BBI2O Ms.

Tennant

Insurance
There are many types of insurance that people might buy but the 3 most
common ones are:
 Vehicle (Car, truck, motorcycle, boat)
 Property (house, cottage)
 Life

Insurance is protection against possible loss. Things like damage, theft, or death.

People buy an insurance policy in order to protect things. A policy is a written contract
between you and the insurance company that outlines what is covered.
The concept of insurance is based on shared risk.

Basically, people pay into a pool of money and the money is used if there is a “claim”.

What is a “claim”?
A claim is when you ask the insurance company to pay for something.
Examples:
 If your house burns down, you will submit an insurance claim and you will be paid based
on the amount of insurance you have.
 If you get into a car accident, you make a claim and your insurance pays to have the car
fixed or replaced.
 If you die, your life insurance pays the “beneficiary”. The beneficiary is the person you
designate to get your life insurance. This will usually be your spouse if you are married
or your children if you don’t have a spouse.

How do insurance companies make money?

There is a lot more money paid into the “pool” than is paid out. Most people go their whole life
without making an insurance claim. For example, most people’s houses don’t burn down. As a
result, insurance companies make a lot of profit.
Now you are probably saying, “What a rip off. I have to pay all this money into the pool and
may never get anything out.” Most people feel that way but remember, insurance is protection
against possible loss. You can’t predict the future, so you have insurance just in case something
happens.
It is illegal to drive in Canada without car insurance. This law is more to protect others than the
driver. If you hit someone else and damage their car or cause bodily injury, who will pay if you
don’t have insurance? That’s why every car must be insured.
If you have a mortgage on your house (a mortgage is money loaned for a house – we will talk
about this more later) the lending company, usually a bank, will make you have house insurance.
Why?
When you have a mortgage, the bank has loaned you that money based on the fact that they can
take your house and sell it if you don’t pay back the loan. If your house burns down, the bank
wants to make sure that they will still get their money.

How much will you pay for insurance?

Insurance “premiums” are the amount you pay per year for the insurance policy. There are
certain things that will make the premiums higher (more expensive) or lower (cheaper).
Don’t forget – insurance is based on shared risk. Therefore, generally speaking, the more risk =
the higher premiums (more expensive).
Let’s look at some things that might make your insurance premiums lower (cheaper) = lower
risk or more expensive = higher risk.

Things that could affect house insurance premiums:

 Age of the house – if the house is newer your premiums will be
lower because you are less likely to have to repair things and
damage is less likely (ex: shingles blowing off the roof in the
wind)

 Value of the house – the more expensive the house is the more it will cost to replace it
therefore the premiums would be higher

 Exterior of the house – if your house is brick, your premiums will be lower because
brick is more durable and lasts longer than wood or vinyl siding.

 Roof - if your house has a tin or metal roof your premiums will be lower because it lasts
longer than asphalt shingles

 Distance to the fire department – if you live in the country and you are close to the fire
department, your premiums will be lower

 Type of heating – if you have a wood burning stove your premiums will be higher
because there is more risk of fire

 How many claims you have made in the past – if you haven’t made any claims your
premiums will be lower. You are penalized if you make claims (again, doesn’t seem fair

since you paid into the pool of money, but that’s the way it is☹)

 Amount of deductible – your deductible is the amount that you must pay before the
insurance kicks in. For example, your roof blew off and you were making an insurance
claim. It is going to cost $5,000 to fix it. If you had a $500 deductible on your house
insurance policy then you would pay the first $500 and the insurance company would pay
the rest of the $5,000 ($4,500). Having a higher deductible will lower your premiums.

 Geographic Location – if you live in an area that is prone to natural disasters (ex:
California and earthquakes), you will pay higher premiums
Things that could affect car insurance premiums:
 Type of vehicle – sports cars and luxury cars are more
expensive to repair so your premiums would be
higher.

 Distance you drive to work – the farther you drive to

work every day the more likely it is you will get into an accident so your premiums will
be higher.

 Years of driving experience – the longer you have been driving the lower your
premiums will be. It is assumed that more experienced drivers will be safer drivers.

 Gender – males are considered to be more reckless and therefore males will typically pay
higher premiums, especially when they are younger (under 25). Married males pay less

than single males (married males are supposed to be more responsible😊).

