1. Chapter -5
Topics Covered
 Automobile insurance
 Homeowner Insurance
 Life Insurance and Annuities

2. Financial Responsibility Law
A financial responsibility law says you
must pay for any damage or injury you
cause in an accident either with insurance,
with savings, or by selling property.

3. Compulsory Insurance Law
A compulsory insurance law legally requires
drivers to have a minimum amount of car
insurance.
If you can’t show proof of insurance, you can
have your license or registration taken away
from you.

4. Basics of Automobile Insurance
Insurance is paid protection against
losses due to injury or property damage.
To get insurance, you have to purchase a
contract called a policy from an insurance
company.

5. Basics of Automobile Insurance
The company that issues the policy is
called the insurer.
The buyer of the policy is called the
policyholder. Or insured
The insurance contract always between
two parties namely; “Insurer and Insured”

6. Basics of Automobile Insurance
Liability insurance protects you from
claims of bodily injury or property
damage to others in case you’re held
responsible for an accident.

7. Bodily Injury Liability
Bodily injury liability insurance covers
injuries to someone else that you are held
responsible for.
RIDERS- Add extra risk coverage/
protection

8. Property Damage Liability
Property damage liability insurance covers
damage to another person’s vehicle or
other property that you are held
responsible for.
It also covers damage to property, such as road
side trees or street signs (Public Property).

9. Collision Insurance
Collision insurance covers damages to
your own vehicle when you are held
responsible.
RIDER? Disability of driver

10. Comprehensive Coverage
Comprehensive insurance covers
damage to a your vehicle caused by
things other than a car accident.
Like WHAT?

11. Comprehensive Coverage
Comprehensive insurance covers
losses from falling objects, theft, flood
damage, vandalism, and other causes.
The premium of such insurance is
high/increased

12. Collision/Comprehensive
The maximum amount covered is
based on the actual cash value of
your vehicle, which is the value of the
car when it’s new minus depreciation.
Depreciation is the decline in value of
a vehicle because of use.

13. Medical Payments Coverage
Medical payments coverage is also
called personal injury protection.
It covers injuries to you and anyone
else in your car when you are held
responsible.

14. Uninsured Motorist Protection
Uninsured motorist coverage protects
you from people who can’t pay
insurance claims.
Most states require this coverage.

15. Deductible
A deductible is an amount in
damages a policyholder must pay
before the insurance company pays
anything.

16. The Homeowner’s Policy
Many insurance companies offer a
combination policy with different kinds
of home protection called a
homeowner’s policy.

17. The Homeowner’s Policy
The eleven perils are the most
common causes of property damage
or loss.

18. The Homeowner’s Policy
The eleven perils include:
• Fire
• Smoke
• Windstorms
• Vehicles
• Riots
• Theft
• Vandalism
• Breaking glass

19. The Homeowner’s Policy
The six standard homeowner (HO)
policies, or forms are:
• HO-1 Basic Form
• HO-2 Broad Form
• HO-3 Special Form
continued

20. The Homeowner’s Policy
• HO-4 Renter’s Form
• HO-5 Comprehensive Form, or All-
Risks Policy
• HO-6 Condominium Owner’s Form

21. Basic Coverage
HO-1, the basic form, is the least
expensive policy, but provides less
coverage than some of the other
forms.

22. Basic Coverage
HO-1 provides:
• Protection of home and property
against the eleven perils
• Liability protection for the
homeowner if someone is injured on
the insured property
continued

23. Basic Coverage
• Additional living expenses if you are
temporarily displaced because of
damage to your home

24. Additional Coverage
HO-2, the broad form, adds more
coverage to the HO-1.
This policy also covers damage from
falling objects, collapse of a building,
ice and snow, steam, water, and
electrical systems.

25. Additional Coverage
HO-3, the special form, provides
maximum protection for the house
itself, with less coverage for contents
or personal property.

26. Additional Coverage
HO-4, the renter’s form, covers the
personal property of the renter and
includes additional living expenses
coverage.

27. Additional Coverage
HO-5, the all-risks policy, provides the
most comprehensive coverage.
It insures a building and its contents
with maximum coverage.

28. Additional Coverage
HO-6 , the condominium owners form,
covers personal property and anything
else inside the unit.
The building itself is covered under a
separate policy.

29. Amount of Insurance
For homeowners, insurance companies
recommend that you insure your home
for 80 percent of its market value.

30. Location
The location of a home affects the cost
of your insurance.
If you live in high-crime area or an
area with no fire department, your
premium will be higher.

31. Preventive Measures
You can get discounts on your
insurance rates by taking preventive
measures to protect your property.

32. Life Assurance
 1% of Saudi
adults have life assurance.
 Life insurance provides
money for family members or dependents
when a wage earner dies.( breadwinner)
 Dependent is a person who relies on someone
else financially.

33. Difference between Insurance &
Assurance
 Insurance
 Protection against a loss you hope will not
happen.
E.g. car accident
 Assurance
 Protection against a loss you know will
happen. E.g. Death
death

34. Life Assurance Terminology
 Contract – policy which states the amount
to be paid to beneficiary upon death of
insured.
 Beneficiary –recipient of policy proceeds if
the insured person dies.

35. Who Needs Life Assurance?
Not necessary if a person is single
with no dependents.
Necessary for people who have a
dependent spouse, dependent
children, an aging or disabled
dependent relative, or business
owners.

36. The Principle of Life Insurance
 Mortality tables provide
odds on your dying, based
on your age and sex
 Your premium is based on
the projections for the
payouts for persons who
die

37. LIFE ANNUITY
An annuity is a contract between you and
an insurance company to cover specific
goals, such as principal protection,
lifetime income, legacy planning or long-
term care costs.
Life annuities may be sold in exchange for
the immediate payment of a lump sum
(single-payment annuity) or a series of
regular payments (flexible
payment annuity), prior to the onset of the
annuity.

38. Financial Planning with Annuities
 What is an annuity?
 a contract where you pay money in, and at
a certain date get regular payments back
during your lifetime
 Why do people buy annuities?
 to supplement retirement income and to
shelter income from taxes
 How are annuities taxed?
 income deducted and interest earned is not
taxed until you draw the money out

39. How does an annuity work?
 An annuity works by transferring risk from
the owner, called the annuitant, to the
insurance company. Like other types of
insurance, you pay the annuity company
premiums to bear this risk. Premiums can
be a single lump sum or a series of
payments, depending on the type
of annuity.

40. Annuity is a Good Investment?
 There is one thing an annuity does well,
which is to provide a hedge against
longevity risk (the risk of living far longer
than you thought you would). If you are
buying it for that reason, an annuity can
be a good investment.