Why is it Important to have Insurance ?

We're gonna talk next about the different types of insurance and first of all we need to talk about why is it even important to have insurance?

 Why is it Important to have Insurance ?

Why do people spend a lot of their income purchasing insurance ?

Well, first of all we know already about risk. We've talked about risk in terms of investments and that would mean there's a chance that you might not get the money, you put it that, you put in back out, but with risk for insurance that's kind of a different type of risk.

it's a risk that there's gonna be loss of income or loss of money or loss of property due to something that you can't entirely control. so whether that's weather getting fired or laid off having an accident all of those are things that are out of your control for the most part.

So, we have to manage our risk by having emergency savings. First of all which of course is at least six months of expenses set aside, but also we can manage risk with insurance and insurance allows us to transfer risk from the individuals of from us to the insurance organization.

So it transfers risk from us the chance of something happening that we have to pay for a lot of money sometimes from us to the insurance organization. So examples of unexpected events that may result in a financial loss could be well. I've already said some but also if you had a fire star in your apartment.

If you got into a car wreck okay, So those are more examples of things that because of them you would have some sort of financial burden to bear. so we have some vocabulary here and our first one is policy and a policy is what you sign saying you understand.

It's a contract that states exactly what is covered and how much will be paid for any losses. So the policy is basically an explanation of what your insurance is going to cover for you or what your insurance will pay for. if something happens to you, so when I say coverage that just indicates that's on your but it's something that's on your policy that specifically states.

How much I'm your insurance will pay specifically for certain damages.

So, if you see Allstate commercials they talk about having better coverage. maybe it means that it will cover more types of accidents than any comparable auto insurance company or maybe it will cover damages that are caused by you and not just somebody else.

So coverage is specifically what kind of losses the insurance policy will take care of for you will pay for the policy holder. You're the person who owns that certain policy and premium. premium is one of the hardest vocab words for students remember in this class but premium is like your monthly payment just to have insurance. so premium is the amount you pay just to have insurance. 

sometimes it's paid monthly sometimes like with car insurance it's paid every six months but either way premium is what you pay every time whether it's monthly or six months just to have insurance.

So an illustration of how insurance works.

Suppose, there are a hundred people in a group and there's a 1% chance that any of them could get sick and they know that it could cost at least $10,000 in medical care, but you don't know. 

If it's you that's gonna get sick nobody knows. if it's them, so each person will pay $100 into a collective pool of money that they total will have $10,000 to cover the medical cost of the one person who ends up getting sick. so everybody has to give up a hundred dollars no matter if it's you or not that gets sick, but that means nobody's gonna lose a hundred dollars and it could have cost 10,000. 

so ninety-nine people don't collect anything. they just put in a hundred dollars. just in case it was them but they are able to gain the peace of mind. so feeling comfortable with if it's them what are they going to do and they have important protection against such a large loss of ten thousand dollars. 

so again we shift the risk have a lot of financial losses from us having to pay it to the insurance company paying it so benefits of insurance and the payments that you receive from an insurance policy can far exceed the premiums you pay. 

so if you have an accident it's $100,000 in hospital bills you might not have ever paid up to that amount in insurance premiums or your monthly payments, but the insurance still covers it for you. It allows you to feel better about your life and going about your day-to-day existence. so financial security and peace of mind and there are some different common types of insurance.

Property and Liability Health long-term care disability and life Insurance.

We're going to be discussing property and liability health long-term care disability and life insurance. We'll talk briefly about health in this presentation but later we're going to talk about it a lot more because it's such a important topic to discuss. 

So here's our process the first thing that occurs is that there's something that happens that results in a loss.so that means the policy holder will have to make a claim to the insurance organization and the claim is paperwork submitted to the insurance organization. 

