Management and Organizational Studies 2277A/B Chapter Notes - Chapter 8: Home Insurance, Vehicle Insurance, Insurance Policy
22 Feb 2018
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Chapter 8. Auto and Homeowners Insurance
BACKGROUND ON INSURANCE
- In insurance, liability means that you may be required to pay someone for damages you caused
- Primary function of insurance is to maintain your existing level of wealth by protecting you against potential
financial losses or liability as a result of unexpected events
· Health insurance = health care needs, dental, vision
· Disability = ensure your monthly income will continue in the event that you ca’t ork due to illess
· LT care = ensure you have access to benefits that will help cover added living costs, in home nurse
· Life = ensure financial support for your dependents, other individuals, or charities when you die
MANAGING RISK
- Decisions about whether and how to protect against risk
· Recognize risks you are exposed to
· Decide whether or not to protect against it
1. Avoid avoid owning property
2. Reduce purchase small home vs large
3. Accept do’t seek to liit eposure
4. Share Risk
- The cost of obtaining insurance is the insurance premium that is paid for policy each year
- The benefit of obtaining insurance is that it can protect your assets or income from events that otherwise
might cause financial loss
ROLE OF INSURANCE COMPANIES
- Insurance companies offer insurance policies that can protect you against financial loss
- The most popular forms of insurance for individuals are property and casualty insurance, life insurance, and
health insurance
Insurance company operations
- When an insurance company sells an insurance policy to you, it is obliged to cover claims as described in the
insurance policy
· If car is insured by a policy, the insurance company is obligated to protect you from financial loss due to
an accident up to the policy limits
- Insurance companies help policy owners share risk by pooling together a number of insurance policies
based on the type of insurance purchased and the characteristics of a group of policy owner
- Based on historical claims information, insurance companies can estimate the number of policies it must
sell and the price at which to sell these policies to ensure a profit for the company
Profit = (premiums + investment earnings) - (claims + business expenses)
Relationship between insurance company claims and premiums
- Price insurance policies to reflect the probability of a claim and the size of that claim
- For an event that is very unlikely and could cause minor damage, the premium would be relatively low
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Insurance underwriters
- An insurance company relies on underwriters, who calculate the risk of specific insurance policies and
decide what policies to offer and what premiums to charge
Role of insurance agents and brokers
- Insurance agent: represents one or more insurance companies and recommends insurance policies that fit
custoers’ needs.
- Captive (or exclusive) insurance: works for one particular insurance company.
- Independent insurance agents: represents many different insurance companies.
AUTO INSURANCE
- Auto insurance insures against:
· The legal liability that may arise from causing death or injury to others
· The expense associated with providing medical care to you, your passengers, and other persons
outside your vehicle
· The costs associated with damage to your automobile
- If you own or drive a car, you are required to have a minimum level of auto insurance
Auto Insurance Policy Provisions
- Insurance policy: contract between an insurance company and the policy owner.
- Auto insurance policy: specifies the coverage provided by insurance company for an individual and vehicle
· Contains 3 sections
Section A: Third Party Liability Coverage
- Third party liability: a legal term that describes the person(s) who experienced loss because of the insured
- Bodily injury liability coverage: protects you against liabilities associated with injuries you cause to others
- Covers you or your family members if you cause injuries to others while driving someone else’s car with
their permission
- Mandatory in all provinces and territories
- Property damage liability: protects against losses that result when the policy owner damages another
person’s property with his or her car
· Does not cover your own car or other property that you own
Section B: Accident Benefits
- Accident benefits coverage: insures against the cost of medical care for you and other passengers
- Mandatory in all provinces except Newfoundland and Labrador
- Uninsured motorist coverage: insures against the cost of bodily injury when an accident is caused by
another driver who is not insured
· Also applies If ou’re in a hit-and-run accident or driver at fault’s insurance company went bankrupt
· Section A applies to bodily injury when you are at fault, this one applies when you are not at fault
Section C: Loss of or Damage to Insured Automobile
- Collision insurance: insures against costs of damage to your car resulting from an accident in which the
driver of your car is at fault
- Comprehensive coverage: insures you against damage to your car that results from something other than a
collision, such as floods, theft, fire, hail, explosion, riots vandalism, and various other perils
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
In insurance, liability means that you may be required to pay someone for damages you caused. Primary function of insurance is to maintain your existing level of wealth by protecting you against potential financial losses or liability as a result of unexpected events. Health insurance = health care needs, dental, vision. Disability = ensure your monthly income will continue in the event that you ca(cid:374)"t (cid:449)ork due to ill(cid:374)ess. Lt care = ensure you have access to benefits that will help cover added living costs, in home nurse. Life = ensure financial support for your dependents, other individuals, or charities when you die. Decisions about whether and how to protect against risk. Decide whether or not to protect against it: avoid avoid owning property, reduce purchase small home vs large, accept do(cid:374)"t seek to li(cid:373)it e(cid:454)posure, share risk. The cost of obtaining insurance is the insurance premium that is paid for policy each year.
