Kinh tế học - Chapter 20: Life, fire, and auto insurance

Chapter 20Life, Fire, and Auto InsuranceExplain the types of life insurance; calculate life insurance premiumsExplain and calculate cash value and other nonforfeiture optionsLife, Fire, and Auto Insurance#20Learning Unit ObjectivesLife InsuranceLU20.1Explain and calculate premiums for fire insurance of buildings and their contentsCalculate refunds when the insured and the insurance company cancel fire insuranceExplain and calculate insurance loss when coinsurance is not metLife, Fire, and Auto Insurance#20Learning Unit ObjectivesFire InsuranceLU20.2Explain and calculate the cost of auto insuranceLife, Fire, and Auto Insurance#20Learning Unit ObjectivesAuto InsuranceLU20.3Face amount - The amount received (proceeds) upon the death of the insuredInsured - The policyholder receiving coveragePremium - Periodic payments you make for the cost of the insurance (determined by actuaries)Life InsuranceBeneficiary - The person receiving the insurance proceeds at the death of the insuredStep 2. Divide the amount of coverage by $1,000 and multiply the answer by the premium cost per $1,000Step 1. Look up the age of the insured and the type of insurance in Table 20-1 (for females subtract 3 years). This gives the premium cost per $1,000Steps in Calculating Annual Life Insurance PremiumsTable 20.1 - Life Insurance RatesStraight Life (Ordinary Life) -- Provides permanent protection. The insured pays the same premium each year or until death. Has a built in cash savings feature. $200 x $14.54 = $2,908Term Insurance -- Pays face amount only if you die within the period of the the insurance. The cheapest coverage. $200 x $3.52 = $704Calculating Insurance PremiumsBob Brady, age 40, wants to purchase a 5 year $200,000 insurance policy. Determine her annual premium$200,000 (Coverage) = 200 1,000Step 1Step 2Step 2Universal Life - A whole life insurance plan with flexible premium schedules and death benefits. Greater risk to the holder because premiums are subject to interest rate fluctuationsTwenty-Year Endowment -- Most expensive. Combination of term and cash value. After 20 years your protection ends and you receive the face value of the policy. $200 x $33.36 = $6,672Calculating Insurance PremiumsTwenty-Payment Life -- Similar to straight life but insurer pays premiums for only the first 20 years. $200 x $18.61 = $3,722Step 2Step 2Nonforfeiture Options - Figure 20.1The value of an insurance policy that has built up cash value and provides an opportunity for insurance coverage without additional premiums.Option 1: Cash value (cash surrender value)a. Receive cash value of policy.b. Policy is terminated. The longer the policy has been in effect the higher the cash value because more premiums have been paid in.Option 2: Reduced paid-up insurancea. Cash value buys protection without paying new premiums.b. Face amount of policy is related to cash value buildup and age of insured. The face amount is less than original policy.c. Policy continues for life (at a reduced face amount).Option 3: Extended term insurancea. Original face amount of policy continues for a certain period of time.b. Length of policy depends on cash value built up and on insured’s age.c. This option results automatically if policyholder doesn’t pay premiums and fails to elect another option.Table 20.2 - Nonforfeiture Options based on $1,000 Face ValueNonforfeiture OptionsAssume Bob Brady purchased a 20-payment life policy and decided to stop the policy after it was in force for 10 years. What would be his options?1. Cash Value$200,000 = 200 x $148 = $29,600 $1,0003. Extended term insuranceContinue this $200,000 policy for 20 years and 165 days2. Reduce paid-up insurance$200,000 = 200 x $371 = $74,200 $1,000Fire InsuranceTable 20.3 - Fire insurance rates per $100 of coverage Classification of building Class A Class BRating of area Building Contents Building Contents 1 .28 .35 .41 .54 2 .33 .47 .50 .60 3 .41 .50 .61 .65Calculating Fire Insurance PremiumsPremium = Insured value x Rate $100Calculate the premium of a building with an insured value of $190,000 and a Class B, Area No. 2 rating. Insured contents are $80,000. Premium = $190,000 = 1,900 x $.50 = $950 $100Premium = $80,000 = 800 x $.60 = $480 $100Total Premium = $950 + 480 = 1,430Table 20.4 - Fire Insurance short-rate and cancellation tableTime policy is Percent of annual rate Time policy is Percent of annual rate in force to be charged in force to be charged Days 5 8% Months 5 52% 10 10 6 61 20 15 7 67 25 17 8 74Months 1 19 9 81 2 27 10 87 3 35 11 96 4 44 12 100 Step 2. Multiply the fraction by the amount of loss (up to the face value of the policy)Step 1. Set up a fraction. The numerator is the actual amount of the insurance carried on the property. The denominator is the amount of insurance you should be carrying on the property to meet coinsurance (80% times the replacement value)Calculating What Insurance Company Pays with Coinsurance ClauseThe insured and the insurer share the risk. Encourages property owners to purchase adequate coverage$60,000 x $20,000 = $15,000$80,000CoinsuranceSuppose we carry $60,000 of fire insurance on property that will cost $100,000 to replace. The coinsurance clause is 80%. If we suffer a loss of $20,000, how much will the insurance company pay?What you should have carried$100,000 x .80CoverageLossAuto InsuranceLiability Insurance (Compulsory Insurance) - Covers any physical damages that you inflict on others or their property. (Mandatory)Bodily injury - injury or death to people in passenger car or other cars, etc.Property damage - injury to other someone else’s property, i.e. autos, trees, buildings, hydrants, etc.Problem Calculate the annual auto premium for Shirley who lives in Territory 5, is a driver classified 17, and has a car with age 3 and symbol 4. Her state has compulsory insurance, and Shirley wants to add the following options:1. Bodily injury, 250/5002. Property damage 5M 3. Collision, $200 deductibleComprehensive, $200 deductibleSubstitute transportationTowing & LaborProblem Calculate the annual auto premium for Julie Fox who lives in Territory 5, is a driver classified 17, and has a car with age 3 and symbol 4. Her state has compulsory insurance, and Julie wants to add the following options:1. Bodily injury, 250/5002. Property damage 5M 3. Collision, $200 deductibleComprehensive, $200 deductibleSubstitute transportationTowing & LaborCompulsoryBodily $ 98 (Table 20.5)Property $160 (Table 20.5)OptionsBodily $228 (Table 20.6)Property $168 (Table 20.7)Collision $191 (Table 20.8) ($148 + $43)Comprehensive $ 56 (Table 20.9) ($52 + 4)Substitute trans. 16Towing & Labor 4Total annual premium - $921