 Where you live – insurance companies have mapped out the province in zones. Some
zones statistically have more accidents and therefore premiums would be higher if you
lived there (for example Toronto – more people = more cars = more possibility for
accidents)

 Driving record – if you have speeding ticket or distracted driving charges, you will be
considered a high risk and your premiums will be higher. If you have a DUI (Driving
Under the Influence) charge your insurance will be astronomically high or you won’t be
able to get insurance at all.
An interesting development within the car insurance industry is that some
companies are now offering a discount to customers who agree to use an App that
tracks your driving habits. For example, the App reports to the insurance
company if you are speeding.
 Amount of deductible – same idea as house insurance explained above.

Things that could affect your life insurance premiums:

 Age – obviously if you are younger you are less likely to die
as soon so your premiums would be lower. Sometimes older
people can’t even get life insurance.

 Health – if you have a health condition your premiums will

be higher. For example, diabetes, high blood pressure,
diagnosed with cancer

 Lifestyle – if you are a smoker, a heavy drinker, a drug user, or a skydiver, your
premiums will be higher.

 Occupation – if you have a risky job your premiums would be higher. For example,
fireman or police.
  How much the policy is worth – for example a policy worth $1 million is going to have
higher premiums than a policy worth $100,000

Insurance Vocabulary Review

Insurance
 Protection against possible lost. A pool of money that people pay into. Based on shared
risk.
Policy
 This is the written contract between you and the insurance company that outlines what is
covered and what is not. Read it carefully!
Premiums
 The amount that you will pay for insurance. In general, higher risk = higher premiums.
Claim
 Asking the insurance company to pay for damage.
Beneficiary
 In a life insurance policy, this is the person that the money goes to when you die.
Deductible
 How much money you are responsible to pay before the insurance company kicks in. For
example, if you have a $500 deductible on your policy, you must pay the first $500 of the
repair bill.

Kahoot: click on the link below and play the Kahoot. Please log in with your first and last
name.
https://kahoot.it/challenge/06085673?challenge-id=390e18d9-6430-4764-b2fb-
285cab75c70d_1667827514581

What was your score? / 16

Activity #1: Rank the 3 scenarios on which would have the lowest, highest, and middle for
house insurance premiums. (Write lowest, highest, or middles on the line.) (9 points)

Rank
Scenario #1
10-year-old home, vinyl siding
Lyn – 2 km from the fire department
Asphalt shingle roof ____________________
Value of house is $500,000
Propane heating with a wood stove in the basement
The owner has made one insurance claim 5 years ago
$500 deductible

Scenario #2
100-year-old, red brick home
In the country on 200 acres, 25 kms from the fire department
Value is of house is $800,000 ____________________
Asphalt shingle roof
Wood burning furnace
The owner has made 3 insurance claims over the past 10 years
$500 deductible

Scenario #3
New brick home
In Brockville
Tin roof ____________________
Value of house is $300,000
Natural gas heating
The owner has never made an insurance claim before
$1,000 deductible
Activity #2: Rank the 3 scenarios on which would have the lowest, highest, and middle for
car insurance premiums. (Write lowest, highest, or middles on the line.) (9 points)

Rank
Scenario #1
Vehicle is a grey, 2013 Hyundai Accent
Married female, 51 years old
Has been driving for 35 years ______________________
Perfect driving record – no speeding tickets
Drives 50 km to and from work each day
$1,000 deductible
No insurance claims

Scenario #2
Vehicle is a red, 2020 Ford Mustang
Single male, 24 years old
Has had G license for 3 years _______________________
Drives 100 km to and from work each day
Just got caught going 180 km on the 401
$500 deductible

Scenario #3
Vehicle is a black, 2017 Nissan Frontier 4 x 4 truck
Married Male, 35 years old
Has been driving for 17 years _______________________
Has one speeding ticket – going 80 km in a 50 km zone
Drives 80 km to and from work each day
Has one insurance claim for a fender bender 2 years ago
$500 deductible
Activity #3: Rank the 3 scenarios on which would have the lowest, highest, and middle for
life insurance premiums. (Write lowest, highest, or middles on the line.) (9 points)
Rank
Scenario #1
28-year-old male, Barney
No health issues ________________________
Doesn’t drink or smoke
Hobbies include scuba diving, hang gliding, and alligator wrestling
Occupation: Librarian
Policy Value: $500,000

Scenario #2
50-year-old female, Betty
No health issues ________________________
Social drinker, non-smoker
Occupation: School Teacher
Policy Value: $100,000

Scenario #3
75-year-old male, Fred
High blood pressure ________________________
Social drinker, smokes 1 ½ pack of cigarettes per day
Occupation: Retired
Policy Value: $1 million