Car Insurance
Do you obey the rules of the road? Do you always wear a seat belt? Great! You’re a good driver. But even great drivers need car insurance.
Accidents happen. Sometimes it’s your fault. Sometimes the other person is to blame. Sometimes nobody is at fault. Whatever the situation, auto insurance can help pay for medical bills and car repair. In fact, many states require drivers to have some form of car insurance, and they specify minimum requirements.
What is auto insurance?An auto insurance policy is a legal agreement between you and your insurance company. You pay a premium to the insurance company regularly, and in return the company is obligated to help pay for covered damage to your car, others’ property or injury to yourself or others as a result of an auto accident.
What does auto insurance cover?Basic types of auto insurance coverage include:
Liability – There are two types:
Underinsured Motorists (UIM) – Sometimes drivers try to save money by cutting back on the amount of insurance they have. It may seem like a good idea – until they have an accident. This covers what the other driver’s insurance doesn’t, if the other driver is at fault, up to the UIM limits you select.
Medical Payments – This covers medical bills and funeral expenses for you, your family and passengers whether you caused the accident or not. It also covers you if you’re injured in someone else’s car, or if you’re hit by a vehicle while riding a bike or walking down the street.
Collision – This type of coverage pays for damage to your car if it collides with another object, like a light pole, for instance.
To figure out how much your insurance company will pay to fix your car, a claims adjuster may look at the damage, or you may have to get estimates from body shops. If your car is “totaled,” you get what your car is worth if you had sold it right before the accident.
Comprehensive – This covers the physical damage to your car from most other causes, such as fire, theft, vandalism, hail, etc. This coverage may be required by your lender if you have a loan on your vehicle.
How much does auto insurance cost?Good question. Because drivers under 25 are more likely to get into an accident, insurance companies charge them more. If you get a traffic ticket for speeding or running a red light, your insurance costs may go up as a result.
The type of vehicle you drive also influences auto insurance rates. Cars which are more dangerous to drive – like convertibles – or cost more to repair if they’re damaged – like sports cars – cost more to insure.
Where you live makes a difference, too. If you live in a big city, the chances your car will be hit, stolen or vandalized are higher – and your insurance costs will be as well.
What can I do to keep my auto insurance costs down?First and foremost, avoid moving violations and accidents. Here are a few more suggestions for how you may be able to reduce the cost of your auto insurance:
Your auto policy may show limits like 50/100/25. This means the insurance company will pay up to:
How do deductibles work?A deductible is the amount you agree to pay for repairs in case of an accident. They usually range from $0 to $500. Collision and Comprehensive coverage each have a deductible. If you have a higher deductible, your premium will be lower for that portion of your insurance.
Ask yourself:What if a tree fell on your car and dented your hood, causing $500 in damage. If you have a $0 deductible for Comprehensive coverage, you pay nothing and the insurance company pays to fix your car. If you have a $250 deductible, you pay $250 and the insurance company pays $250 toward the damages. If you have a $500 deductible, you pay for the repair and the insurance company pays nothing. That’s how deductibles work!
Terms to knowAgent – A person who sells insurance; your direct contact with an insurance company.
At-fault – Describes the person who did something to cause an accident.
Deductible – The amount of money you agree to pay when there is a loss.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company or anyone who provides insurance.
Moving violations – If you break the law by speeding, running a stop sign, driving under the influence, etc., you’ll get a ticket. Parking tickets are not moving violations.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Safety tipsSafe drivers are in fewer accidents, which make them lower risks to insure. Check out the following websites to learn how you can become a safer driver:
nhtsa.gov – The National Highway Traffic Safety Administration’s site includes information on all vehicles, alcohol, distracted driving and youth statistics.
teendriving.com – This site, specifically designed for teenagers, lists many tips for safe driving.
hwysafety.org – The Insurance Institute for Highway Safety’s site has information on highway safety laws, vehicle safety ratings, insurance losses by car make and model, and much more.
Assignment: Fill out a police report for an accident. Get form from Mrs. P.
Accident scenario:On a wet, rainy night, you are driving east on Oak Street. You haven’t driven this street before. Your wipers are on. Your lights are on. But you can’t see too well in the heavy rain. You approach the intersection with Ninth Street. There are no stop signs or traffic signals on Oak Street, so you have the right of way. A car heading north on Ninth Street runs a stop sign. You lock up your brakes, skidding on the wet pavement and slamming into the driver’s side of the car on Ninth Street. A car behind you hits your car’s rear end. Both streets are two-way, two-lane streets with a speed limit posted at 30 mph. The road is level with no defects.
