Bài giảng môn học Quản trị kinh doanh - Chapter twenty: Life, fire, and auto insurance

LIFE, FIRE, AND AUTO INSURANCEChapter TwentyCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinExplain the types of life insurance; calculate life insurance premiums.Explain and calculate cash value and other nonforfeiture options.LU 20-1: Life InsuranceLearning unit objectivesLU 20-2: Fire InsuranceExplain and calculate premiums for fire insurance of buildings and their contents.Calculate refunds when the insured and the insurance company cancel fire insurance.Explain and calculate insurance loss when coinsurance is not met.Explain and calculate the cost of auto insurance.LU 20-3: Fire InsuranceFace 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 $1,000.Step 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 $1,000.Calculating Annual Life Insurance PremiumsLife Insurance Rates(Table 20.1)Straight 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 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) 1,000Step 2Step 2= 200Step 1Universal 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 fluctuations.Twenty-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 20.1)The value of an insurance policy that has built up cash value and provides an opportunity for insurance coverage without additional premiums.Nonforfeiture Options based on $1,000 Face Value (Table 20.2)Nonforfeiture 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?Cash value3. Extended term insurance2. Reduce paid-up insurance= 200 x $148 = $29,600$200,000 $1,000= 200 x $371 = $74,200Continue this $200,000 policy for 20 years and 165 days $200,000 $1,000Fire InsuranceTable 20.3 - Fire insurance rates per $100 of coverageCalculating Fire Insurance PremiumsCalculate 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 =Premium = Insured value $100x RatePremium =Total premium = $950 + 480 = 1,430= 1,900 x $.50 = $950= 800 x $.60 = $480$190,000 $100$80,000 $100Fire Insurance short-rate and cancellation table (Table 20.4)Canceling Fire Insurance (Refunds)Short-rate premium = Annual premium x Short-rateCalculate the refund if the policy is canceled after 7 months.Short-rate premium = $1,430 Annual premium x .67 Short-rate = $958.10Refund = Annual premium – Short-rate premiumInsurer Cancels = $1,430 Annual premium x 7 months elapsed 12 = $834.17 ChargeRefund = $1,430 Annual Premium -- $958.10 Short-rate premium = $471.90= $1,430 Annual premium -- $834.17 Charge = $595.83 RefundStep 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 Coinsurance Clause Payment for Insurance CompanyCoinsurance -- the insured and the insurer share the risk. Encourages property owners to purchase adequate coverage.CoinsuranceSuppose 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? Coverage _ What you should have carried $60,000 $100,000 X .80x $20,000 = Coverage _ (Replacement value x Coinsurance clause %)x Loss = Insurance company payment$15,000Auto InsuranceLiability Insurance (compulsory insurance) - Covers any physical damages that you inflict on others or their property. (Mandatory)Bodily Injury – Covers injury or death to people in passenger car or other cars, etc.Property Damage – Covers injury to someone else’s property, i.e., autos, trees, buildings, hydrants, etc.Comprehensive - Covers damages resulting from theft, fire, falling objects, etc. Collision - Provides protection against damages to your car caused by a moving vehicle. Covers the cost of repairs less the deductible. Auto Insurance Example 1. Bodily injury, 250/5002. Property damage, 5M 3. Collision, $200 deductibleComprehensive, $200 deductibleSubstitute transportationTowing & labor 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:Compulsory insurance(Table 20.5)Calculating Premium and Optional Insurance CoverageTable 20.6 Bodily injuryTable 20.7 Damage to someone else’s propertyCalculating Premium: Collision (Table 20.8)Calculating Premium (Tables 20.9 and 20.10)Calculating Auto Premium(Table 20.11)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