Automobile Insurance Grade Level 9-12

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1 Automobile Insurance Grade Level 9-12 Take Charge of Your Finances Materials provided by: Cynthia Barnes, Family and Consumer Sciences Educator, Beaverhead County High School, Dillon, Montana Time to complete: 70 minutes National Content Standards Family and Consumer Science Standards: 1.1.6, 2.1.1, 2.1.2, 2.1.8, 2.5.1, 2.6.3, National Council on Economic Education Teaching Standards: National Standards for Business Education Career Development: Economics: Personal Finance: III.2, V.2, VIII.1 Objectives Upon completion of this lesson, students will be able to: Understand the role automobile insurance plays in risk management. Define basic automobile insurance terms and coverage. Identify the factors affecting insurance rates. Differentiate between the different types of coverage. Introduction Automobiles have had a profound impact on society. They have altered lifestyles, influenced where people live, and affected the development of many convenience industries, particularly the fast food industry. In fact, the automotive and related industries form a large part of the American economy. However, increased use of the automobile has created huge risks and hazards. There are 35 million automobile accidents annually (Insurance Information Institute). Motor vehicle crashes are the leading cause of death in the U.S. and they carry an economic cost of more than $150 billion a year (Consumer Education and Economics)! Automobile Insurance: Insurance plays a large role in most individual s financial management plan. Auto insurance is an arrangement between an individual (consumer) and an insurer (insurance company) to protect the individual against risk from automobile accidents. Risk is uncertainty about a situation s outcome. Risk can be unpredictable events which lead to loss or damage. To purchase auto insurance, consumers purchase a policy. A policy is a contract between the individual and the insurer specifying the terms of the insurance arrangements. The policy will state the premium and deductible amounts. A premium is the fee paid to the insurer to be covered under the specified terms. A deductible is the amount paid by the policy holder for the initial portion of a loss before insurance coverage begins. The purpose of auto insurance is to help individuals limit their financial losses when an automobile accident occurs. It helps the individual to be prepared for the unexpected. When people buy auto insurance, they transfer part of the financial risk of accidents to the insurance company. Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 1

2 There are four types of coverages available for automobile insurance. 1. Liability insurance 2. Medical payment insurance 3. Uninsured/underinsured motorists insurance 4. Physical damage insurance a. Comprehensive b. Collision Liability Insurance: Liability insurance covers the insured if injuries or damages are caused to other people or their property. Liability insurance does not cover losses suffered by the insured or for property damage to the driver s car if the insured caused the accident. Passengers of the at-fault car are covered under the driver s liability insurance if coverage under medical insurance is exhausted and persons in other vehicles or pedestrians have been reimbursed. It is the minimum amount of insurance required by law for automobiles. Two types of liability occur from owning and operating a vehicle. 1. Bodily injury the driver or car owner is held legally responsible for injuries suffered by another person. 2. Property damage the driver or car owner is held legally responsible for damaging another s property. Policy limits for liability insurance are usually quoted with three figures such as 25/50/10. Each figure represents a multiple of $1000 and is explained below. It may also be quoted as a single figure such as $250,000. This means $250,000 is the per-accident limit for all liability losses and is the most which will be paid in any liability losses occurring from one accident. Each state has set a minimum liability limit. The consumer must purchase at least this amount of insurance. Montana s minimum liability limit is 25/50/10. For example, a policy with the liabilty limit of 25/50/10 means: 25 = $25,000 o Per-person bodily injury limit - $25,000 is the most which will be paid for any one person s bodily injury liability losses from an accident 50 = $50,000 o Per-accident bodily injury limit - $50,000 is the most which will be paid for all bodily injury losses from an accident 10 = $10,000 o Per-accident property damage liability limit - $10,000 is the most which will be paid in property damage liability from an accident Medical Payment Insurance: Medical payment insurance covers injuries sustained by the driver of the insured vehicle or any passenger regardless of fault. It also covers insured family members injured as passengers in any car or if they are injured while on foot as a pedestrian or while riding a bicycle. This insurance pays for hospital and medical bills. Some policies may pay for funeral expenses. It is not required in all states. Subrogation rights enable an insurance company to take action against the at-fault party and its insurance company. Uninsured/Underinsured Motorists Insurance: It is illegal to own and operate a vehicle without auto insurance. However, some people still choose not to purchase it. Uninsured or underinsured motorists insurance covers injury or damage to the driver, passengers, or the vehicle caused by a driver with insufficient insurance. An uninsured motorist is someone without auto insurance. An underinsured motorist is someone who carries insurance, but not enough to cover the losses in the accident. It is not required in all states. Situations where this may be needed include: Hit-and-run accidents where the driver leaves the accident before he/she is identified; Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 2