Homeowners Insurance
Whether you own or rent the roof over your head, that roof and everything beneath it has a value.
Have you considered how hard it would be to replace everything if a tornado leveled your home? What if someone broke into your house and took your TV, stereo and other valuable items? What if your home caught on fire? Without home insurance, it may be impossible to ever replace your home and your possessions.
What is home insurance?Whether you’re a homeowner, condo owner or renter, home insurance (or tenant insurance) can pay for the cost of your house (if you own it) and your belongings if you lose them to a peril mention in the policy. It will also pay for temporary expenses if your home is damaged and you can’t live in it.
The costs of repairing your home or building a new home, as well as replacing your belongings, can be paid one of two ways:
What about my garage and other buildings? Are they covered by home insurance?Basic home insurance also protects other property. Private structures on your property which are not attached to your residence are covered. This includes fences, driveways, sidewalks and your garage.
Is my yard also covered?If your trees and plant are damaged by fire, lightning, vandalism or theft, your insurance will pay for the loss. But there is a limit for each item damaged.
Ask yourself:What if your house catches fire, and the firefighting equipment damages your lawn and trees? Your home is covered, of course, but so is the landscape because it’s all part of your property.
What else does home insurance cover?Personal belongingsYour personal property is protected by home insurance, too. It’s wise to keep a household inventory of everything of value in your home or on your property for this purpose. Include a complete list of your household possessions, and include model and serial numbers, original costs and receipts, whenever possible. Taking photos or videos of your home and valuable possessions is also a good idea. Keep these records somewhere secure, like a safe deposit box.
Certain high-value items and collectibles should be insured for their value. Items like expensive jewelry, silverware or high-end computer systems can have extra coverage limits added through riders or a scheduled personal property endorsement for an extra premium cost.
Scheduling personal property also allows you to:
You’re liable to need liability protectionLiability is an intimidating word meaning legally responsible. Most home insurance policies provide a certain amount of liability coverage, which pays for injury or death of others caused by you on or off your property. Your insurer will pay costs for which you are responsible, up to the limits specified in your policy. Liability coverage will also pay for your legal defense if you are sued for something that is covered under the policy.
Your home insurance’s liability coverage can also protect you from having to pay medical costs for anyone injured at your residence, regardless of fault. Medical payment coverage pays for injury to another person who is accidentally injured on your property or injured by you or a family member or pet covered under the policy. It doesn’t apply to your own injuries or family members living with you.
Think of the difference between liability coverage and medical payments protection this way: Liability coverage protects you if the injured person wants to take you to court and sue for damages. Medical payments protection covers that person’s immediate doctor and hospital bills, even if the injured person doesn’t take you to court.
Many insurance companies also offer the opportunity to purchase additional liability coverage to increase the amount of protection above and beyond what a home insurance policy provides.
Ask yourself:How would you protect yourself if the pizza delivery guy sued you after tripping on a rake you accidentally left on the sidewalk? Think about it – he could take you to court and make your pay for being negligent. Worse yet, if the fall caused a permanent disability, he may sue you for thousands of dollars. With liability coverage, the insurance company will pay for your defense in the court case and whatever amount you’re found liable for, up to the policy’s limits.
But suppose he broke his ankle, but didn’t take you to court? Your medical payments protection would cover his immediate doctor and hospital bills, regardless of whose fault it is.
What other kinds of additional coverage can I purchase?It depends on what kind of endorsements your insurance company offers. Endorsements can either add to or exclude from a basic home insurance policy. Usually, endorsements you can purchase offer additional protection from a specific peril named in the endorsement.
For example, you may be able to purchase an endorsement to protect your home and belongings from earthquakes or one that covers you against water that backs up from sewers or drains.
Renting is for me!You may prefer to rent your house or apartment, especially if you’re going away to college. A standard renter’s insurance policy covers both your liability and your possessions. It covers your belongings if they are damaged or stolen and may pay for temporary living expenses if your rental is damaged and you can’t live in it.
A standard renter’s policy covers your personal property on an actual cash value basis. You can usually add replacement cost coverage for an additional premium.
Terms to knowAgent – A person who sells insurance; your direct contact with an insurance company.