Describing what happened nowadays they have a lot of claim apps so you can get on your phone like let's say you get into an accident you have I think Allstate does it you can actually go to all states app and file a claim. 

so on that app you have to as if it was paperwork fill out all of your personal information often times. it will allow you to take pictures front with your phone and upload them to the claim but in either case the claim is only needed whenever something happens. 

so you don't have to fill out a claim every month or every year but it's only if there's an accident. so once they get the claim they determine if the event is covered by the policy so they have to check out the policy coverage and if it is then often times a policy holder will pay what's called a deductible. 

so a deductible is money that you pay out-of-pocket. so in other words you pay in addition to everything else before the insurance chooses to pay for anything. so the deductible is what you pay before insurance kicks in if the remaining amount could be also charged with to you. if you have something called coinsurance. 

so coinsurance is the amount of money after you pay the deductible that is paid jointly between you and your insurance company coinsurance us typically with health insurance meaning you've reached you've paid your deductible. we'll talk about all of this more but this is at least getting the vocabulary out there for you but once you've hit your deductible and you've paid off your deductible. 

you might still have coinsurance on top of it and that means you're paying a percentage and your insurance company is paying a percentage of whatever is left in the payments, whether it's to a hospital or to a car company or whatever the case may be so. 

for example, lewis has a health insurance policy with a $500 deductible in 20% coinsurance. so remember deductible is how much she has to pay before insurance will pay for
anything. 

so this means that Louise pays for the first 500 dollars of any covered medical pair care plus 20% of any remaining costs and covered medical care would mean that it's included in her healthcare policy plan. 

so if Louise isn't an accident that resulted in a $5,000 medical procedure that is covered by insurance then Lewis will pay $500 because again she has to pay that no matter what before insurance kicks in plus 20% of the remaining total for a total of $1,400. 

so that means the insurance company after everything she's paid will cover the rest that's at $3,600. so even though she has insurance Lewis still needs to fund it still needs funds to pay the deductible and coinsurance. 

Even though you have insurance there still is some accountability on your part to have some savings built up in case of an accident. so here's another example Carlos was involved in an automobile accident that resulted in three thousand seven hundred eighty eight dollars worth of damage to his car. 

If he has property and liability insurance policy with which we'll talk about what that means but the important thing is you know that he has a five hundred dollar deductible and zero percent coinsurance well without doing any math. 

we know that five hundred dollars deductible is what he pays before the insurance company will pay for anything. so he only has to pay five hundred dollars the insurance organization will have to pay the remaining. so the total minus five hundred dollars is what the insurance company will have to pay. 

Even though we pay premiums to have insurance every month or every six months. we still have deductibles and coinsurance and the reason for that is what's called the problem of moral hazard and that insurance companies believe and I I think you can see

Why that when the act of insuring an event increases the likelihood it will occur.

In other words if you have insurance you might think oh I can leave my car and lock all the time. so if something gets stolen I'll get it replaced or I have insurance. so I can try the super risky jump off the Golden Gate Bridge maneuver that I've always wanted to try. 

because you have insurance people might think I can do whatever I want or I can burn down my house get and get the money for it and build a new one. so when you have deductibles and coinsurance it places some of  that loss on you. so you are still responsible for a portion of that loss. 

If not for the whole thing at least I'm a better example is you might not worry about locking a car or parking it in a theft prone area and hopes they'll be stolen. 

if you have insurance so this way auto insurance will pay for your new vehicle. they don't want that to happen, they want you to keep track of your car or your honor bill and make sure you're keeping good care of it the idea is that the money you get from an insurance policy is not supposed to make you better off it's supposed to get you back to where you were before the event occurred.

if you do purposefully damage your car or your house it's called insurance fraud and they take that very seriously and it is illegal. so where we get our insurance comes from different places for some it's individually done so for long term care property and liability insurance you are the one who has to get that and set it up and pay for it but for things like health disability and sometimes life insurance your employer might pay for it and sometimes the government pays for certain types of insurance. 

especially events that occur during big catastrophes. so if you don't have an employer or it doesn't provide you insurance of these sorts you can acquire it by yourself .so you've already talked about employee benefits I'm gonna move through their insurance premiums, if you have health insurance typically that's provided by your employer you don't need to know and kind income but you typically will have to have it come out of your payroll deduction. 

so it's paid by either you or your employer also policies may be available to employees family members so I could include my husband on my health care plan, if we had children I could include them but for instance both st. Teresa's and myself have to pay health insurance premiums they pay a portion and I pay a portion my portion is pretty small because st. Theresa's pays for so much of it so between the two of us our insurance premium is is paid for. 

so the government provides just basic insurance to try and keep people protected we've talked about Social Security Medicare and Medicaid many times you have to have some sort of work history such as unemployment. insurance you have to prove that you were working and you got laid off and a worker's comp meaning you got injured .so you have to prove you were working or it can be specific to a certain it's catastrophes such as Hurricane Katrina.