insurance

Question 1

Risk, peril and hazard

Answer 1

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

Question 2

types of risks

Answer 2

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

Question 3

risk management methods (4)

Answer 3

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

Question 4

home and property insurance

Answer 4

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

Question 5

liability insurance

Answer 5

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

Question 6

tenant insurance

Answer 6

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

Question 7

two main types of home insurance

Answer 7

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

Question 8

CO-insurance clause

Answer 8

• 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

Question 9

what is are claim settlemens based off of

Answer 9

actual cash value and replacement cost

actual cash value (replacement cost - depreciation) or replacement value (depreciation not considered, more expensive but higher payout)

Question 10

how does ontario car insurance work

Answer 10

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

Question 11

Subrogation

Answer 11

at fault drivers insurance company needs to compensate the not at fault drivers insurance company for the amount of the claim paid out

Question 12

two major cases you need car insurance for

Answer 12

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

Question 13

how much liability insurnace does ontario require

Answer 13

$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)

Question 14

how to estimate how much life insurance you need

Answer 14

Simple emthod is 70% of current income and multiple by 7 years

Ignored indivdual circumstance

Family need method much more thourough

Question 15

two main types of life isnurance

Answer 15

term and permanent

Question 16

what is term insurnace

Answer 16

• 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)

Question 17

what is term to 100 insurnace

Answer 17

• 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

Question 18

what is decreasing term insurnace

Answer 18

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

Question 19

affinity insurnace?

Answer 19

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

Question 20

credit life insurance

Answer 20

= 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

Question 21

whats permanent life isnurance

Answer 21

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

Question 22

whats universal life sinurance

Answer 22

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

Question 23

universal vs whole life

Answer 23

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

Question 24

disability income insurance

Answer 24

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

Question 25

critical illness insurance

Answer 25

Will pay out a lump sum payment if you are diagnosed with a serious illness that is covered by the policy

Intended to help with all associated costs

Often there are associated emdical expenses and loss of income of the diagnosed individual and of the individual who is caring for the ill person

Question 26

long term care insurance

Answer 26

Will cover costs associated with staying in a nursing home or in hom care

Usually to qualify for the benefits there must be deteriorated mental capacity or an inabiltiy to perform at least two of the activities of daily living or needing assistance with bathing and transferring positions