Claim – A request for payment under the terms of the insurance policy.
Deductible – The amount of money you agree to pay when there is a loss.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company or anyone who provides insurance.
Negligent – Carelessness or failing to do what a reasonable person would do to avoid an accident or loss.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Controlling home insurance costs makes senseInsurance is an important factor in the overall expenses of a home, condominium or even an apartment. Here are several steps you can take to help control home insurance costs:
Explore discounts – Some companies offer discounts on both home and auto if both policies are with the same provider. Others also offer discounts for having an alarm system in place.
Shop around – Not all insurance companies are alike. You’ll find quotes can vary, sometimes significantly, from one insurer to another.
Use escrow – Pay into the escrow account established by your mortgage company for insurance as well as property tax. When property insurance is due, the mortgage company pays the premium out of the escrow account.
Raise your deductible – You’ll pay more out of pocket if you have a claim, but your premium will go down.
Assignment - Make a list of everything you own in your home. Put a replacement value on each item.
Life Insurance
Does life insurance insure your life? Not exactly. But you’re insuring a very important part of your life – your income and the financial stability it provides your family.
Think about the present. If both of your parents work and one of them dies, who would support you? Would you be able to live in the same home? Who will pay the bills?
Now think about the future. If at some point in the future you and your spouse took out a car loan or a home mortgage together, what would happen if you died? Who would pay for your funeral?
In any situation where you’re responsible for someone or something, life insurance helps make sure there is enough money to pay your bills and meet your family’s needs after you are gone.
What is life insurance? How does it work? Life insurance helps protect your family against the loss of your income when you die. The insurance policy’s death benefit is used to provide income to your surviving family. It can also be used to pay off your financial obligations, as well as funeral expenses and burial costs.
When you buy life insurance, you pay your insurance company money (your premium), and they in return agree to pay a death benefit to whoever you choose when you die (your beneficiary). A beneficiary is usually a spouse, a child or a parent. Your beneficiary can use the money for any purpose, but the main reason for buying life insurance is to make sure your family is taken care of, any money you owe is paid, and all of your bills are settled.
Ask yourself:Did you know even a simple funeral can cost more than $10,000? How would you be able to pay for a loved one’s funeral without life insurance?
Aren’t I too young to worry about life insurance?You’re probably years and years away from dying. But, the simple fact is anyone at any age can die. Car accidents, natural disasters, fires and many diseases aren’t picky when it comes to the age of their victims. Your parents may already have a life insurance policy on you as well as themselves.
How much life insurance is enough?There’s no easy answer. The first step to finding out is usually by talking to an insurance agent and discussing your situation. He or she can help you look at things objectively and help you determine how much money your survivors would owe on your home, cars, credit cards, etc. You should also factor in the cost of funeral expenses and, if needed, money to provide an income for your family and your children’s education.
After reviewing your needs, your agent will propose a life insurance policy and amount of coverage. Then, you pay a certain amount of money for the policy (a premium) monthly, quarterly or annually, and the policy pays a specific amount (the death benefit) when you die.
How much does life insurance cost?How much you might pay for life insurance compared to someone else depends on several factors. But as a general rule, life insurance costs less for a younger person and more for an older person. And the longer you wait to buy life insurance, the more expensive it gets, if only because the probability of dying generally increases each year.
Of course, age isn’t the only key factor insurance companies consider. Insurance companies use statistics from years of research on a large number of people to help determine the cost of your insurance. They use these statistics to develop mortality tables, which list the probability of a person’s death based on certain characteristics, including age, sex and tobacco use.
Other factors, called risk factors, aren’t in the mortality table but can be used to determine how risky it will be to insure your life since they probably will affect how long you live. Examples of risk factors include current health, job, hazardous activities or hobbies, alcohol and drug usage, medical history and weight. And if the insurance company considers you a high risk, they might charge you more for coverage, or they might not insure you at all.
Ask yourself:You’re a 350-pound skydiver with a history of cancer. Are you a higher or lower risk than a 180-pound teacher with no medical problems?
What types of life insurance are there?Life insurance policies typically fall into two general types of coverage: term life insurance and permanent life insurance.
Permanent life insurance provides coverage throughout the insured’s lifetime as long as premiums are paid as required. One permanent life insurance policy can cover your entire life. The premium can be fixed or flexible.
