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WHAT INSURANCE PROTECTS. The purpose of insurance is to protect against the loss of something of value Designed to restore you to your financial position to where it was before the loss NOT to allow you to profit from the loss!. Insurable Interest.

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what insurance protects
WHAT INSURANCE PROTECTS
  • The purpose of insurance is to protect against the loss of something of value
  • Designed to restore you to your financial position to where it was before the loss
      • NOT to allow you to profit from the loss!
insurable interest
Insurable Interest
  • To insure something, you must have insurable interest on the item
  • It must be something of value that, if lost, would cause you financial harm.
determining the value of insurable interest

Determining the Value of Insurable Interest

Before you can insure your property, its value must be measured in financial terms.

The insurance company can then compensate you based on its value.

appraisal
APPRAISAL
  • When the value of property is not clear, you or the insurance company may have it appraised
  • An appraisal is an expert’s determination of the value of a piece of property.
    • EX: if you want to insure your diamond ring, you might have it appraised to make sure you buy enough insurance to cover it’s loss.
rider
RIDER
  • Home insurance does not automatically cover some particularly valuable items, such as a diamond ring.
  • To insure it, you must purchase a RIDER
  • A rider is a special addition to an insurance policy that covers a specific type of loss.
determining the amount of life and health insurance

Determining the Amount of Life and Health Insurance

Your life and health don’t carry a price tag like property does.

Health and Life insurance are sold in different amounts.

The greater the amount of coverage you choose, the higher the premiums.

life expectancy
Life Expectancy
  • You life insurance premiums will depend on your life expectancy
  • Do you smoke? Do you drink? Do you have history of cancer?
  • Life expectancy is an estimate of the average number of years remaining in people’s lives based on their
      • Gender
      • Current age
      • And health
the insurance trade off

The Insurance Trade Off

Your goal in buying insurance should be to protect yourself from a loss that could put you in financial difficulty. It should not be to protect from any loss. The more insurance coverage you buy, the higher the premiums. At some point, the premiums themselves could put you in financial difficulty.

**You should only buy enough insurance to cover the losses you would have trouble paying for yourself.**

the role of insurance in the economy
The Role of Insurance in the Economy
  • Insurance benefits you indirectly
    • Business activities wouldn’t be possible without insurance
    • Banks wouldn’t lend you money to buy a home or car
      • If your home burned down without insurance, the bank might not recover the loaned funds
    • Physicians usually don’t practice without insurance to protect them from lawsuits
      • One lawsuit could ruin them financially
property insurance
Property Insurance
  • Insurance that protects you from financial loss when things you own are stolen, damaged, or destroyed
  • Typically for homes, cars, and valuables
    • MARKET VALUE: the amount an item is worth now.
    • REPLACEMENT VALUE: the cost of replacing the item, regardless of its market value at the time of the loss.
liability insurance
Liability Insurance
  • Sometimes your actions cause losses to other people
  • You can damage someone else’s car
  • Protects you from losses that you cause to others
  • AKA Casualty Insurance
  • Up to a stated maximum, it will pay the cost of damage, medical expenses, and legal fees if you are sued
personal insurance
Personal Insurance
  • Insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death
  • Health and Life insurance are two examples of personal insurance
  • Often, employers pay part of the cost of health insurance for their employees.