one in ____ dollars flowing in the US economy is connected to the insurance industy. 

over ___ of Americans own stocks through mutual funds and their retirement plans

12

1/2

• a probability or risk can be established
• a financial loss can be determined
• the event will NOT affect everyone insured 

policies:

premiums:

exclusions:

deductibles:

exposures:

perils:

1. Auto insurance
2. Credit insurance
3. homeowners insurance and property insurance
4. health insurance
5. disability income insurance
6. life insurance
7. long-term care insurance

• many states but not all require auto insurance and most require liability coverage
• liability insurance is discribes by 3 numbers  (25/50/25) which would mean that the policy would pay a max of $25,000 for bodily inujury to one person, $50,000 to more then one person, and $25000 max for property damage in one accident. 
• may want to have uninsured motorist coverage
• progressive is the nations 3rd largest auto insurer
• 40% of repair jobs found on the general mkt involve some type of fraud. 
• other types of auto insurane: collision which pays for repair or replacement of car after accident (most people get rid of this after 10 yrs cause car isnt worth much) 
• comprehensive: pays for losses from incidents other then collision such as fire, theft, flood
• towing, medical payments 

• driving history
• type of vehicle 
• gender and age (males under 25 is the highest)
• territory (urban vs rural) 

• helps to repay or rebuild your home and to replace personal possessions lost to theft, fire, storm, or other disasters 
• property insurance pays for losses to homes and personal injury
• liability insurance pays for losses from negligence resulting in bodily injurt or property damage to others for which the policyholder is responsible

an addition to an insurance policy

--are going to be higher in certain regions of the country: (higher in FL then in UT)

• health insurance is most costly and the most vital 

How fast are health care costs increasing compared to the general inflation rate?

How fast is the cost of prescription drugs rising per year?

What is the annual percent increase in health care costs to employers today? what was it in 2000?

What percentage do health care costs make up the typical household budget?

How many americans use the internet as their primary source of health care info?

How many americans has either Medicare or Medicaid?

20% faster, 

20%

2000: 12% Today: over 20%

5.3%

52 million

1 out of 5 has either medicare or medicaid

Medicaid

Medicare

Medicare Part D

Medicaid: the federal health care program for low-income people who qualify

Medicare: federal health insurance program for people age 65 or older or for many people with disabilities

Medicare Part D: reducess the cost of brand name prescriptions drugs for those who qualify

• pays benefits to policyholders when they are unable to work. 
• ** Clark Howard who is a consumer advocate says that workers compensation only covers an employee if he/she becomes disabled from an injury or an illness while on the job
• pays for 60-80% of their paycheck
• most people get it through their employer

• purpose of life insurance is to replace lost income for anyone who depends on you for financial support
• parents usually need it the most if they have young children
• 70% of adults have life insurance policies. 
• Two types: term and whole
• Term: for a fixed time period such as 5-10 years and has to be renewed at the end. does not have a savings feature and is recommended most by financial planners bc it provides more protection
• whole: has a savings feature but with a very low interest rate. 

This insurance provides benefits for nursing home care or in-home care not covered by medicare. 

• about 40% of the people receiving LTC are under the age of 65. 
• today nursing home care avgs to about $200 a day
• some medicaid covers LTC. 
• women outlive men

• agents who are not with established companies and who are engaging in illegal activities 

1. overstating the value of a claim to an insurance agency
2. submitting claims for items that arent actually lost or damaged
3. submitting claims for personal injuries that did not occur
4. application fraud

• insurance is regulate at the state level
• each state has an insurance commissioner
• The National Association of Insurance Commissioners and the states have enacted rules and guidelines which sometimes have served to help consumers 

• is the commitment of funds  to long-term growth and the purpose of investing is to build and maintain wealth. 
• should be based on goals
• through stocks, bonds, mutual funds, or real-estate

putting your money into an asset that the future value or return relies on supply and demand

ex: collectors items, baseball cards 

Guiding Principles

• with stocks , much or all of the principal can be lost. 
• stick with your investment through volatility
• some investments provide interest or dividends
• investors should use diversification

risk

return

risk: probability of loss

return: amount earned on investment

**investments that have the highest rate of return are typically those with the highest risk

systematic risk: the risk associated with all securities and can not be reduced through diversification (ex: interest rate)

Unsystematic risk: risks associated with one particular investment and can be reduced through diversification (ex: financial risk) --you have control over these risks

**diversification refers to the # of different types of securities owned.  it reduces risk. 

nominal vs real rates of return

Premiums

nominal (quoted) rate: the rate of return WITHOUT adjusting for inflation

real rate: the inflation adjusted rate of return

premiums: addtl returns demanded by investors for taking on addtl risk 

1. Stocks: consumer has part ownership in a corporation
2. bonds: consumer is lending money to the company or govt selling the bond
3. Mutual Funds: groups of investments where consumers buy into the fund which in turn invests in may different types of stocks and/or bonds

• more than half americans own stock 
• common stock: refers to shares or units of ownership in a public corporation such as Apple or Coca-cola. 
• socially responsible investing: investing in stocks that they only believe in. 
• Stock Market Crash of 1929: Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.

• similar to an IOU, the issuer promises to pay you at a specified rate of interest during the life of the bonds and to repay the face value of the bond (principal) when it "matures" or comes due. 
• considered safer then stocks
• govt bonds are more secure then corporate bonds

• enables consumers to diversify ones investments
• these funds are LIQUID ( meaning that the consumer can sell shares of the mutual fund and obtain money easily though there may be a fee to pay)
• over 100 million americans own mutual funds
• come in different types such as growth, international, and value. 
• not insured by the FDIC

• real estate investments are not liquid, may take a while to sell a property. 
• about 67% of american households own their own homes (direct investments)
• indirect investments: investing with a group of investors to own real estate investment trusts (REITs) which is apartment buildings or office buildings. 
• REITs can be traded on major stock exchange 

• primarily produced in Russia and South Africa 
• price usually rises when inflation rises and falls when infaltions falls 
• over 1/3 of americans collect something 

• also called con artists  which prey on the same emotions such as fear, greed, excitement, and even though they cheat people out of their money they often advertise in legitimate sources such as the campus newspaper and USA today. 

1. pyramids: schemes that require money investments are outlawed in most states
2. ponzi schemes: kind of a pyramid scheme promising high returns in a short period of time. Early investors are paid with money received from later investors. named after charles Ponzi

Bernard Lawrence "Bernie" Madoff (pronounced /ˈmeɪdɒf/;^[3] born April 29, 1938) is an American former stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi schemein history.

In March 2009, Madoff pleaded guilty to 11 federal felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1970s,^[4] and those charged with recovering the missing money believe the investment operation may never have been legitimate.^[5] The amount missing from client accounts, including fabricated gains, was almost$65 billion.^[6] The court-appointed trustee estimated actual losses to investors of $18 billion.^[5] On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.^[7][8]