A permanent life insurance policy also has a cash value which builds over time. You get this money if you cancel the policy. You may also be able to take a loan against the policy’s cash value, and the loan plus any unpaid interest would be subtracted from the policy’s benefit if you die.
Types of permanent life insurance policies include whole life (the most common), universal life, variable life and variable universal life.
Term life insurance provides coverage only for a specified period of time. It provides a death benefit if you die during the policy term. The policy term is the specified period of coverage provided by the policy – it can be as short as an airplane trip or as long as 40 years. Most policy terms are for a number of years – one, five, 10, 20 or until a certain age is reached. If the term expires before you die, your beneficiary receives nothing.
A term life insurance policy generally has no cash value, and therefore you receive no money back if you outlive the term or cancel the policy. Many people purchase term insurance to cover a specific period when their income is particularly critical to those they’d leave behind. For example, people buy term insurance to cover payments on a house or their children’s education costs. A term insurance policy may contain a right to convert the policy to a permanent insurance policy, typically before a specified age or time period.
Insurance policies may also include supplemental coverages, or riders, that tailor a policy to an individual. These may include disability coverage which helps protect against loss of income due to sickness or injury, or accidental death benefits which pay an additional benefit to your beneficiary if you die as the result of an accident.
Terms to knowAccidental death benefit – If a person dies as the result of an accident, the insurance company will pay an additional death benefit to the beneficiary.
Agent – A person who sells insurance; your direct contact with an insurance company.
Beneficiary – The person or people designated to receive the death benefit from a life insurance policy when the insured dies.
Cash value – In a permanent life insurance policy, the amount of money the policy owner will receive if the policy is cancelled and surrendered to the insurance company, unless there is an outstanding loan.
Claim – A request for payment under the terms of the insurance policy.
Death benefit – The amount of money paid when a person insured under a life insurance policy dies.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Assignment: "Term" vs. “Perm”Look over the following examples and answer whether the type of life insurance described is term life insurance or permanent life insurance. Your teacher will review each example with your class once you’ve completed the assignment.
Essential Learning Targets
Accidents happen. Sometimes it’s your fault. Sometimes the other person is to blame. Sometimes nobody is at fault. Whatever the situation, auto insurance can help pay for medical bills and car repair. In fact, many states require drivers to have some form of car insurance, and they specify minimum requirements.
What is auto insurance?An auto insurance policy is a legal agreement between you and your insurance company. You pay a premium to the insurance company regularly, and in return the company is obligated to help pay for covered damage to your car, others’ property or injury to yourself or others as a result of an auto accident.
What does auto insurance cover?Basic types of auto insurance coverage include:
Liability – There are two types:
- Bodily Injury Liability – If someone else dies or is injured in a car accident, your insurance company pays for things like legal fees (if you’re sued), medical bills and lost wages for the other person(s) if you are at fault.
- Property Damage Liability – Whether you smack into another car or plow down your neighbor’s mailbox, your insurance company helps pay for the damage to someone else’s property if you are at fault.
Underinsured Motorists (UIM) – Sometimes drivers try to save money by cutting back on the amount of insurance they have. It may seem like a good idea – until they have an accident. This covers what the other driver’s insurance doesn’t, if the other driver is at fault, up to the UIM limits you select.
Medical Payments – This covers medical bills and funeral expenses for you, your family and passengers whether you caused the accident or not. It also covers you if you’re injured in someone else’s car, or if you’re hit by a vehicle while riding a bike or walking down the street.
Collision – This type of coverage pays for damage to your car if it collides with another object, like a light pole, for instance.
To figure out how much your insurance company will pay to fix your car, a claims adjuster may look at the damage, or you may have to get estimates from body shops. If your car is “totaled,” you get what your car is worth if you had sold it right before the accident.
Comprehensive – This covers the physical damage to your car from most other causes, such as fire, theft, vandalism, hail, etc. This coverage may be required by your lender if you have a loan on your vehicle.
How much does auto insurance cost?Good question. Because drivers under 25 are more likely to get into an accident, insurance companies charge them more. If you get a traffic ticket for speeding or running a red light, your insurance costs may go up as a result.
The type of vehicle you drive also influences auto insurance rates. Cars which are more dangerous to drive – like convertibles – or cost more to repair if they’re damaged – like sports cars – cost more to insure.
Where you live makes a difference, too. If you live in a big city, the chances your car will be hit, stolen or vandalized are higher – and your insurance costs will be as well.