3 An accident with an uninsured driver; An accident with an underinsured driver. Physical Damage Insurance: Physical damage insurance covers damages caused to the vehicle. Two optional forms of coverage are available: 1. Collision covers a collision with another object, car, or from a rollover. a. Paid regardless of fault b. Generally covered when driving someone else s car with their permission 2. Comprehensive covers all physical damage losses except collision and other specified losses. Comprehensive insurance usually has a deductible between $500 and $1,000. Losses covered include: a. Theft, vandalism b. Fire, ice, windstorm, or hail c. Glass breakage d. Contact with animal Other Optional Protection: Towing coverage pays the cost of having a vehicle towed to receive repairs if it breaks down. Rental reimbursement provides a rental car when the insured s vehicle is being repaired after an accident or if the vehicle was stolen. It may provide only part of the funds. Influences of Insurance Rates: Insurance rates are determined for individual cases. The following factors influence the rates: Age - people under the age of 25 pay higher premiums; Gender - men have more accidents so they may have higher rates; Marital status - married drivers have fewer accidents statistically, so their rates are lower; Driving record - safe drivers have lower rates, number and type of tickets will change rates, and number and severity of accidents will change rates; Type and age of vehicle - newer, more expensive, and higher repair cost vehicles have higher rates, frequently stolen vehicles have higher rates, color of vehicle does not matter; Vehicle use - rates are usually higher when driving more than 7,500 miles a year; the more one drives, the greater the chance of an accident; Place of residence - rates vary among states, people in large cities usually pay more than in rural or suburban areas, weather conditions may affect rates; Number of drivers on the policy - additional drivers raise the premium, drivers under the age of 25 pay less to be added to his/her parents policy rather than purchasing a separate policy; Driver training may receive a discount for having taken a driver s education course; Good student may receive a discount for good grades in high school or college; Multiple car may receive a discount for having two or more vehicles on the same policy; Anti-theft systems may receive a discount for anti-theft devices such as car alarms; Multiple policies with the same company having both auto, home, and life insurance; Long-time customers some companies may offer discounts to long-time customers. Ways to Save Money on Auto Insurance: The following are some ways for consumers to save money when purchasing auto insurance. Research different insurance companies to find the best rates. Select the appropriate coverage and limits for the driver s situation. Do not become persuaded to purchase unnecessary coverage. Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 3

4 When choosing a vehicle to purchase, think about the insurance costs. Expensive, high-performance, and high-repair cost vehicles cost more to insure. Ask about and take advantage of discounts offered by the insurance company. In this lesson, students learn about automobile accident statistics for the U.S. and Montana. They also learn the basics of automobile insurance including the types of automobile insurance available, why it is important, the factors which influence the rates, and ways to save money when shopping for auto insurance. *Note to teacher: Another option for this lesson could be to invite a local insurance agent as a guest speaker to the classroom the day after the PowerPoint presentation is given. Ask the agent to relate anecdotes about auto insurance situations and claims with which he has had experience. Also, ask the agent to share rate information with students including illustrating what tickets, grades, etc. can do to basic rates. Body 1. Handout the Auto Insurance information sheet F1 to the students to read the night before as homework. 2. Begin the lesson by asking students the following questions: a. Raise your hand if you or someone you know has been involved in an automobile accident. b. True or false - The motor vehicle death rate per 100,000 people is especially high among year-olds and people 80 years and older. i. True c. What is the leading cause of deaths among Americans ages 1 34? i. Motor vehicle crashes ii. Contributing to the death toll are alcohol, speed, lack of seat belt use, and other problematic driver behaviors. Death rates vary widely by vehicle type, driver age and gender, and other factors. d. In 2001, how many fatal motor vehicle crashes occurred in Montana? i. 201 e. How many deaths happened as a result of these crashes? i. 230 f. According to the U.S. Department of Transportation, the total societal cost of crashes exceeds what amount of money annually? i. $200 billion ii. *Note: All statistics are from the Insurance Institute for Highway Safety ( g. How can you minimize the costs of auto accidents for yourself? i. Auto insurance 3. Give the Automobile Insurance PowerPoint presentation G1 to define and explain automobile insurance. a. Handout the Specifics of Auto Insurance worksheet A1 for students to complete during the PowerPoint presentation. b. Slide 2: Risk c. Slides 3 7: Automobile Insurance d. Slides 8 11: Liability Insurance e. Slide 12: Medical Payment Insurance f. Slide 13: Uninsured/Underinsured Motorist Insurance g. Slides 14 15: Physical Damage Insurance h. Slide 16: Optional Protection Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 4

