Before we delve into the basic types of insurance, there are several general principles you should understand concerning insurance:

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1 Week Six Tuesday Overview: Insurance Read the Property and Auto Insurance section (No video this session) In today s world, insurance is a necessary part of life. It is used to protect your property, future income, and health. While most people purchase some type of insurance, not all consumers understand their insurance coverage. Understanding the different types of insurance can protect both you and your wallet. This is a brief overview of insurance, but your policy may be different. Be sure to know and understand what your policy covers as not all policies cover all losses. You may want to contact a local insurance professional in your area to determine appropriate insurance coverage for your situation and location. Here are the basic categories of insurance: 1. Property Insurance 2. Auto Insurance 3. Personal Umbrella 4. Life Insurance 5. Disability Insurance 6. Identity Theft Insurance (not discussed in this course) 7. Health Insurance (not discussed in this course) 8. Long-Term Care Insurance (not discussed in this course) Before we delve into the basic types of insurance, there are several general principles you should understand concerning insurance: 1. Understand the purpose of insurance. Insurance is similar to an emergency fund. Just as you save money now in preparation for a future emergency, you purchase insurance in case of a crisis. It protects you and your family from bearing the burden of a costly emergency such as a fire or car accident. It covers catastrophic losses rather than everyday expenses. 2. Know your needs and coverage. Understand what your policy covers and what your family needs. If you don t need the coverage, don t buy it. You may be carrying too much insurance. Remember, insurance is for emergencies, not small expenses. You should re-evaluate your insurance needs every year. 3. Carry adequate insurance. While you don t want to pay for unnecessary coverage, it is critical to carry enough. Be sure that your family will be protected should an emergency occur.

2 4. Understand the real cost of deductibles. Lower deductibles mean more expensive insurance. Once you have established your emergency fund, consider raising your deductible. Since you will be paying less for your insurance policy, you can save the extra money. Add it to your emergency fund. 5. Watch your credit score. Many insurance companies offer lower rates for customers with good credit scores, so your financial responsibility can result in a lower insurance premium on most homeowner and auto policies. 6. Avoid filing too many claims. Filing multiple claims makes you a higher insurance risk to the company, so the price of your insurance will likely increase. Avoid filing for every small claim if you can easily pay the expenses on your own. Use insurance for emergencies. Carry the appropriate deductibles. 7. Shop around for insurance. Don t pick the first deal that you find. Insurance rates vary, so investigate several options to find the company that can provide the best coverage for your family for the lowest cost. Be sure that the company provides excellent service. J.D. Powers and A.M. Best are great resources for evaluating a company s service level and financial strength. Property Insurance Three types: 1. Homeowners Insurance 2. Renters/Tenants Insurance 3. Condo Insurance Homeowners Insurance This type of insurance is purchased by those owning and residing in a home. We will not cover nonowner inhabited homes in this segment. The owners insurance typically protects the building, additional structures, contents, additional living expenses, and liability. Read and understand your policy as not all policies have the same coverage. Things generally covered by homeowners insurance: 1. Personal Property Structure This covers the actual structure of the home. Be sure that you have it insured for the appropriate amount. The market value of the home has nothing to do with the amount it should be insured for. The amount it is insured for should reflect the replacement cost, which is the cost to rebuild and restore the home to its original condition. Some insurance companies offer an endorsement that gives you Guaranteed Replacement Cost coverage. 2 P a g e

3 2. Personal Property Other Structures such as detached garage, tool sheds, or other buildings on your property. 3. Personal Property Contents This coverage includes your household contents such as furniture, appliances, clothing, jewelry, electronics, etc. a. Actual cash value pays the value of the item at the time of the loss. b. Guaranteed Replacement Cost Contents this is an endorsement you can have added that pays to replace the item with an equivalent new item. c. Inventory your contents Would you be able to account for everything in your home if it were struck by a tornado or burned to the ground? It is a good idea to make a list and take pictures of your personal property. You should store lists and photos away from the premises so they are protected should you have a loss. d. Many policies have special limits of coverage on items such as tools, jewelry, etc. under certain circumstances. 4. Personal Liability Coverage This applies when you are legally liable for a loss to another person, on and off your property, if the injury or damage is caused by you, a member of your family, or your pet. The insurance company would be involved in defending and settling the claim. 5. Medical Payment Coverage pays if someone outside your family is injured at your home regardless of fault. 6. Additional Living Expense Coverage provides for additional costs incurred if the property becomes uninhabitable due to a covered loss. Some examples of this coverage are increased expenses for food and temporary housing. Renters/Tenants Insurance This type of insurance is purchased by those renting another person s property. The landlord typically will have insurance that protects the building but not the renter s personal property. Renters/tenants insurance offers the following protection: 1. Personal Property Contents This coverage includes your household contents such as furniture, appliances, clothing, jewelry, electronics, etc. a. Actual cash value pays the value of the item at the time of the loss. 3 P a g e