What can I do to keep my auto insurance costs down?First and foremost, avoid moving violations and accidents. Here are a few more suggestions for how you may be able to reduce the cost of your auto insurance:
- Get good grades. Some insurance companies give discounts to students with a b average or better.
- Increase your deductibles. When you agree to pay a higher amount you agree to pay out of pocket in case of a claim, you’ll pay a lower amount for this portion of your insurance premium.
- Choose your wheels carefully. Statistics show sports cars and convertibles are riskier to insure than sport utility vehicles, for example.
- Consider the age and condition of your vehicle. Physical Damage coverage may not be worth it if you have an older vehicle that has lost most of its value.
- Consider letting your parents insure you on their policy. Being listed as a driver on your parents’ insurance policy with a vehicle titled in their names will result in cheaper rates than if you paid for insurance on your own. However, your parents’ insurance premiums will likely go up, and a lot!
Your auto policy may show limits like 50/100/25. This means the insurance company will pay up to:
- $50,000 of Bodily Injury liability coverage if one person is injured or killed in an accident;
- $100,000 total for all Bodily Injury liabilities in an accident (if more than one person is injured or killed); and
- $25,000 of Property Damage liability coverage.
How do deductibles work?A deductible is the amount you agree to pay for repairs in case of an accident. They usually range from $0 to $500. Collision and Comprehensive coverage each have a deductible. If you have a higher deductible, your premium will be lower for that portion of your insurance.
Ask yourself:What if a tree fell on your car and dented your hood, causing $500 in damage. If you have a $0 deductible for Comprehensive coverage, you pay nothing and the insurance company pays to fix your car. If you have a $250 deductible, you pay $250 and the insurance company pays $250 toward the damages. If you have a $500 deductible, you pay for the repair and the insurance company pays nothing. That’s how deductibles work!
Terms to knowAgent – A person who sells insurance; your direct contact with an insurance company.
At-fault – Describes the person who did something to cause an accident.
Deductible – The amount of money you agree to pay when there is a loss.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company or anyone who provides insurance.
Moving violations – If you break the law by speeding, running a stop sign, driving under the influence, etc., you’ll get a ticket. Parking tickets are not moving violations.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Safety tipsSafe drivers are in fewer accidents, which make them lower risks to insure. Check out the following websites to learn how you can become a safer driver:
nhtsa.gov – The National Highway Traffic Safety Administration’s site includes information on all vehicles, alcohol, distracted driving and youth statistics.
teendriving.com – This site, specifically designed for teenagers, lists many tips for safe driving.
hwysafety.org – The Insurance Institute for Highway Safety’s site has information on highway safety laws, vehicle safety ratings, insurance losses by car make and model, and much more.
Assignment: Fill out a police report for an accident. Get form from Mrs. P.
Accident scenario:On a wet, rainy night, you are driving east on Oak Street. You haven’t driven this street before. Your wipers are on. Your lights are on. But you can’t see too well in the heavy rain. You approach the intersection with Ninth Street. There are no stop signs or traffic signals on Oak Street, so you have the right of way. A car heading north on Ninth Street runs a stop sign. You lock up your brakes, skidding on the wet pavement and slamming into the driver’s side of the car on Ninth Street. A car behind you hits your car’s rear end. Both streets are two-way, two-lane streets with a speed limit posted at 30 mph. The road is level with no defects.
Homeowners Insurance
Whether you own or rent the roof over your head, that roof and everything beneath it has a value.
Have you considered how hard it would be to replace everything if a tornado leveled your home? What if someone broke into your house and took your TV, stereo and other valuable items? What if your home caught on fire? Without home insurance, it may be impossible to ever replace your home and your possessions.
What is home insurance?Whether you’re a homeowner, condo owner or renter, home insurance (or tenant insurance) can pay for the cost of your house (if you own it) and your belongings if you lose them to a peril mention in the policy. It will also pay for temporary expenses if your home is damaged and you can’t live in it.
The costs of repairing your home or building a new home, as well as replacing your belongings, can be paid one of two ways:
- Actual cash value pays the depreciated value of your damaged property. So, the older the item is, the less money you may receive for it.
- Replacement cost pays the amount it costs to replace your damaged property with something of a similar type and quality at current prices.
-
fire; - lightning;
- wind;
- hail;
- theft;
- explosion;
- smoke;
- glass breakage;
- vandalism;
- riots; and
- falling aircraft.
