified in the policy. Please refer to
page 474 to understand the difference between an allperils policy and a named-perils policy.
Special Form
Provides the same protection for the dwelling as the
comprehensive form, but less extensive coverage for
personal belongings.
Renter’s/Condominium Policies
Why Would Anyone Need
Renter’s Insurance?
Factors Affecting Homeowner’s Insurance Premiums
 Why are statistics so important?
 The following can affect premiums:
1. Location/neighborhood
2. Age of the house
3. Distance to a fire station or water hydrant
Ways to Reduce your Home Insurance
Premium
 Increase Your Deductible
 Upgrade Your Home
plumbing, wiring, siding, interior
supports
 Install Smoke Detectors
 Install Security Measures
 Ask for Special Discounts

nonsmoking, working in the home
Health Insurance
Health Insurance:
Questions To Ponder
 Why is Healthcare so expensive?
 Is Health Insurance Really Necessary for Everyone?
Think of examples where you or your family have needed medical
help/attention. Please provide stories/examples.
What is currently being done to improve healthcare in the United States?
Health Insurance Coverage

•
•
•
•
Basic Coverage
Physician Services When Not in Hospital
Major Illnesses and Injuries
Hospital Stays
Surgical Procedures
Comparison of Health Care Plans
Continuum of Plans
Fee for Service or
Indemnity Plan
More Choice of
Providers
Higher Premiums
PPO
Preferred
Provider
POS
Point-ofService
HMO
Health
Maintenance
Organization
Less Choice of
Providers
Lower Premiums
More to Consider:

Hospitalization

Surgery

Outpatient Services

Major Medical
Additional Coverage Choices
1. Medications
2. Dental Care
3. Vision Care
4. What is Not Covered?
Health Care Rights and
Responsibilities
 Please Read and Understand pages 510-512 in the textbook.
Life Insurance
Life Insurance
 Analyze which number corresponds to
people needing life insurance the most.
1.
2.
3.
Continued Analysis:
1.
2.
3.
How Much Life Insurance Should You Purchase?
 Depends on the following
criteria:
• Family Responsibilities
• Financial Situation
• Future
• Special Needs
Comparison of Common Life Insurance Options
Term Life
Whole Life
Variable Life
Universal Life
Premiums
start low; increase as
renewed
stay level
stay level
stay level
Coverage
generally renewable
only to age 70 or 75
permanent
permanent
permanent
policyholder
may change
Death Benefit
fixed
fixed
varies with
investment
returns
Cash Value
Account
no
yes
yes
yes
Ability to
Withdraw
Cash Value
NA
yes
no
yes
Ability to
Borrow
no
yes
yes
yes
Ways to Collect Life Insurance