4 b. Guaranteed Replacement Cost Contents this is an endorsement you can have added that pays to replace the item with an equivalent new item. c. Inventory your contents Would you be able to account for everything in your home if it were struck by a tornado or burned to the ground? It is a good idea to make a list and take pictures of your personal property. You should store lists and photos away from the premises so they are protected should you have a loss. d. Many policies have special limits of coverage on items such as tools, jewelry, etc. under certain circumstances. 2. Personal Liability Coverage This applies when you are legally liable for a loss to another person, on and off your property, if the injury or damage is caused by you, a member of your family, or your pet. The insurance company would be involved in defending and settling the claim. 3. Medical Payment Coverage pays if someone outside your family is injured at your home regardless of fault. 4. Additional Living Expense Coverage provides for additional costs incurred if the property becomes uninhabitable due to a covered loss. Some examples of this coverage are increased expenses for food and temporary housing. Condo Insurance This type of insurance is purchased by those owning a condo. Condo insurance offers the following protection: 1. Protection of interior walls a. While the outside is protected by the master insurance policy, the condo owner s personal insurance protects the interior walls. Make sure that the two policies work with one another. b. If you make any changes or improvements to the inside of a condo, such as a fireplace or built-in bookcase, check whether or not those alterations are covered by your insurance. You may want to consider adding Additions and Alterations to your policy for these improvements. 2. Personal Property Contents This coverage includes your household contents such as furniture, appliances, clothing, jewelry, electronics, etc. a. Actual cash value pays the value of the item at the time of the loss. 4 P a g e

5 b. Guaranteed Replacement Cost Contents this is an endorsement you can have added that pays to replace the item with an equivalent new item. c. Inventory your contents Would you be able to account for everything in your home if it were struck by a tornado or burned to the ground? It is a good idea to make a list and take pictures of your personal property. You should store lists and photos away from the premises so they are protected should you have a loss. d. Many policies have special limits of coverage on items such as tools, jewelry, etc. under certain circumstances. 3. Personal Liability Coverage This applies when you are legally liable for a loss to another person, on and off your property, if the injury or damage is caused by you, a member of your family, or your pet. The insurance company would be involved in defending and settling the claim. 4. Medical Payment Coverage pays if someone outside your family is injured at your home regardless of fault. 5. Additional Living Expense Coverage provides for additional costs incurred if the property becomes uninhabitable due to a covered loss. Some examples of this coverage are increased expenses for food and temporary housing. Things not generally covered by the typical property insurance policy: 1. Business loss- including childcare 2. Flood 3. Water backup 4. Earthquake Riders/endorsements can be added to your policy for the items mentioned above or to protect highvalue items such as jewelry and computer equipment that have lower limits of coverage. Understand the limits and limitations of your policy so you can address any coverage needs with your insurance agent. Ways to reduce your property insurance premium: 1. Home/car discount many insurers offer a discount if you purchase both policies from them. 2. Safety features many insurers offer a discount for security systems, deadbolt locks, etc. 3. Higher deductibles 5 P a g e

6 Auto Insurance The basic auto insurance policy has six parts: Collision, Comprehensive, Property Damage, Bodily Injury (Personal Injury Protection in some states), Medical Payments, and Uninsured/Underinsured Motorist. Terms to know in regard to auto insurance: 1. Collision* coverage for your vehicle in the event that you hit another car or object or roll over while driving. 2. Comprehensive* covers your automobile for incidents other than collision such as theft, fire, flood, hail, vandalism, etc. 3. Property Damage covers the damage your vehicle causes to another person s vehicle or property. 4. Bodily Injury/Liability Coverage covers claims resulting from injuries to or death of passengers in your car or in a car you hit. This also covers pedestrians. It covers anyone who is driving your car as well as you when driving others vehicles with permission. 5. Medical Payments (Med Pay) coverage for medical and funeral expenses for those riding in your vehicle and to family members struck by another vehicle as a passenger or as a pedestrian. 6. Uninsured/Underinsured Motorist (UIM) coverage protects you if you are injured in an accident with others who themselves carry insufficient or no liability insurance. * Gap Insurance used only if you have a car loan that is greater than the value of the vehicle. In the event of a total loss, gap insurance covers the difference between the value of the vehicle and what you owe. Read and understand your policy as not all policies have the same coverage. Ways to reduce your auto insurance premium: 1. Multi-car discount for families with multiple vehicles 2. Car/home discount for those purchasing both types of insurance from the same company 3. Affiliate discounts 4. Good-student discounts generally offered for a B average or higher 5. Passive restraints/anti-lock brakes 6 P a g e

7 6. Anti-theft discounts 7. Larger deductibles Wrap-up and action steps 1. How does your current coverage relate to your family s needs? Are you under- or over-insured? 2. Are there any ways for you to reduce your insurance expenses? 3. The purpose of insurance is to protect your family. 7 P a g e