The Three Little Pigs and Insurance

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The Three Little Pigs and Insurance

• a.k.a
• Are You Prepared for Catastrophe?

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• First Little Pig
• Insured straw house for its full value in
  200410,000.
• Also insured his goods and furnishings for
  1,000

Sam Slick, ACME Insurance Agent
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Mr. Pig, I have some bad news for you!
Unfortunately, to rebuild a straw house in 2008
costs 12,000!
To replace all your goods and furnishings today
will cost 2, 000!
If the first little pig is paid the total value
of his two insurance polices, how much additional
money must he obtain in order to restore him to
his condition before the big bad wolf blowout?
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Additional needed!
Money need to rebuild straw house
12,000 - Money from policy coverage
10,000
Additional amount
needed to rebuild 2,000
Seems that way, Mr. Pig, but you will have to
find an extra 2000 to rebuild the same house you
had!
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And Mr. Pig, I have further bad news for you!
If you wish to replace your goods and
furnishings, it will cost you 2000 however,
your policy only covers 1,000 of the cost of
replacement.
How much extra money will I need to establish my
home again as it was?
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Additional needed for
furnishings!

• Money needed to replace all furnishings
  2,000
• Money obtained from contents policy
  1,000
• 
  
• Extra money needed to replace everything 1,000

WellstillMr. Pig, this is what you have to
consider. How much extra money do you need in
order to recreate your home with all its
furnishings and goods? Lets think about that!
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You will get a check from Sam Slick, the ACME
Insurance agent for how much?

• 10,000 for the straw house
• 1,000 for my things
• 11,000 from ACME INS Co.

Now Im rolling, but wait.
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• What is it going to cost to replace all the
  furnishings and rebuild the house?
• Cost of rebuilding house 12,000
• Cost of replacing things 2,000
• Total costs
  14,000

I got a check for 11,000 from ACMEhow can I
find out how much more money I will need to
rebuild and refurnish?
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• Thats right.
• Total rebuilding / refurnishing costs
  14,000
• minus My ACME insurance check total 11,000
• 
  
• Additional money I need
  3,000

Where am I going to get that kind of money? I
am just a poor pig! I know.I will put my money
in a savings account and go live with my brother,
the third little pig!
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Hey, Bro! Can I stay with you at your crib? I
dont have enough money to rebuild my place and
refurnish it!
Okbut you have to place your money in the bank
in a savings account until it earns enough
interest for you to rebuildyour house! Lets
figure out how long that will take. I dont want
you living with me FOREVER!
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Hmmm.the first little pig has 11,000 to place
in a savings account that earns 2 interest
annually
He needs to earn 3,000 in interest then he will
have the full 14,000 needed to rebuild and
refurnish his home..
I better look up the interest formula on the
Internet so that I can calculate how long it will
take to earn 3,000 in interest
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Found it! I think!
I PRT
I is the interest, or amount of money I need to
have enough to rebuild and refurnish my home. P
is the principalfor me, that is the money ACME
gives me that is what I have to put in the
savings account to gain interest. R is the rate
of interestusually given in percent form, but
change to a decimal to use. T is the time it
will take in years.
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So..lets figure out how long the first little
pig will have to live with the third little pig.
I 3,000 (amount he needs to have enough to
rebuild) P 11,000 (amount of his ACME
checkthis is what he will place in the savings
account) R rate of interest, 2 T time
So I have 3,000 11,000(0.02)T Wait how
did you get 0.02? Ohthats right 2 0.02
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• 3,000 11,000(0.02)T
• 3,000 220T
• 3,000/220 T
• 13.64 T

Thank goodness there is something called COMPOUND
INTEREST that we are going to learn about in the
next section!
That is 13.64 years
What might be a problem with waiting to rebuild
then refurnish the house in almost fourteen years?
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The problem is this YOU ARE NOT GOING TO STAY
WITH ME FOR OVER THIRTEEN AND A HALF YEARS
WAITING TO REBUILD YOUR HOUSE!!!
What might be another problem with the first
little pig waiting that long to have 14,000 to
rebuild and refurnish his home in 2022?
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Yes, looking into the future, I see it will cost
18,000 to rebuild the same house and over 4,000
to refurnish it.you have gained little if you
wait that long, Mr. Pig!
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I have plans for you! He he he!!!
Dont worry, little pigyou may live rent free
with me!
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JUST REMEMBER, WHEN DEALING WITH INSURANCE AND
WOLVESTHINGS MAY NOT ALWAYS BE AS THEY SEEM!!!