[MUSIC] In this segment, we're going to talk a little bit about the basics of insurance contracts or insurance policies. We're going to start out talking about some of the terminology that is relevant regardless of the type of insurance product that you're talking about. Then we're going to get into some of the specifics of some of the very common insurance policies that most individuals use throughout their adult lives. Again, to start out with just some basic terminologies, some things that I'll be using throughout the lecture segment that might be helpful to define right off the bat. A lot of times, I'll refer to the insured, all that refers to is the individual or the organization that is covered by the insurance policy. So that's the person purchasing the insurance versus the insurer who refers to the individual or more likely, the organization or company that is providing that insurance policy. Premium is another thing that I'll talk about a lot throughout this lecture segment. Premiums simply refer to the payments that are regularly provided by the insured to the insurer over time. So that refers to the cost of the insurance, what you pay to be covered by your insurance policy. Indemnity payments are another thing that'll come up, that's the payment that the insurer provides to the insured if the loss occurs. Whatever your insurance policy covers, if that event happens, there's a loss that's covered by the policy, the money that the insurance company sends to you is the indemnity. A deductible is another very common insurance term. The deductible simply refers the amount of any loss that is covered that you as the insured individual may be responsible for paying. That's the amount that you have to provide before the insurance company is going to start kicking in any of those indemnity payments to cover those losses. Finally, something that is probably more specific to health insurance itself but a couple of terms here. Coinsurance and copayments, they just simply refer to the amounts or percentage of those losses that are covered that you're going to be responsible for paying. It differs from the deductible, it's separate from the deductible but again, coinsurance or copayments refer to the amount or the percentage of the losses that you as the individual will pay. The remaining portion is what the insurance company is agreeing to pay as part of that insurance policy. Now that we've defined some of the terms that we need to talk about insurance, what actually is insurance? What's an insurance policy, what's an insurance contract? Insurance contracts themselves outline circumstances or scenarios under which the insurer, again, the company that you buy the policy from, is going to compensate or provide payments to you as the insured to help you cover a damage or loss. Insurance contracts can be simple, they can be very complicated but they're typically going to cover a very specific type of loss. You're going to have separate insurance for your auto, you're going to have your auto policy. That's going to be separate from your health insurance policy. That's going to be separate from your renter's and your homeowner's insurance policy. You might have a separate policy for life insurance. Each one of those policies is covering something very specific. Now let's get into some of those very common types of insurance and talk a little bit about what type of coverage they provide and then also what factors impact what you might pay for those types of policies. Again, just some insurance basics. The premiums or the cost associated with the insurance are going to be affected by two main categories. Again, we can get into the details here and talk about very specific items and how they fall into these categories. But from a very general perspective, what the insurance company cares about, and what determines the premiums you pay is one, the likelihood of a loss occurring. Whatever you're insuring, how likely is that going to happen during the period that the insurance covers? How likely is it you're going to get into a car accident? How likely is it that you're going to have health problems that your health insurance will have to cover? Second, if that thing does occur, whatever that thing that drives the loss or whatever is covered under the insurance policy, if that occurs, how severe is that loss going to be? Or how much is the insurance company going to have to pay in expectation if that loss actually occurs? Again, there's a lot of specific items that are going to affect, a lot of information that's collected when you purchase insurance but all of those can be drawn back and classified into one or both of those categories. In terms of why the insurance company cares, in terms of coming up with the premium cost for your individual policy. The companies themselves, they are going to price the insurance based on all the information that they can collect that impacts those two categories. From the company's perspective, what they are going to try to do is they are going to sell policies to a very large diverse group of individuals, so people that are just like you, but also different than you to try provide some diversity to the clients that they have. Over time, their goal is to by collecting the premiums from all those insured clients, collect enough money to cover the payments for the losses that they're going to experience in the future. And then also provide some profit margin for the company, as well. So over time, you're going to pay more into that insurance policy than you expect to get back in