Lesson D: Insurance

There are three basic types of insurance that are important to consider when developing goals and spending plans. These are auto, home and life insurance policies.

Auto

Liability Insurance
Liability coverage is the foundation of any auto insurance policy, and is required in most states. If you are at fault in an accident, your liability insurance will pay for the bodily injury and property damage expenses caused to others in the accident including your legal bills.

Liability insurance does have coverage limits. These limits are usually represented by a set of three numbers. An example would be 25/30/10. This means $25,000 in bodily injury coverage per person, $30,000 in bodily injury coverage per accident, and $10,000 in property damage coverage per accident.

Collision and comprehensive coverage’s
If you cause an accident, collision coverage will pay to repair your vehicle. You usually can’t collect any more than the actual cash value of your car, which is not the same as the car’s replacement cost. Collision coverage is normally the most expensive component of auto insurance.

Medical payments, PIP and No-Fault coverage’s
Medical payment coverage will pay for you and your passengers’ medical expenses after an accident. These expenses can arise from accidents while you are driving your car, someone else’s car and injuries you or your family members incur when you’re pedestrians

Different states have different minimum coverage requirements. Contact your state’s department of transportation for more information.

Home Insurance

When considering home insurance it is important that you buy the right policy. You need the proper level of protection plus special provisions for valuables such as jewelry, your computer equipment and other possessions. You may also need additional coverage for earthquakes or flooding.

There are several basic types of home insurance policies:

• HO-1
  • Basic homeowners policy
  • Covers your house and possessions against 11 different perils.
• HO-2
  • Broad homeowners policy
  • Covers house and contents against 17 different perils, with premiums running about 5 percent to 10 percent more that an HO-1 policy.
• HO-3
  • Special homeowners policy
  • Covers all perils except those specifically excluded by the policy.
  • Cost about 10% - 15% more that an HO-1 policy.
• HO-4
  • Renters Policy
  • Covers 17 named perils and included liability coverage. It covers personal property inside of the dwelling. It does not insure the dwelling itself.
• HO-5
  • Exclusive homeowners policy
  • Covers damage from practically everything except earthquakes, wars and floods.
• HO-6
  • For owners of co-ops or condominiums
  • Provides personal property coverage, liability coverage and specific coverage of improvements to the owner’s unit. Insurance provided by the owner’s association normally covers most of the actual structure.
• HO-8
  • Policy for older homes
  • Covers the same perils as HO-1 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly.
• HO-A
  • Covers your home and possessions against named perils only, for actual cash value.
• HO-B
  • Covers the dwelling for all perils unless excluded against all risks and contents against named perils. The house is covered for replacement cost up to policy limits, while contents are covered for actual cash value unless you buy additional replacement cost for coverage.
• HO-C
  • Covers house and contents against all risks not specifically excluded by the policy. Again, the house is insured for replacement cost up to policy limits, while contents are covered for actual cash value unless you buy additional coverage.

Life Insurance

The first step in life insurance planning is to analyze your life insurance needs. Before purchasing life insurance you should consider the standard of living you want to maintain for your dependents or survivors upon your death.

There are several policy choices:

Term Life Insurance
Term life insurance provides death benefit protection without any savings, investment or “cash value” components for the term of the coverage period.

Cash Value Life Insurance
Cash value life insurance provides more death benefits and an expanded purpose into that of a long term savings account.

Whole Life
Whole life insurance has a cash value account that grows over time. It provides a level death benefit and level premiums throughout your life.

Universal Life
This policy is more flexible that whole or life. You may increase or reduce the amount of the death benefit while the policy is in force.

Variable Life
Variable life offers a death benefit and a true investment account feature. The insurance company invests your premiums into a fund. The amount of your death benefit is reliant on how well your money was invested.

Exercise

Review your goal sheet, assets and spending plan and determine which types of insurance coverage you will need. Ask yourself these questions: do I have a home? do I drive a car? upon my death do I plan to leave money or property to my family or survivors?

Now I want you to consider any coverage that you may already have?

Do you have enough coverage?

If you have little or no coverage in any of the three basic insurance areas (auto, homeowners or life), you may need to re-evaluate your spending and goal plans. Having enough insurance coverage should be a priority.

Quiz

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1.	Liability insurance covers collision damage to your vehicle.	True False
2.	An HO-5 homeowner’s policy covers floods and earthquakes.	True False
3.	A Universal Life insurance policy is flexible in that the death benefit can be increased or reduced.	True False
4.	HO-1 policy is often referred to as a basic homeowner’s policy.	True False
5.	In this liability coverage limit example 20/35/20, the 35 means that you are covered up to $35,000 in property damage per accident.	True False