Insurance and Investments

1. Insurance and Investments Lesson 5

2. Insurance • Why is it important? • Risk: chance of loss from some type of danger • Can be reduced (helmet, seatbelt, locked car, etc) • Risk management: how you deal with the chance of a potential personal or financial loss • Avoid • Reduce • Accept • Share

3. Sharing the Risk • Insurance: • a means of guaranteeing your financial protection against various risks • Insurance Policy: • a written contract detailing what an insurance company will cover, how much it will pay, and how much you will pay • Premium:the amount you pay for an insurance policy • Based on your age, marital status, whether you live in an urban or rural area, and your credit history • Coverage Limit:the maximum amount the insurance company will pay if you file a claim • Deductible:the amount of a loss you must pay out of your own pocket before the insurance company will step in and pay the rest

4. Driving Down Your Costs • Choose a reasonable coverage limit • In between maximum and minimum coverage • Go for a higher deductible • You’ll pay more if there’s an incident, but your premiums will be lower throughout the year • Shop for your insurance policies • Changes in the insurance industry, legislation, and/or your circumstances can lead to lower premiums • Make changes to lower your premiums. • Having safety equipment in place like anti-theft systems • Medical insurance is better for nonsmokers • Get all of your policies from the same agent or company. • Discounts

5. Types of Insurance • Health insurance:pays medical bills • everyone needs health coverage • You’re covered under your parents’ insurance until age19 • Receive health insurance through an employer • Property insurance:protects your possessions • Protects against flood, fires, natural disasters, etc. • Homeowners’ insurance protects your stuff as well as the house itself • Take pictures of your home – they will come in handy • Life insurance: supports those who depend on a deceased family member • Single: don’t need life insurance • Family: extremely important • Disability insurance:protects your earning power • When you can’t work for extended period due to injury/illness • Liability insurance:protects you against unintentional damage

6. Automobile Insurance • Age • Younger = higher cost • Gender • Males = more expensive • Marital Status • Single = higher cost • Type of Car • Value, size, weight, age of your vehicle, cost of replacement parts determine the premium • Safety features such as airbags, anti-theft equipment, and anti-lock brakes = reduced cost

7. Automobile Insurance (cont.) • How Often You Use Your Car • Less you drive = lower the cost • Location • Urban residents = higher cost • Driving Record • Speeding tickets, other traffic violations = higher cost • Claim Record • Drivers with a clean driving history = lower cost • Credit History • Didn’t we say it would follow you everywhere? • Better credit history = lower cost

8. Automobile Insurance (cont.) • General Liability • Covers damage you cause to other people outside of your car • If sued: general liability covers the legal bills • Medical Payments • Immediate compensation for bodily injury expenses to you and your passengers regardless of who is at fault • Collision • Covers repairs for damage you cause to your car caused by an accident, whether it involves another vehicle or an object, such as a tree • Comprehensive • Covers everything but collision (fire, break-ins, vandalism, theft) • Uninsured Motorist • Covers you when other person doesn’t have auto insurance. • Underinsured Motorist • Covers you when the cost exceeds the other person’s coverage limit

9. Multiple Choice Question 8 ___ 8.) If you have caused an accident, which type of automobile insurance would cover damage to your own car? • Term • Collision • Comprehensive • Liability

10. Multiple Choice Question 9 ___ 9.) Many young people receive health insurance benefits through their parents. Which of the following statements is true about health insurance coverage? • Young people don’t need health insurance because they are so healthy • You continue to be covered by your parents’ insurance as long as you live at home, regardless of age • You are covered by your parents’ until you marry, regardless of age • If your parents become unemployed, your coverage may stop, regardless of age

11. Investing • Investment return • the additional income earned from saving or investing money. • Risk • the uncertainty that you will receive the expected return • The greater the risk, the higher the expected return

12. What Can You Invest In? • Certificate of Deposit • Money is untouched for a given amount of time with a fixed interest rate • Money Market Mutual Funds • sold by companies that sell stocks, bonds, etc. • Stocks • shares of ownership in a corporation • U.S. Government Savings Bonds • Buy from government and sell back for cash • Stock mutual funds • investing in a fund company • Owning many stocks • Real Estate • investing in houses and property

13. Important Tips • You’re not buying a stock; you’re buying a company • Invest in stock to make money • If you buy a stock when the company isn’t making a profit, you’re not investing — you’re speculating • A stock should never be 100 percent of your assets. • A stock’s price is dependent on the company • Company is dependent on the customer base, industry, the general economy • Continue to monitor your stocks • Consider selling them if they’re not appreciating

14. Numbers to Review • Research the company • Earnings: should be at least 10 percent higher than the year before • Sales: should be higher than the year before • Debt:should be lower than or about the same as the year before • Should also be lower than the company’s assets • Equity: should be higher than the year before

15. Multiple Choice Question 3 ___ 3.) Which of the following types of investment would best protect the purchasing power of a family’s savings in the event of a sudden increase in inflation? • A twenty-five year corporate bond • A house financed with a fixed-rate mortgage • A 10-year bond issued by a corporation • A certificate of deposit at a bank