Chapter 11: Auto and Homeowner's Insurance

Exposure to events or perils that can cause financial loss - Risk Risk management: how do you handle risk? - 1. Avoid 2. Reduce/Eliminate risk 3. Accept the risk 4. Insure against the risk -The balance of these risk management decisions are affected by degree of risk tolerance Types of insurance - -Many types of insurance available ---Most popular forms are property and casualty insurance, life insurance and health insurance Insurance company operations - -Relationship between insurance companies and premiums -Underwriters: from an insurance perspective, are hired to calculate the risk of specific insurance policies, decide what policies to offer, and what premiums to charge -Check an insurance company's financial condition and credit ratings -Check an insurance company's level of service: - Better Business Bureau, Consumer Reports, state insurance agencies Recommends insurance policies for customers. Represents one or more insurance companies - Insurance Agent Works for one particular insurance company - Captive insurance agent Represent many different insurance companies. Also called an insurance broker - Independent insurance agent Auto Insurance - Auto insurance protects you from financial loss from damage or liability resulting from automobile accidents Contract between an insurance company and the policy holder - Insurance Policy Specifies the coverage provided by the insurance company for a particular individual and vehicle - Auto insurance policy Coverage A: Liability Coverage - -Bodily injury liability coverage -Property damage liability coverage -Liability Policy Limits ---Often described as 100/300/50 -$100,000 per person injured in an accident -$300,000 for all people combined -$50,000 for property damage -Financial responsibility laws Laws that require individuals who drive cars to purchase a minimum amount of liability insurance - Financial responsibility laws Coverage B: Medical Payments Coverage - -Insures against the cost of medical care for you and other passengers in your car when you are at fault in an accident -In some states (AR) applies even when you are not at fault -Applies only to those in the insured's car Coverage C: Uninsured and Underinsured Motorist Coverage - -Uninsured motorist coverage: insures against the cost of bodily injury and property damage when an accident is caused by another driver who is not insured -Underinsured motorist coverage: insures against bodily injury when an accident is caused by another driver who has insufficient coverage