What about my garage and other buildings? Are they covered by home insurance?Basic home insurance also protects other property. Private structures on your property which are not attached to your residence are covered. This includes fences, driveways, sidewalks and your garage.
Is my yard also covered?If your trees and plant are damaged by fire, lightning, vandalism or theft, your insurance will pay for the loss. But there is a limit for each item damaged.
Ask yourself:What if your house catches fire, and the firefighting equipment damages your lawn and trees? Your home is covered, of course, but so is the landscape because it’s all part of your property.
What else does home insurance cover?Personal belongingsYour personal property is protected by home insurance, too. It’s wise to keep a household inventory of everything of value in your home or on your property for this purpose. Include a complete list of your household possessions, and include model and serial numbers, original costs and receipts, whenever possible. Taking photos or videos of your home and valuable possessions is also a good idea. Keep these records somewhere secure, like a safe deposit box.
Certain high-value items and collectibles should be insured for their value. Items like expensive jewelry, silverware or high-end computer systems can have extra coverage limits added through riders or a scheduled personal property endorsement for an extra premium cost.
Scheduling personal property also allows you to:
- insure it for its value;
- cover it for all risks rather than just the named perils in the policy; and
- avoid paying the policy deductible, as it doesn’t apply for scheduled property.
You’re liable to need liability protectionLiability is an intimidating word meaning legally responsible. Most home insurance policies provide a certain amount of liability coverage, which pays for injury or death of others caused by you on or off your property. Your insurer will pay costs for which you are responsible, up to the limits specified in your policy. Liability coverage will also pay for your legal defense if you are sued for something that is covered under the policy.
Your home insurance’s liability coverage can also protect you from having to pay medical costs for anyone injured at your residence, regardless of fault. Medical payment coverage pays for injury to another person who is accidentally injured on your property or injured by you or a family member or pet covered under the policy. It doesn’t apply to your own injuries or family members living with you.
Think of the difference between liability coverage and medical payments protection this way: Liability coverage protects you if the injured person wants to take you to court and sue for damages. Medical payments protection covers that person’s immediate doctor and hospital bills, even if the injured person doesn’t take you to court.
Many insurance companies also offer the opportunity to purchase additional liability coverage to increase the amount of protection above and beyond what a home insurance policy provides.
Ask yourself:How would you protect yourself if the pizza delivery guy sued you after tripping on a rake you accidentally left on the sidewalk? Think about it – he could take you to court and make your pay for being negligent. Worse yet, if the fall caused a permanent disability, he may sue you for thousands of dollars. With liability coverage, the insurance company will pay for your defense in the court case and whatever amount you’re found liable for, up to the policy’s limits.
But suppose he broke his ankle, but didn’t take you to court? Your medical payments protection would cover his immediate doctor and hospital bills, regardless of whose fault it is.
What other kinds of additional coverage can I purchase?It depends on what kind of endorsements your insurance company offers. Endorsements can either add to or exclude from a basic home insurance policy. Usually, endorsements you can purchase offer additional protection from a specific peril named in the endorsement.
For example, you may be able to purchase an endorsement to protect your home and belongings from earthquakes or one that covers you against water that backs up from sewers or drains.
Renting is for me!You may prefer to rent your house or apartment, especially if you’re going away to college. A standard renter’s insurance policy covers both your liability and your possessions. It covers your belongings if they are damaged or stolen and may pay for temporary living expenses if your rental is damaged and you can’t live in it.
A standard renter’s policy covers your personal property on an actual cash value basis. You can usually add replacement cost coverage for an additional premium.
Terms to knowAgent – A person who sells insurance; your direct contact with an insurance company.
Claim – A request for payment under the terms of the insurance policy.
Deductible – The amount of money you agree to pay when there is a loss.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company or anyone who provides insurance.
Negligent – Carelessness or failing to do what a reasonable person would do to avoid an accident or loss.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Controlling home insurance costs makes senseInsurance is an important factor in the overall expenses of a home, condominium or even an apartment. Here are several steps you can take to help control home insurance costs:
Explore discounts – Some companies offer discounts on both home and auto if both policies are with the same provider. Others also offer discounts for having an alarm system in place.
Shop around – Not all insurance companies are alike. You’ll find quotes can vary, sometimes significantly, from one insurer to another.
