Chapter 20 - Life, fire, and auto insurance. In this chapter, the learning objectives are: Explain the types of life insurance; calculate life insurance premiums; explain and calculate cash value and other nonforfeiture options; explain 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.
Trang 1Life, Fire, and Auto Insurance
Trang 21 Explain the types of life insurance;
calculate life insurance premiums
other nonforfeiture options
Life, Fire, and Auto Insurance
#20
Learning Unit Objectives
Life Insurance
LU20.1
Trang 31 Explain and calculate premiums for fire
insurance of buildings and their contents
insurance company cancel fire insurance
coinsurance is not met
Life, Fire, and Auto Insurance
#20
Learning Unit Objectives
Fire Insurance
LU20.2
Trang 41 Explain and calculate the cost of auto
insurance
Life, Fire, and Auto Insurance
#20
Learning Unit Objectives
Auto Insurance
LU20.3
Trang 5Face amount The amount received (proceeds) upon the death of the insured
Insured The policyholder
receiving coverage
Premium Periodic payments you make for the cost of the insurance
(determined by actuaries)
Life Insurance
Beneficiary The person receiving
the insurance proceeds at the death
of the insured
Trang 6$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 201 (for females
subtract 3 years). This gives the premium cost
per $1,000
Steps in Calculating Annual Life Insurance Premiums
Trang 7Five-year Straight Twenty- Twenty-year Age term Age life Age payment life Age endowment
20 1.85 20 5.90 20 8.28 20 13.85
21 1.85 21 6.13 21 8.61 21 14.35
22 1.85 22 6.35 22 8.91 22 14.92
23 1.85 23 6.60 23 9.23 23 15.54
24 1.85 24 6.85 24 9.56 24 16.05
25 1.85 25 7.13 25 9.91 25 17.55
26 1.85 26 7.43 26 10.29 26 17.66
27 1.86 27 7.75 27 10.70 27 18.33
28 1.86 28 8.08 28 11.12 28 19.12
29 1.87 29 8.46 29 11.58 29 20.00
30 1.87 30 8.85 30 12.05 30 20.90
31 1.87 31 9.27 31 12.57 31 21.88
32 1.88 32 9.71 32 13.10 32 22.89
33 1.95 33 10.20 33 13.67 33 23.98
34 2.08 34 10.71 34 14.28 34 25.13
35 2.23 35 11.26 35 14.92 35 26.35
36 2.44 36 11.84 36 15.60 36 27.64
37 2.67 37 12.46 37 16.30 37 28.97
38 2.95 38 13.12 38 17.04 38 30.38
39 3.24 39 13.81 39 17.81 39 31.84
40 3.52 40 14.54 40 18.61 40 33.36
Trang 8Straight 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 = $2,908
Term Insurance Pays face amount only if you die within the period of the the insurance.
The cheapest coverage. $200 x $3.52 = $704
Calculating Insurance Premiums
Bob Brady, age 40, wants to purchase a 5 year $200,000 insurance policy. Determine her annual premium
$200,000 (Coverage) = 200 1,000 Step 1
Step 2
Step 2
Trang 9Universal 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
TwentyYear 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 = $6,672
Calculating Insurance Premiums
TwentyPayment Life Similar to straight life but insurer pays premiums for only the first 20 years. $200 x $18.61 = $3,722 Step 2
Step 2
Trang 10The 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 paidup insurance
a. 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 insurance
a. 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
Trang 11$1,000 Face Value
Years
insurance Amount of Amount of Amount of
policy in Cash paid-up Cash paid-up Cash paid-up
force value Insurance Years Day value insurance Years Day value insurance Years Day
5 29 86 9 91 71 220 19 190 92 229 23 140
10 96 259 18 76 186 521 28 195 319 520 30 160
15 148 371 20 165 317 781 32 176 619 790 35 300
20 265 550 21 300 475 1,000 1,000 1,000
Straight life 20-payment life 20-year endowment
Extended
Extended term term
Extended term
Trang 12Assume Bob Brady purchased a 20payment 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
$1,000
3. Extended term insurance
Continue this $200,000 policy
for 20 years and 165 days
2. Reduce paidup insurance
$200,000 = 200 x $371 = $74,200 $1,000
Trang 13Table 20.3 Fire insurance rates per $100 of coverage
Classification of building Class A Class B Rating
of area Building Contents Building Contents
1 .28 .35 .41 .54
2 .33 .47 .50 .60
3 .41 .50 .61 .65
Trang 14Premium = Insured value x Rate
$100 Calculate 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
$100
Premium = $80,000 = 800 x $.60 = $480
$100 Total Premium = $950 + 480 = 1,430
Trang 15and cancellation table
Time 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%
20 15 7 67
25 17 8 74
Months 1 19 9 81
3 35 11 96
4 44 12 100
Trang 16Step 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 Clause
The insured and the insurer share the risk. Encourages
property owners to purchase adequate coverage
Trang 17$80,000
Coinsurance
Suppose 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 .80 Coverage
Loss
Trang 18Liability 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
Trang 19Calculate 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, 250/500
2. Property damage 5M
3. Collision, $200 deductible
4 Comprehensive, $200
deductible
5 Substitute transportation
6 Towing & Labor
Trang 20Calculate 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, 250/500
2. Property damage 5M
3. Collision, $200 deductible
4 Comprehensive, $200
deductible
5 Substitute transportation
6 Towing & Labor
Compulsory
Bodily $ 98 (Table 20.5) Property $160 (Table 20.5)
Options
Bodily $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 16
Towing & Labor 4 Total annual premium $921