Introduction to Insurance

1. Introduction to Insurance Honors C.A.D.

2. Objectives • Define the concept of “insurance.” • Understand the key components an insurance policy, as well as reasons behind getting insurance.

3. Why Get It? • Think about it – why would you want to insure yourself? Is it worth not having the insurance? • It does boil down to RISK – you know there are events in life that you cannot predict, yet you should prepare for them. • Should you insure yourself to the absolute highest level? – Probably not, considering that would cost a lot of money.

4. History of the Business • History of Insurance  it has gone a long way to become the multi-trillion dollar business that it is today: • Started in Egypt in 2500 BC – fund for funerals/aid for sick • 1666 – the Great London Fire – fire insurance became important and popular • 1696 – Lloyd’s of London became one of the first “big” companies, insuring ships • 1752 – Ben Franklin (what didn’t he invent!?) – fire insurance in Philadelphia • 1792 – The Company of North America – first American company to take on large risks (think Lewis and Clark’s Expedition) • 1935 – Social Security becomes first social insurance in USA.

5. We’re In the Money… • Profits: not what you would think. • They make about a 5 cent profit on every dollar they collect in insurance premiums. • Auto insurance companies collect even less (2-5 cents).

6. Important Terms • Risk – the potential for harm/damages from an event • Hazard – anything that increases the chances of a loss • Peril – the actual cause of a loss (think a fire in a house) • Liability – the person who is responsible for injury/damage to others

7. More Important Terms • Law of Large Numbers – as the number of people insured by the company increases, then the company’s predicted number of losses will more closely reflect the actual number of losses. • Insurance policy – a legal contract that defines the rights and duties of the insurer and the insured. • Declarations – the specifics on the insurance policy (who/what is covered, premiums, limits, etc).

8. Different Types • Auto insurance – for your car; insurance on injuries for you (and others, if you pay for it). Also can cover damage to the car and to other’s property. • Homeowners insurance – you protect your house from catastrophe (fire, floods, hurricanes, etc.). You can also get it if you rent.

9. Different Types • Life Insurance – provides for your family if you die and they depend on you for financial support. You pay for it and the money goes to a beneficiary. • Health Insurance – pays for your medical expenses.

10. So…Why Get Insurance? • If you suffered from a disaster, like your house burns down or your car is completely totaled in an accident, you probably cannot pay for it on your own. • Insurance allows you some financial security if this happens. • It also allows you (or your family) to recover better from a catastrophic event. Just think if you didn’t have health insurance, and you needed open-heart surgery? Or you owned your own business, an ice-cream shop, that is leveled in a tornado.