insurance Flashcards
Risk, peril and hazard
Risk = chance that something may be lost - buy insurance to minimize the potential impact of risk
Peril cause of possible loss - the event that causes somebdoy to take out isnurance (fire, windstorms, roberies etc)
Hazard inc the likelihood of loos through some peril
types of risks
personal property and liability (pure risk)
Personal = uncertainties surrounding income or life due to premature death, illness, disability or unempolyment
Property = uncertaintiesof direct or indirect losses due to fire, windsotrms, accidents, theft etc
Liability risk = negligence resulting in bodily harm or property damage to others - caused be cars, professional misconduct, injury suffered on one’s property etc
*also seculative risk- possible loss or gain like starting a buisness
risk management methods (4)
Risk avoidance
Give up soemthing to avoid - not driving
Not smoking, locking merchandise etc
Risk reduction
Reduce risk of automobile acciedne tby wearing seatbelt
Install smoke alarms and fire extinguishers
Risk assumption
Take on responsibilty for the loss or injury that may result in risk - do when potential loss is small, insurance coverage is expensive or no other way for protection
Ex: not buying collision insurance on an odler car - if accident occurs you ebar costs to fix
Self insurance = establishing a monetary fund to cover cost of a loss
Risk Shifting
Get it insured
home and property insurance
Covers damanges to home, personal items and injuried to other people
Covers personal property contained in house - evaluated as a percentage of the value of the dwelling but can also be based on an itemized list
- can cover eprsonal property temporairily away from dwelling with cerain conditions
liability insurance
portects assets when you or dependent are responsible for damage of others belongings, injurt or death. V important
May want an umbrella policy which provides additional liability insnurance for both home and automobile
tenant insurance
Landlords property insurance covers the building only not your contents. Need insuranec ot cover your personal property and potential libaility claims
Its cheap so worth it
two main types of home insurance
named perils -lists the perils that are covered by the policy - only those perils specifically listed are covered
all risk- coveral all perils except those specifically excluded
CO-insurance clause
- building must be isnured for at least 80% of value, homeowner must pay part of losses if property not insured properly
*if insurance sovered at least 80% would get full reimbursement if not only get partial
To calculate if co insurnace caluse that covers 80%
Amount they will cover is :( Amount of insurance you have/ (0.8 x current value of home)) x damage cost
what is are claim settlemens based off of
actual cash value and replacement cost
actual cash value (replacement cost - depreciation) or replacement value (depreciation not considered, more expensive but higher payout)
how does ontario car insurance work
partial no fault auto insurance system
Most claims paid by your own insurance company regardless of fault with limited number of situations where you can sue at fault driver
At fault insurance premiums will inc and not at fault insurance should stay same
Subrogation
at fault drivers insurance company needs to compensate the not at fault drivers insurance company for the amount of the claim paid out
two major cases you need car insurance for
bodily injury and property damaeg
Bodily injury -
- if ur at fault injured people outside your car wil be covered by bodily injury liability coverage
- people inside car covered by accidental benefits coverage
Property damage
- damage caused to toher peoples property with your car will be covered under the property damage liabiltiy
- damage to own car is covered under the collision or comprehensive physical damage
how much liability insurnace does ontario require
$200,000 of liability insurance, most people recommend minimum fo 1 million for potential large settlements
-Must also carry accident benefits and uninsured motorist coverage
Collosion and comprehensive coverage is optional (mat forgo if older car)
how to estimate how much life insurance you need
Simple emthod is 70% of current income and multiple by 7 years
Ignored indivdual circumstance
Family need method much more thourough
two main types of life isnurance
term and permanent
what is term insurnace
- only insurnace no savings componenet, must renew hwen period ends
- premium inc as you het older, but premium costs same in each period
consider renewability option (continue for another term when ur term ends) and converting policy to while life ( when you reach higher age, doesnt need medical exam)
what is term to 100 insurnace
- Charges a level premium to the end fo contract (death or age 100) but at cost significantly less than traditional permanent insurance bc policy holder does not have any right to cash value if policy is cancelled during their lifetime
what is decreasing term insurnace
Pays less to the beneficiary as time passes (think coverage decreases as you pay off your mortgage over certain time period)
Could get same result by purchasing annual renewable term policies of diminishing amount
affinity insurnace?
used by organizations to serve people and buisnesses with common interests, needs for specialized insurance potection
Charge the same rate of $1000 coverage regardless of amount of coverage taken
Expensive for those requiring more than basic amount of coverage
Direct plans with insurnace companies usually guarantee the renewal premiums in the contract and convertabiltiy, affinity plans do not
credit life insurance
= decreasing term insurnace taken out to over a debt
Premium paid at reg intervals - usually remains the same even though the amount of debt decreases (insurance payout will also decrease)
Once debt is paid off the insurance lapses
Buy reg insurnace bcmore flexible and costs less
The face value of policy remins level and after debt is paid you can continue coverage - proceeds can also be used to whatever you want
whats permanent life isnurance
whole life
- company knows they eventually have to pay so premiums are hiugher
- Comprised of pure cost o life insurnace, administration cost, profit and a savings benefit
- first few years high admin cost and little premium put towards savings benefit, eventually savings and cash flow grows
- As you age the pure cost of insurance increses and less is placed in the savings
- If you die the beneficiary will just receive the face value of the policy, if in force long enough the cash value will grow to equal the face value fo the policy
- Cash value can be used to obtain a low interest loan or a paid up policy with a lower face value
*can draw funds from the savings benefit, will lower the FC, if all savigns are withdrawn policy is cancelled
whats universal life sinurance
Varient on whole life but more flexible
Has 2 parts - life insurance and an investment account
Investment account if tax exempt if kept within limit
Decide how much goes into investment
part of premium goes to pay for life insurnace and other part does into investment account
*only really useful if in high tax bracket looking for tax liability
universal vs whole life
Both have cash value
Univerral gives more direct control, can change premium without changing coverage
Whole life requires specific premium every year or policy will lapse
Universal gives access to cash value by policy loan or withdrawal, whole life only allows policy loans
*avoid unverersal life policies that offer a high rate of return on cash value but charge a high rpice for the insurance element
disability income insurance
Meant to replace income
Max usually 80% of income - prevents ppl from purposfully disabeling themselves
$$$
Can lower premium cost by increasing wait period and decreasing duration of benefits
Can receive EI during wait period
Cheapr policyies only pay if you cant work any type of job - worth additional cost to get a non-cancellable and guaranteed renewable coerage