Use escrow – Pay into the escrow account established by your mortgage company for insurance as well as property tax. When property insurance is due, the mortgage company pays the premium out of the escrow account.
Raise your deductible – You’ll pay more out of pocket if you have a claim, but your premium will go down.
Assignment - Make a list of everything you own in your home. Put a replacement value on each item.
Life Insurance
Does life insurance insure your life? Not exactly. But you’re insuring a very important part of your life – your income and the financial stability it provides your family.
Think about the present. If both of your parents work and one of them dies, who would support you? Would you be able to live in the same home? Who will pay the bills?
Now think about the future. If at some point in the future you and your spouse took out a car loan or a home mortgage together, what would happen if you died? Who would pay for your funeral?
In any situation where you’re responsible for someone or something, life insurance helps make sure there is enough money to pay your bills and meet your family’s needs after you are gone.
What is life insurance? How does it work? Life insurance helps protect your family against the loss of your income when you die. The insurance policy’s death benefit is used to provide income to your surviving family. It can also be used to pay off your financial obligations, as well as funeral expenses and burial costs.
When you buy life insurance, you pay your insurance company money (your premium), and they in return agree to pay a death benefit to whoever you choose when you die (your beneficiary). A beneficiary is usually a spouse, a child or a parent. Your beneficiary can use the money for any purpose, but the main reason for buying life insurance is to make sure your family is taken care of, any money you owe is paid, and all of your bills are settled.
Ask yourself:Did you know even a simple funeral can cost more than $10,000? How would you be able to pay for a loved one’s funeral without life insurance?
Aren’t I too young to worry about life insurance?You’re probably years and years away from dying. But, the simple fact is anyone at any age can die. Car accidents, natural disasters, fires and many diseases aren’t picky when it comes to the age of their victims. Your parents may already have a life insurance policy on you as well as themselves.
How much life insurance is enough?There’s no easy answer. The first step to finding out is usually by talking to an insurance agent and discussing your situation. He or she can help you look at things objectively and help you determine how much money your survivors would owe on your home, cars, credit cards, etc. You should also factor in the cost of funeral expenses and, if needed, money to provide an income for your family and your children’s education.
After reviewing your needs, your agent will propose a life insurance policy and amount of coverage. Then, you pay a certain amount of money for the policy (a premium) monthly, quarterly or annually, and the policy pays a specific amount (the death benefit) when you die.
How much does life insurance cost?How much you might pay for life insurance compared to someone else depends on several factors. But as a general rule, life insurance costs less for a younger person and more for an older person. And the longer you wait to buy life insurance, the more expensive it gets, if only because the probability of dying generally increases each year.
Of course, age isn’t the only key factor insurance companies consider. Insurance companies use statistics from years of research on a large number of people to help determine the cost of your insurance. They use these statistics to develop mortality tables, which list the probability of a person’s death based on certain characteristics, including age, sex and tobacco use.
Other factors, called risk factors, aren’t in the mortality table but can be used to determine how risky it will be to insure your life since they probably will affect how long you live. Examples of risk factors include current health, job, hazardous activities or hobbies, alcohol and drug usage, medical history and weight. And if the insurance company considers you a high risk, they might charge you more for coverage, or they might not insure you at all.
Ask yourself:You’re a 350-pound skydiver with a history of cancer. Are you a higher or lower risk than a 180-pound teacher with no medical problems?
What types of life insurance are there?Life insurance policies typically fall into two general types of coverage: term life insurance and permanent life insurance.
Permanent life insurance provides coverage throughout the insured’s lifetime as long as premiums are paid as required. One permanent life insurance policy can cover your entire life. The premium can be fixed or flexible.
A permanent life insurance policy also has a cash value which builds over time. You get this money if you cancel the policy. You may also be able to take a loan against the policy’s cash value, and the loan plus any unpaid interest would be subtracted from the policy’s benefit if you die.
Types of permanent life insurance policies include whole life (the most common), universal life, variable life and variable universal life.
Term life insurance provides coverage only for a specified period of time. It provides a death benefit if you die during the policy term. The policy term is the specified period of coverage provided by the policy – it can be as short as an airplane trip or as long as 40 years. Most policy terms are for a number of years – one, five, 10, 20 or until a certain age is reached. If the term expires before you die, your beneficiary receives nothing.