indemnities. But if a loss does occur, that policy's going to help you cover some of those potentially large losses. Let's start out and think of our first specific example here, in the case of auto insurance. Auto insurance, again, a pretty simple thing to define from a general perspective. Auto insurance is going to provide coverage for any damages that occur that are associated with motor vehicle accidents. Now that being said, there's a lot of different types of coverage that you can buy that might be part of your overall auto policy. The first one and probably the most basic one, the one that in fact is often required by law to carry in most states throughout the US is some level of liability coverage. If you remember back to our earlier lecture segment in this module about what liability risks are, that's referring to when we do damage to someone else or someone else's property. The liability coverage portion of your auto policy isn't going to cover damages to your vehicle, it's not going to cover your own injuries. But if you get into an accident and injure someone else, injure someone else's property or vehicle, your liability portion of your policy is what's going to help cover those losses. Collision is another category. Now, this is where we get into portions of the policy that are going to cover damages to either your car, or injuries sustained during an accident. Collision refers to, if you collide on someone, if you're in an accident, that's going to help cover some of the damages. Sometimes auto policies include a comprehensive portion to their coverage. That's just going to simply cover your losses whether they be to your vehicle or to yourself in terms of injuries. That's going to provide a more comprehensive or wider variety of things than a more basic collision portion of the policy. Personal injury, again, just another part of the policy that may cover specifically injuries to your persons. We're not talking about coverage for the vehicle in this case, we're talking about accidents that result in personal injuries. Your personal injury potion of your policy is going to cover those. Finally, something that a lot of people also carry as part of their auto policy is referred to as uninsured or underinsured motorist. What this does is in the event that the other driver who's involved in the accident, if their liability coverage is not enough to cover the losses that you sustain, whether they be to your car or to yourself. Having an uninsured or underinsured piece of your policy can help offset some of those additional losses that their liability Policy is not going to cover. All right, so what are some of the factors that are going to affect what you pay for car insurance? Well, if any of you have gone through the process of applying for car insurance, worked for the insurance agency to get a quote, you've probably noticed that they collect quite a bit of information from you. And a lot of the information falls into the category of personal characteristics. They're going to want to know how old you are, they're going to want to know your gender, maybe even your marital status, they are most likely to take a look at your credit history. And, when applicable, they'll take a look at your driving record. All of these factors are going to be considered in determining the final cost of the premium you are going to pay. Again, every single one of these things, based on the experience of the insurance company with drivers In the past are going to tell them what is the likelihood that you're going to get into a car accident based on those characteristics. And if you do get into an accident, how big might that loss be? Second category is going to refer to characteristics about the vehicle itself. So not about you as an individual, but the car that you're going to be driving that you're actually purchasing coverage for. So they're going to want to know the value of that vehicle. That's going to tell them If this car gets damaged how much is it going to cost to repair? They're going to want to know the size of the vehicle, things like the power of the engine or the displacement of the engine. That's going to tell them, you know, the likelihood that you're going to get into a car accident sports cars are going to typically be associated with a higher likelihood of getting into an accident than maybe a slower compact car. Third big category that insurance companies will consider is the location that you're actually in. Where do you live? Where do you do most of your driving? And what is the risk of accident in those areas. Living in a high traffic urban area might be associated with a higher car insurance premium than living in a more rural area where traffic is very low and accidents are very rare. How often or far do you drive? That's another piece of information that the insurance company's going to take a look at. They're going to factor in, the more time you spend in your car the more miles that you put on that the better chance that you're going to get into an accident while you have that insurance coverage. Some other specifics about the insurance policy are also going to affect how much you pay for that. So the level and the type of coverage that you purchase. So in the previous slide we talked about the different types of coverage. It's going to cost a lot more for car insurance if you purchase a policy that's got liability, collision, comprehensive, as well as underinsured or uninsured motorists clauses, versus if you're just looking at getting a liability policy. The other big factor with car insurance