Insurance and financial risk

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					Insurance and Financial Risk
               Insurance
• Insurance is a way of buying peace of mind.
• If you suffer an unfortunate, unpredictable
  loss you will receive financial compensation
  from the insurer.
• This is meant to put you back in the same
  financial position you were in before the
  loss.
  How does insurance work?
• By collecting a sum of money (also known
 as a premium) from the insured person
 (also known as policyholder), the insurer
 creates a fund which is used to pay the
 losses of those policyholders who suffer
 an accident or loss.
  Insurance and financial risk
• Insurance is an important tool in lessening
  financial risk.
• If something happens – an accident or a
  loss - the insurance company provides help.
• It is important to choose the right
  insurance policy. If a specific accident or
  loss is not included in a policy, the insurer
  cannot help. This results in financial loss.
    Types of insurance

Types of insurance
               Discussion
Choose one type of insurance and state
how it can reduce financial risk.
     • Motor insurance
     • Home insurance
     • Life insurance
     • Health insurance
     • Travel insurance
Preventing or Lessening
     Financial Risk
Tick the actions which will help
     lessen financial risk:
 Make quick choices; good offers run out fast.
 Compare investment offers.
 Evaluate your investment goals.
 Invest all the money you have.
 Determine the level of risk you are willing to
  take.
 Never read contracts, just sign.
                 Answers
 Make quick choices; good offers run out fast.
 Compare investment offers.

Evaluate your investment goals.

 Invest all the money you have.
 Determine the level of risk you are willing to

  take.
 Never read contracts, just sign.
Tick the actions which will help
     lessen financial risk:
 Always read bank statements carefully.
 Diversify your savings/investment
  portfolio.
 Never contract financial services in
  foreign countries.
 Avoid insuring; it’s a waste of money.
 Save! You never know when the need for
  extra money will arise.
                Answers
 Always read bank statements carefully.

 Diversify your savings/investment

    portfolio.
   Never contract financial services in
    foreign countries.
   Avoid insuring; it’s a waste of money.

   Save! You never know when the need for
    extra money will arise.
    Preventing and lessening risk
Being responsible, aware and prepared:
• Make informed choices and compare offers.
• Evaluate your investment goals.
• Assess how much money you are able to invest.
• Determine the level of risk you are willing to take.
• Read your contracts and bank statements carefully.
• Diversify your savings/investment portfolio.
  By putting your money in different investment
  instruments you will ensure that you don’t lose it
  all at once.
• If you contract financial services in foreign
  countries, make sure you are familiar with the local
  legal system and language.
Preventing and lessening risk
Buying insurance policies
  – Insurance policies ___________________
  ________________________________________
  ________________________________________
  ________________________________________
Saving for a rainy day
- You never know when you will have a car
  accident, when someone will rob you, or
  when your partner will die. So, it is
  wise to have some money saved up to be
  able to cover these unforeseen expenses.
   Calculating financial risk
Sometimes you can prevent or lessen
financial risk by calculating financial risk.

Even though risk is always unpredictable,
some people use chance and probability to
predict risk.
      Predictable situations
Some situations are more predictable
and risk can be lessened or avoided.
For example:
• If you know that a bank is new on the market,
  even though it offers high profit, you probably
  won’t put all your savings in their accounts. You
  predict that the bank might go bankrupt and
  do not want to risk losing all your money.
     Unpredictable situations
Some situations are unpredictable and
you can only try to lower the possibility
that undesirable consequences will occur.
For example:
• You invested a large amount of your savings in a
  conservative deposit fund by a very stable
  bank that has branches all over EU. An
  unexpected/unpredictable situation occurs
  when the bank’s officials allow unwise
  investments that deeply affect the bank’s cash
  flow. You will not get any dividends this year.
   Calculating financial risk
          Be careful and try to
             calculate risk!

     Invest your money wisely and
 avoid too many unpredictable situations.

Money is important - Do not risk losing it!

                                                                   The
                                                                   End
           Reference – Insurance Guide, published by MFSA (2003)

				
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