5 i. Slides 17 23: Insurance Rates j. Slide 24: Conclusion Conclusion Students should complete the Factors Affecting Auto Insurance Crossword worksheet A3. Assessment Students will complete the Auto Insurance Review worksheet A2. Materials Specifics of Auto Insurance worksheet A1 Auto Insurance Review worksheet A2 Factors Affecting Auto Insurance Crossword worksheet A3 Auto Insurance information sheet F1 Automobile Insurance PowerPoint presentation G1 Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 5

6 .A1 Worksheet Specifics of Auto Insurance Name Total Points Earned 28 Total Points Possible Percentage Date Directions: Complete the questions during the PowerPoint presentation. 1. Define risk. (1 point) 2. Who is the arrangement for auto insurance between? (2 points) 3. What type of contract specifies the terms of insurance? (1 point) 4. Identify and define two of the fees found in an auto insurance policy. (4 points) 5. What is one purpose of auto insurance? (1 point) 6. Define liability insurance. (1 point) 7. Name two types of liability which occur from owning and operating a vehicle. (2 points) 8. What is Montana s minimum liability limit? (1 point) 9. What type of insurance pays for hospital and medical bills? (1 point) 10. Define uninsured/underinsured motorists insurance. (1 point) Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 6

7 .A1 Worksheet 11. Identify 2 situations where uninsured/underinsured motorists insurance is needed. (2 points) 12. What type of insurance provides protection for damages caused to the vehicle? (1 point) 13. Identify the 2 types of coverage available for physical damage insurance. (2 points) 14. Name two optional protection choices for auto insurance. (2 points) 15. What are 5 factors which influence insurance rates? (5 points) 16. Identify one way to save money on auto insurance. (1 point) Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 7

8 .A2 Worksheet Auto Insurance Review Name Total Points Earned 13 Total Points Possible Percentage Date Directions: Complete the following questions based on automobile insurance information. 1. The snow was coming down heavily and the roads were becoming icy. As Jill came around the corner, her car went into a skid and came to rest in someone s yard. The car went through a chain link fence before it stopped. What coverage would pay for the repair of the fence and the damage to the yard? (1 point) 2. Mary and her friends were talking and laughing while driving back to school from lunch. When the car in front of Mary stopped for a pedestrian in the crosswalk, Mary did not notice and ran into the back of the car. A passenger in Mary s car was injured when she hit the windshield. What coverage would pay for the injuries to the passenger? (1 point) What coverage would pay for the medical bills for the driver of the car Mary hit? (1 point) 3. Returning home one evening, Jim momentarily lost concentration. When he looked back to the road, he could not avoid hitting a deer crossing the road and damaged his vehicle. What type of insurance coverage would pay for the damage to his vehicle? (1 point) 4. Jason parked his car on a back street and walked to the bank. When he returned to his vehicle, the entire side of the car had been damaged. No one had witnessed the accident. Would any insurance coverage pay for the damages in this hit and run case? If so, what type? (2 points) 5. What affects the cost of auto insurance? Check the applicable factors. (5 points) Your age Value of car Community in which you live Color of car Your income How many passengers Grades for a teen Marital status are in the vehicle 6. What is the relationship between risk and insurance? (2 points) Family Economics & Financial Education Revised November 2004 Transportation Unit Automobile Insurance Page 8

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