is the size of your deductible. How much are you willing to put in if there's any damages. before the insurance company starts to take over, that's also going to affect your premium. Finally another factor that people should remember is if you purchase that vehicle using some kind of financing, either through the dealership or with a bank. Or if you're leasing a car rather than buying it the requirements for the amount of insurance that you need to carry might differ then if you bought that car with cash or have that car completed paid off. All right, so let's move on to health insurance. Again health insurance is another thing that most individuals in the US carry some level of and health insurance at a very basic level is something that's going to cover medical expenses for any illnesses. Injuries or medical conditions that you might face in the future. Health insurance is very important to have in fact medical expenses are the number one cause of bankruptcy in the US, so having some level of health insurance is very important for everyone. Now in the US, again it's very common for employers to provide health insurance as part of the overall benefits package. But there are many cases, people who are self-employed or work for employers who do not provide health insurance, or you might be seeking out health insurance through an individual provider. Health insurance plans can be very complex. So in the few minutes we have here to talk about different types of insurance, we're not able to get into all the details. The most important thing that I can tell you about health insurance is, is whatever plan that you're carrying, or the plans that you're considering, with your employer or through individual providers, you really need to know your options, and to know the plan's coverage and restrictions. So there's a lot of specifics that go into insurance plans. Some of the main factors to consider are what are your provider options? So, most health care plans defines some sort of network or set of providers that you can use. Is it going to be convenient for you or preferable for you to be in one network versus another as your comparing health plans? Deductibles are another important part of health insurance. So again how much are you going to pay out of pocket before insurance takes over, on health related losses and co-insurance and co-payments. We talked about the definitions of those things earlier but what percentage of the cost are you going to have to pay in the case of co-insurance? Or what type of co-payment are you facing for doctor's visit or prescriptions as it's outlined in your policy. So again health insurance in the US, most full-time employers do provide their employees with some form of health insurance coverage. Even in those cases and definitely in cases where you are seeking out health insurance through an individual provider the application process is most likely going to include some sort of medical exam as part of that process. And the reason they do that is they're gathering that information about you as an individual, to assess the likelihood of a loss, and again the potential severity of the loss, the two main factors that determine insurance premiums. So your personal health characteristics obviously play a big role in how much health insurance will cost for you, so your current age, gender, the profession that you work in may affect the risk of you getting some sort of illness or injury. Your weight and your general fitness may be information that you need to provide as well as tobacco use is another big factor for health insurance. Insurance companies may also be interested in your personal and family health industry to try to identify any congenital risks that may exist within your family. They may want information about any pre-existing conditions you have, to better access the likelihood of having to pay out damages in the future. And your location as well can effect this as well as the profession that you're working in. So the area the country that you live in can also impact your health insurance premiums as well. All right then finally we're going to talk a little bit about renters and homeowners insurance. So we'll start out with renters insurance. And I want to really be specific here or clear in defining the difference between the two. So if you're renting a condo, or renting an apartment, you can purchase renter's insurance, and that's only going to provide coverage for your personal items, and your belongings that exist within that rented property. And it's very important to understand this, and also to realize that, while your landlord most likely does carry some form of insurance for the property itself that's only going to cover the building structure. It's not going to cover any damages that may occur to any of your personal items. So that's why renter's insurance is so important. So if you looking at carrying some renter's insurance one of the important things to do is since this policy is covering your personal belongings, it's important to have a good inventory of what is included in those personal belongings. So saving receipts specially for bigger purchase items like electronics, taking photos of some of your belongings or just keeping list of things will help out if you have to make a claim at any point in the future In terms of making that process with the insurance company go smoothly. Again, as with any insurance policy. We want to make sure that you understand all of the specifics of that policy. So what types and sources of damages are covered. Again you may