property insurance characteristics
reimburses you for damage to your property due to accidental or natural circumstances or due to negligence of others or yourself
liability insurance characteristics
protects you from the financial harm your negligence causes others
automobile insurance characteristics
unisured coverage
underinsure coverage
collision coverage
comprehensive coverage
homeowners insurance characteristics
...
what type of insurance you should buy, and you shouldn't buy?
only want to insure the things that have a larger dollar loss with a low probability of occurring
- if you insure things that have a high probability then you will pay more in premiums than if you would have taken the loss yourself
risk management definition:
the process of identifying, evaluating, and managing risk
risk reduction definition:
reducing the probability of loss through preventive action
risk avoidance definition:
reducing or eliminating risk through behavior modification
risk retention definition:
accepting risk as the least costly, best course of action
risk transfer definition:
eliminating risk through the purchase of insurance
if you can't avoid a risk, and you can't afford it, then you transfer it to an insurance company
if you can't avoid a risk, and you can't afford it, then you transfer it to an insurance company
premiums:
you pay a certain loss, which is the ____________, which protects you from an uncertain loss
insurable interest:
an interest for which you can purchase insurance protection.
you cannot buy insurance as a gambling arrangement to try to profit from a misfortune
- if you don't have any loss, or potential loss, then you can't buy insurance
Idemnification:
the restoration of the financial state that existed before a loss
-once you've been compensated for your loss by the insurance company, you no longer have the legal right to sue for your losses. you transfer (subrogation) that to the insurance company
different types of life insurance:
term
acc
term insurance: (page 414)
has no cash value buildup; provides only death protection
cash value insurance (accumulation of cash value)
page 416
provides both death protection and cash value buildup
2 ways to estimate how much life-insurance you need:
1) multiples of salary approach
2) needs approach
multiples of salary approach:
not very dependable -- over or under
-- based on averages
-- very easy
needs approach:
-- final expenses (money needed to pay immediately)
-- very dependable
-- not easy to figure out