A term life insurance policy generally has no cash value, and therefore you receive no money back if you outlive the term or cancel the policy. Many people purchase term insurance to cover a specific period when their income is particularly critical to those they’d leave behind. For example, people buy term insurance to cover payments on a house or their children’s education costs. A term insurance policy may contain a right to convert the policy to a permanent insurance policy, typically before a specified age or time period.
Insurance policies may also include supplemental coverages, or riders, that tailor a policy to an individual. These may include disability coverage which helps protect against loss of income due to sickness or injury, or accidental death benefits which pay an additional benefit to your beneficiary if you die as the result of an accident.
Terms to knowAccidental death benefit – If a person dies as the result of an accident, the insurance company will pay an additional death benefit to the beneficiary.
Agent – A person who sells insurance; your direct contact with an insurance company.
Beneficiary – The person or people designated to receive the death benefit from a life insurance policy when the insured dies.
Cash value – In a permanent life insurance policy, the amount of money the policy owner will receive if the policy is cancelled and surrendered to the insurance company, unless there is an outstanding loan.
Claim – A request for payment under the terms of the insurance policy.
Death benefit – The amount of money paid when a person insured under a life insurance policy dies.
Insured – The person receiving insurance coverage under the insurance policy.
Insurer – Another term for the insurance company.
Policy – A written document that serves as evidence of an insurance contract which contains the pertinent facts about the policy owner, the insurance coverage, the insured and the insurer.
Premium – The amount you pay in exchange for insurance coverage.
Assignment: "Term" vs. “Perm”Look over the following examples and answer whether the type of life insurance described is term life insurance or permanent life insurance. Your teacher will review each example with your class once you’ve completed the assignment.
- Dan Cooper’s life insurance coverage expires on Dec. 31, 2020.
- Doris Mann’s policy from Acme Insurance Co. currently has a cash value of $4,782.68.
- Grady Fillmore wants to make sure his life insurance proceeds cover his funeral expenses and all outstanding debts when he dies, so his family won’t have to incur the expenses.
- Alice Yates’ life insurance policy doesn’t have any value unless she dies during the policy term.
- The XYZ Life Insurance policy Ruby Wannamaker’s parents purchased for her when she was born will cover her for her entire life as long as the required premiums are paid.
- Leo P. Conrad purchases a second life insurance policy to make sure his children’s educational expenses are covered in the event he dies before they graduate.
- June Beaver timed her supplemental life insurance coverage to expire right after she and her husband pays off the mortgage on their home.
- Crazy Charlie Seaver took a $5,000 policy loan on his life insurance coverage, so he’d have plenty of spending money in Las Vegas.
Essential Learning Targets
G.1 Understand the nature of personal financial risk and the importance of protecting against financial loss.
G.12.1.1 Analyze risk vs. benefit in various financial situations.
G.12.1.2 Develop a personal concept of financial risk management.
G.12.1.3 Explain how risk management strategies protect against financial loss.
G.2 Examine the need for and value of various types of insurance (such as health, property,life, disability, and liability) within the life cycle.
G.12.2.1 Investigate and apply different types of insurance coverage to selected situations (such as automobile insurance).
G.12.2.2 Review and apply criteria to choose insurance coverage for selected situations (such as automobile insurance).
G.12.2.3 Compare insurance rates, premiums, and deductibles to minimize costs in selected situations.
G.3 Integrate and apply concepts related to personal financial risk, protection from loss, and financial planning.
G.12.3.1 Evaluate the results of opportunity-cost analysis to determine individual and family needs for protection.
G.12.3.2 Create an individual or family insurance plan for selected situations.
G.12.1.1 Analyze risk vs. benefit in various financial situations.
G.12.1.2 Develop a personal concept of financial risk management.
G.12.1.3 Explain how risk management strategies protect against financial loss.
G.2 Examine the need for and value of various types of insurance (such as health, property,life, disability, and liability) within the life cycle.
G.12.2.1 Investigate and apply different types of insurance coverage to selected situations (such as automobile insurance).
G.12.2.2 Review and apply criteria to choose insurance coverage for selected situations (such as automobile insurance).
G.12.2.3 Compare insurance rates, premiums, and deductibles to minimize costs in selected situations.
G.3 Integrate and apply concepts related to personal financial risk, protection from loss, and financial planning.
G.12.3.1 Evaluate the results of opportunity-cost analysis to determine individual and family needs for protection.
G.12.3.2 Create an individual or family insurance plan for selected situations.