be covered through some things. Water damage from a severe rainstorm, you may be covered for fire damage, any damage to your personal belongings that are destroyed in a fire. but you may not be covered on your renter's insurance policy if there's a flood. So just understanding What your policy covers and what it doesn't is just an important piece of information to have. Another important point to make here, and this is important for renters and homeowners, is whether your policy is insuring the cash or the original value of your belongings, so what you originally paid for them. Or some adjusted value that declines over time, as the values of those things naturally decline over time. Or are you insuring for the replacement cost? So a good example of this is, maybe one of the items included in your renter's policy is your big flat-screen TV. Maybe you bought that three or four years ago, and it cost you $1,000. But to replace that TV today, it might cost something different. Cash original value is going to insure you for what you originally paid, or replacement cost provision will make sure they give you enough money to actually replace the TV at current cost today. Another important thing to think about for renter's insurance is, are there any coverage limits on any specific items. So a lot a renter's policies will have limits on how much jewelry can be covered for, versus electronics and various categories of personal belongings. Finally, another big factor that's going to impact your premium for renter's insurance, is what is your deductible. Again, how much are you going to be paying on those damages upfront before the company starts to kick in and help out. Now, switching over to homeowner's, homeowner's is actually going to cover a wider variety of things. It's also going to cover the personal belongings. But since you own the property that you live in, your homeowner's policy is also going to provide some coverage for the property and the structure of the home itself if it's damaged under a covered scenario. Homeowner's properties can also include even wider ranges of coverage, so there may also be liability protection included in your homeowner's policy. If someone comes over to your house in the winter time and slips on some ice on your sidewalk, and hurts themselves, your liability policy may cover those losses. If you have a swimming pool in the backyard and someone is injured in that, your liability policy may cover those losses. There also may be provisions in your homeowner's policy that provide some coverage for living expenses if a loss does occur. So for example, if your house is destroyed in a fire and you need to rebuild, your homeowners policy if it does provide for living expenses or maybe provide for temporary housing while you're waiting for that construction to occur. Inventorying your personal belongings is again another important thing to do from a homeowner's perspective, so again keeping receipts, photos or lists of all your personal belongings. And again, understanding your policy is so important regardless of the type of insurance that we're talking about. So what types of damage are covered? What value is actually being covered? Is it original cash or replacement costs? And what is the deductible on your policy? How much are you going to need to pay before the company starts to assist with those losses. Right so what are some of the factors that affect renters and homeowner's premiums? Well, obviously, the value of the items being insured are going to affect your premiums. So a bigger, more expensive house is going to be associated with a higher homeowner's premium than something smaller and of less value. More personal items that you have are also going to affect that premium level. The characteristics of the location that you live in are also going to affect your homeowners. Higher crime areas or areas that are more prone to certain types of damages, hurricane areas, tornado areas are going to have higher premiums than areas where those types of events are less common. Characteristics of the policy are also going to affect your premium. So again, the variety or range of damages that are covered under that policy, as well as the deductible level that you elect. The final point I want to make here and this is specific to homeowners. If a mortgage exists on that property then there maybe requirements for the minimum amount of homeowner's coverage that you need to buy. So just like the case of auto insurance, if that car is still being paid off on a loan, or through a financing plan, there may be requirements on coverage there. The same thing is true for homeowner's insurance in the amount of homeowner's insurance that you need to buy if there's a mortgage loan still on that property. So just to summarize this lecture segment, we talked about some of the basics of insurance. So specifically what insurance policies provide in terms of coverage if a specific type of risk occurs. We talked about the cost of insurance or the premiums and how they're impacted by different factors specific to the policy and specific to the individual being insured. And then, we went into some specific examples of very common types of insurance, auto health and ranches or homeowner's policies. And again, just regardless of the type of policy, probably one of the most important pieces of information to keep in mind is that, as the insured you really need to understand your policy. And understand all the rules and restrictions, and the types of damages that are covered under that policy. [MUSIC] [SOUND]
