Transcript Registered ParaplannerSM Professional Education Program

Foundations In Financial PlanningSM Professional
Education Program
Module 8
Introduction to Insurance
©2012, College for Financial Planning, all rights reserved.
Learning Objectives
8–1: Describe types of personal risk.
8–2: Identify risk management techniques used in a situation.
8–3: Analyze a situation to determine the method of risk
management used.
8–4: Describe rules of risk management.
8–5: Define components of an insurance policy or an insurance
term.
8–6: Distinguish between the functions of insurance agents and
insurance brokers.
8–7: Describe characteristics of various forms and coverages in
the homeowners series.
8–8: Describe terms or characteristics of a Personal Automobile
Policy (PAP).
8–9: Describe characteristics of umbrella liability coverage.
5-2
Questions To Get Us Warmed Up
7-3
Types of Personal Risk
•
•
•
•
•
•
Loss of income
Unemployment
Disability
Death
Divorce
Catastrophic losses
8-4
Risk Management Techniques
•
•
•
•
•
Risk
Risk
Risk
Risk
Risk
retention
avoidance
reduction
sharing
transfer
8-5
Rules of Risk Management
• Don’t risk more than you can afford to lose.
• Consider the odds.
• Don’t risk a lot for a little.
8-6
Four Types of Pure Risk
•
•
•
•
Personal
Property
Liability
Failure of others
8-7
Criteria for an Insurable Risk
•
•
•
•
Law of large numbers
Accidental loss
Definite and measurable loss
Loss must not be catastrophic
8-8
The Insurance Contract
Four legal requirements
• Legal activity
• Offer & acceptance
• Consideration/payment
• Competent parties
Contract terms
• Insurable interest
• Aleatory
• Unilateral vs. bilateral
• Indemnity
• Contract of Adhesion
8-9
Insurance Policy Components
• Declaration
• Insuring
•
•
•
•
agreements
Exclusions
Conditions
Riders
Endorsements
8-10
Types of Insurance Companies
Mutual
Owned by
policyholders
Stock
Owned by
stockholders
8-11
Agents & Brokers
Agent
• Legal
representative
of the insurance
company
• Can bind
coverage
• Telling agent =
telling company
Brokers
• Represent the
buyer
• Cannot bind
coverage
8-12
Types of Insurance
•
•
•
•
•
•
Life
Medical
Disability
Long-term care
Property
Liability
8-13
Homeowners Perils Covered
Basic coverage
• 11 perils
Broad form coverage
• same as basic + additional perils
Open perils coverage
(formerly all risks)
• all perils unless
specifically excluded
8-14
Types of Policies
Coverage A:
Dwelling
Coverage B:
Other
Structures
Coverage
C: Personal
Property
Coverage D:
Loss of Use
HO 02
(Broad)
Broad Form
Broad Form
Broad Form
Broad Form
HO 03
(Special)
Open Peril
Open Peril
Broad Form
Open Peril
HO 04
(Renters)
Not covered
Not covered
Broad Form
Broad Form
HO 05
(Special)
Open Peril
Open Peril
Open Peril
Open Peril
HO 06
(Condo Owners)
Minimal
Included in A
Broad Form
Broad Form
HO 08
(ACV)
Basic
Basic
Basic
Basic
Policy Type
8-15
Automobile Insurance Policies
•
•
•
•
•
•
Part A: liability coverage
Part B: medical payments
Part C: uninsured motorist coverage
Part D: coverage for damage to your
automobile
Part E: duties after an accident or loss
Part F: general provisions
8-16
Umbrella Liability Coverage
• Protects against both automobile and general
•
•
liability
Is coupled with a minimum amount of liability
coverage in both as a base amount
homeowners and automobile policies
8-17
Question 1
A worker wearing a hard hat on a construction
site represents which of the following methods
of risk management?
a. risk tolerance
b. risk avoidance
c. risk reduction
d. risk transfer
8-18
Question 2
Which of the following are considered to be
rules of risk management?
I. Don’t risk a lot for a little.
II. The loss must not be catastrophic.
III. Don’t risk more than you can afford to lose.
IV. Consider the odds of the event occurring.
a. I only
b. I and III only
c. II and IV only
d. I, III, and IV only
8-19
Question 3
Charlie Bucket is interested in insuring against a
number of risks he sees around him that cause
him concern.
Which one of the following would be considered
an insurable risk?
a. his neighbor’s house
b. his fiancé’s life
c. his boss’s automobile
d. his son’s second grade teacher
8-20
Question 4
JoAnna Jett has asked you to explain the
different types of life insurance companies and
life insurance policies. As JoAnna’s insurance
advisor, which of the following will you tell her?
a. A mutual company can never sell a nonparticipating policy.
b. A stock company can never sell a
participating policy.
c. A mutual company can sell a nonparticipating policy.
d. A stock company is owned solely by the
policy holders.
8-21
Question 5
Sam Smith has an insurance policy that he took out
when he bought his home for $100,000 five years ago.
At the time, Sam purchased enough property insurance
coverage to meet the 80% coinsurance requirement
with a $1,000 deductible. Today, with the original
amount of insurance still in force, his home is valued at
$150,000. This morning Sam had a kitchen fire that
caused $15,000 worth of damage.
As the adjuster, what are you able to tell Sam when he
asks how much he will be paid?
a. $9,000
b. $10,000
c. $12,000
d. $14,000
8-22
Question 6
Which one of the following ISO policy forms
increases the coverage on personal property
from broad coverage to open-perils coverage on
an HO 00 03 policy?
a. HO 00 04
b. HO 00 06
c. HO 00 07
d. HO 00 15
8-23
Question 7
Your client, John Jones, has an auto policy with a
100/300 split limit of liability. John caused an accident
with another vehicle in which four other people were
riding. Each of the four were injured and acted to bring
suit against John for $100,000 each. John’s insurer
defended the suit at a cost of $18,000.
What is the maximum amount that Jon’s policy will pay
for this claim?
a. $100,000
b. $300,000
c. $318,000
d. $418,000
8-24
Foundations In Financial PlanningSM Professional
Education Program
Module 8
End of Slides
©2012, College for Financial Planning, all rights reserved.