Insurance is..
protection against possible financial loss
definition of insurer or insurance company
risk sharing firm that assumes financial responsibility for losses for an insured risk
definition of “policy” in relation to insurer
a written contract of insurance that is purchased by the insured from the insurer; the insurer agrees to assume the risk for a premium
definition of premium
the amount of money a policy holder is charged for an insurance policy
insured definition
a person covered by an insurance policy
policy holder definition
a person who owns an insurance policy
risk definition
a risk is a change or uncertainty of loss/ the things that insurance companies offer protection against/
peril definition
the cause of a possible loss, such as fire, windstorms, robbery, disease or death / the event that causes someone to take out or purchase policies or insurance
hazard definition
a hazard is something that increases the likelihood of a loss, such as driving drunk, smoking in bed, or defective house wiring
personal risks definition
risk or chance surrounding loss of income or life due to premature death, illness, disability, old age, or unemployment
property risks definition
property risks are the uncertainties of direct or indirect losses to property due to fire, windstsorms, accidents, theft, etc.
liability risks definition
are possibilities due to negligence resulting in bodily harm or property damage to others
pure risk definition
personal risks, property risks, and liability risks, or insurable risk. These are all pure risk because there is a risk in which there is only a chance of loss only if the specified events occur. These are typically accidental and unintentional risks for financial cost, nature, or loss
speculative risk definition
the chance of loss or gain and are legally defined as uninsurable, such as starting a small business or gambling
4 ways to manage risk
risk avoidance
risk reduction
risk assumption
risk shifting
risk avoidance definition
means to avoid the chance of loss altogether/ high costs by giving up job or trade/
practical at the personal level/ at the business level , locks in stores.
risk reduction definition
means to reduce the chances of a loss occurring, or reducing the adverse effects of losses that do occur
ex) installing smoke alarms, wearing seatbelts, eating balanced diet and exercising
risk assumption definition
means taking on the responsibility for the loss or injury/ ex) self insurance
self insurance definition
example of risk assumption
- the process of establishing a monetary fund to cover the cost of a loss itself (it does not eliminate risk)
risk shifting definition
most common method of dealing with risk is to shift or transfer it to an insurance company/
liability definition
a legal responsibility for the financial cost of another person’s losses or injury/ typically caused by negligience
negligence definition
negligence is the failure to do what a reasonable and prudent person would do in a given situation/ careless manner
vicarious liability definition
vicarious liability is when you are held responsible for the actions of another person
strict liability definition
strict liability is present when a person is held responsible for intentional or unintentional actions
homeowner’s insurance coverages
coverage for a place of redidence and its associated financial risks
replacement value of your home
not the current market value of your home
appraisal, inspection made by company
depreciated value
reduction in the value of an object based on age, % it has decreased each year
homeowner’s liability coverage
protects you and family from financial loss resulting from legal actions against you due to damage to others and property
not all people are covered by liability
minumum of 10000000
umbrella policy
aka personal catastrophe policy, supplements basic personal liability coverage, protects you from personal injury claims
voluntary medical payments
home insurance that pays the cost of minor accidental injuries on one’s property
home insurance types
named perils
all risk
named perils policy forms
provides protection against only those perils specifically listed in the policy
all risk
provides protection in which any event that causes loss or damage to the insured property is covered .
3 types of insurance policy plans
standard
broad
comprehensive
standard form policy
broad form policy
comprehensive form policy
covers only named perils
broad form covers all risk for building and named perils for contents
comprehensive form covers all risk for building and all risk for contents
Deductibles
your share of any claim, a fixed amount indicated in your policy
eg) policy of 2000 but deductible is 500, you pay 500 and company gives you 1500
- if insured loss is less than 500, you don’t get any money
the higher your deductible… the lower …
your premium
3 reasons for policies that have low premium and high deductibles
- premiums are lower and paid less from company , more shared
- people are more careful if pay more
- higher deductible means the company has fewer claims, saving more administration fees
general rule for deductibles and premiums
your deductible should total no more than 3% of your net worth. if your networth is 25,000 your acceptable deductible on insurance should be no more than 750
how to determine how much coverage is needed
determine how much it costs to replace
have sufficient liability coverage
include protection for specific items such as cameras, jewlery
determine the value of the contents of your home
factors that affect home insurance costs
location of home ( near or far)
replacement costs (size and composition)
electricity (wiring and amp flow)
heating (sources of heat)
pipes (old piping to meet codes)
age of roof (good roof that has been renovated or replaced in last 20 years)
other factors (presence of fire alarms, pools, sheds, guesthouses)
coverage amount and policy type
no fault insurance
allows you to collect payment from your own insurance company for bodily injury, and to claim for damage to your own automobile no matter who is at fault in an accident
intended to provide faster claims settlements and reduce `the cost associated with taking legal actions against third party
risk assumed and coverage available:
assuming risk of injury to or death of yourself or your passengers
accident benefits :
automobile insurance that covers medical expenses for people injured in one’s car
risk assumed and coverage available:
assuming risk of damage to your vehicle
physical damage insurance such as collision or comprehensive coverage
collision insurance = pays for damage to on’e scar when involved in accident
comprehensive coverage = covers claims caused by a risk other than a collision, such as fire, theft, glass
risk assumed and coverage available:
liability to others for injury, death or property damage
third party liability coverage
covers risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries as well as property for damage cased by an accident for which you were responisble
uninsured motorist protection
pays for the cost of injuries if your vehicle is hit by an unidentified or uninsured person also covers damage to your vehicle if the other driver is identified but uninsured.
towing and emergency coverage
covers for the cost of breakdowns and mechanical assistance. This coverage can be especially beneficial on long trips, pays for the cost of getting the vehicle to a service station
sometimes part of automobile club
loss of use coverage
pays for the replacement tansportation if your vehicle is stolen or is in the shop for repairs after accident
waiver of depreciation coverage
this is for new vehicles
allows for the waiver of any depreciated value in your new car - up to 24 months after purchase
auto insurance premium facotors
use of vehicle (pleasure, business, distance to work)
rating territory (place of redisdence, various locations depending on how many claims are made in that area)
driver classification (age, gender, marital status, driving record, habits)
provincial differences (quebec has set premiums for type of car and class)
(manitoba depends on make and model of car, location and use/ record)
(b.c - value of car, its use, geography)
high risk pool
consists of people who are unable to obtain auto mobile insurance due to poor driving or accident records and must obtain coverage at high rates
best way to keep premium rates down for automobile insurance
establish good driving record
and installing security devices such as fuel shutoff swithch, second ignition, alarm system