Chapter 19
Insurance
Student Performance Objectives:
Section I Life Insurance
19-1 Understanding Life Insurance and Calculating Typical Premiums for Various
Types of Policies
Section II Property Insurance
19-4 Understanding Property Insurance and Calculating Typical Fire Insurance
Premiums
19-5 Calculating Premiums for Short-Term Policies, and the Refunds Due on Canceled
Multiple Carriers
Section III Motor Vehicle Insurance
19-8 Understanding Motor Vehicle Insurance and Calculating Typical Premiums
Chapter Notes, Teaching Tips and Lecture Launchers
• Spotlight: Be sure students understand the concept of:
• Insurance: A mechanism for reducing financial risk and spreading financial
• Lecture Launchers: Ask your class, “What is the purpose of insurance?”
• Lecture Launchers:
• Have students name “things” that can be insured (life, cars, health, flood, etc.).
• Discuss with students the concepts of peril, hazard and risk.
• A peril is the cause of loss, such as a flood, fire, or car accident.
• A hazard makes the peril more likely, such as faulty wiring in a house.
• Risk is the variation in actual losses compared to expected losses.
• Discuss actuaries, the insurance company statisticians who calculate the probability
or chance of a certain insurable event occurring. These probabilities are then used to
• Lecture Launcher: Discuss insurance requirements and inflation. Ask students to
name insurable things, whose value is tied to economic conditions, such as inflation.
Some examples might be:
• real estate (property values rising and cost of replacement materials rising)
• Collaborative Learning Activity: Divide the class into groups to investigate life,
property, and motor vehicle insurance rates in your area.
• Ask students to contact local insurance agents to get the current rate tables for
• Classroom Activity: Invite an insurance agent to speak to the class about “current
happenings” in the insurance industry and insurance sales as a career.
Section I Life Insurance
• Spotlight: Point out to students that beneficiaries pay no federal income tax on life
insurance settlements.
• Be sure students know the difference between term and permanent insurance.
• Term is pure insurance protection. It has lower premiums than permanent
insurance, but no cash value
• Point out to students that term insurance is initially cheaper than other types of
policies that offer the same amount of protection. Therefore, it gives the greatest
immediate “coverage per dollar.”
• Use Table 19-1 to illustrate Life Insurance Rates and Premium Factors.
• Classroom Activity: Have students obtain life insurance quotes on themselves for
both term and cash value insurance. Warn them not to send any identifying
information about themselves, however! Have them report back to the class about
what they found.
• Spotlight: Performance Objective 19-3, Calculating Income Shortfall is a
fundamental part of sound financial planning. Life insurance should be used to fill
the “financial gap” a family may incur by the death or disability of the insured.
Section II Property Insurance
• Lecture Launcher: Ask students to imagine, “How did people ‘protect’ their property
from perils, before the concept of insurance was invented?”
• Before insurance, people were helped by their neighbors and friends in the
• Point out to students that property insurance is usually “lender required” when
purchasing real estate with a mortgage.
• Spotlight: Discuss with students:
• Condominium Insurance – Insurance purchased by the owner of a
• Lecture Launchers: Ask how many students who are renting have renter’s insurance.
Quite likely, most of them do not. Point out that the landlord’s insurance policy will
generally not cover the renter’s personal property in most instances.
• Use Table 19-5 to illustrate Property Insurance Short Rates
• Students should understand that short rates are necessary to cover the selling
• Be sure students understand the concept of the coinsurance clause. This is a
stipulation in property insurance that a minimum amount of coverage is required in
order for a claim to be paid in full.
• The Coverage ratio is the amount of insurance carried by the insured
• Collaborative Learning Activity: In pairs, have students work Try-It Exercise
7.
• Spotlight: Explain to students that multiple carrier insurance is used when one
insurance company is unwilling or unable to carry the entire liability of a particular
property.
• Classroom Activity: Ask student to name examples of insurance risk
situations that may require multiple carrier coverage. Some examples might
Section III Motor Vehicle Insurance
• Emphasize to students that motor vehicle insurance rates, regulations, and
requirements vary widely from state to state; however the basics are the same
everywhere.
• Classroom Activity: Have students research and report to the class about the
motor vehicle insurance requirements in your state.
• Spotlight: Encourage students to learn the important terminology associated with
motor vehicle insurance.
• Liability – The portion of motor vehicle insurance that includes payment for
bodily injury to other persons and damages to the property of others resulting
• Be sure students understand that liability rates are based on three primary factors:
• Who is driving the vehicle.
• Where the vehicle is being driven.
• Amount of insurance coverage desired.
• Use Table 19-6 to illustrate Motor Vehicle Liability Insurance.
• Spotlight: Note that the rates are listed by:
• Students should understand that liability premiums are typically stated in a three-
number format, such as: 10/20/10, with the numbers given in thousands of dollars.
• The first two numbers, 10/20, refer to the bodily injury portion and means the
• Use Table 19-7 to illustrate Motor Vehicle Collision and Comprehensive Rates.
• Spotlight: Note that these rates are listed according to:
• Model class (type of vehicle – compact, luxury, truck, or van)
• Be sure students understand rating factors, multiples of base rates used to adjust
premiums up or down, depending on the amount of risk involved in the coverage.
• Point out that students with good grades, such as over a 3.0 out of 4.0 GPA,
Questions Students Always Ask
“Do I need life insurance?”
• If you are single with no dependents and enough assets to cover your debts plus
burial expenses, then you don’t need life insurance.
“Why put all that money into term insurance if I don’t get anything back at the end?
• When you buy car insurance, do you expect to get something back at the end?
“Which is better, term or cash value insurance?”
• It depends. Are you disciplined enough to buy the cheaper term insurance and
invest what you save on premiums in a tax-deferred or tax-exempt investment?
“How much vehicle insurance do I need? Am I ok if I get the minimum that my State
requires?”
• Legally, you’re ok, but financially you might be in a bind if you are insured for
only the minimum state requirements. Legal liability can easily exceed those
“How big a deductible should I get?”
• Choosing the amount of the deductible involves a trade-off; the higher the
“What if I can’t get vehicle insurance?”
• If you are not sufficiently wealthy to self-insure under your state’s laws, then you
“Why do I need uninsured motorist coverage if my state requires car insurance?”
• Because some people break the law. Uninsured motorist coverage is extremely