What is insurance

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					Risk Management and Insurance
What is risk?

   The chance of loss from some type of
Risk as a teenager

   Getting hurt in a car accident or while riding
    their bike
   Having their bike, phone, backpack, etc. stole
   Getting jumped by a gang
Risk as an adult

   Getting a deadly disease
   Getting laid off from a job
   Having a fire or flood ruin their home
   Having a spouse die or get very ill.
        How do you manage the risk?

      Avoid the risk.
        –   For example, don’t ride in a car if the driver has been drinking
      Reduce the risk.
        –   Since many risks cannot be avoided altogether, the more practical choice is
            trying to reduce the risk. Risk-reducing behaviors could include always wearing
            your seatbelt, locking up your bike, or avoiding walking around dangerous parts
            of the neighborhood after midnight.
      Accept the risk.
        –   This is good if the likelihood of danger or loss is very small or the loss itself will
            not have major consequences in your life. For example, it might be very
            inconvenient to go without a backpack, so you use one even though there is
            some chance of it being stolen.
      Share the risk.
        –   This is what insurance and investments do, especially insurance. You pay the
            insurance companies a sum of money a little, and if disaster occurs, they help
            you handle the loss.

Risk management – how you deal with the potential of personal or financial loss.

   Insurance
What is insurance?

   Insurance is protection against large-scale
    financial loss

    –   For a relatively small payment called a premium,
        you’re protected against the chance of a large
        loss or financial setback
What is Insurance?

Types of Insurance

   Auto Insurance
   Homeowners/Condominium Insurance
   Renters Insurance
   Life Insurance Insurance
   Health Insurance
   Supplemental Insurance – “Umbrella Policy”
   Other Insurances:
    –   Disability Insurance
    –   Long term care Insurance
    –   Others
Homeowners and Condominium

   Protects a dwelling, personal possessions and
    personal liability.
   Typically protects against fire, theft, collapse,
    explosion, falling objects, and other perils. Coverage
    for additional perils, such as earthquakes, can be
    added, if needed.
   Condominium unit owners insurance is similar, but
    specifically designed for a unit in a building that is
    owned and insured by a Condominium Association
    or similar organization.
Renter’s Insurance

   For people who do not own a home but instead rent
    a house or an apartment.
   Protects personal property against fire, theft,
    vandalism, and other perils similar to homeowner’s
   Like the Homeowners policy, it also protects the
    renter if they are held legally liable for bodily injury or
    damage to the property of another person.
Life Insurance

   Protect families when a spouse or parent
   Term life insurance provides death protection
    for a stated time period (term), generally from
    5 to 30 years.
   Whole life insurance provides permanent
    coverage for as long as the insured lives and
    continues to make timely premium payments.
Health Insurance

    Covers a variety of medical expenses for individuals
    and family members.
   Employers often offer health insurance as a benefit,
    paying the entire cost or asking the employee to pay
    part of the monthly fee.
   Health coverage can include doctor visits, tests and
    hospital stays. Coverage varies. Dental and eye care
    insurance may also be offered.

   For “special” or expensive items – jewelry,
    collections, musical instruments, etc.
   Umbrella Policy – a policy that is in addition
    to all of your other policies. Covers you for
    liability – damage you cause to others
Auto Insurance

   Liability coverage – for damage you cause or
    are liable for
   Collision coverage – for damage to your
    vehicle in an accident
   Comprehensive coverage – for damage to
    your vehicle not occurring in an accident
   PIP – Personal Injury Protection for injuries in
    an auto accident
   Other coverages – Rental and towing
    Supplemental Insurance

    Policies that provide additional coverage not included in
    standard policies.
   Examples:
    –   Personal Articles, for protection of valuables not fully covered
        under a standard home or renters policy.
            collections
    –   Personal Liability Umbrella, to provide additional liability
        protection over and above homeowner, automobile, boat, and
        other standard policies (for example, if someone is injured in
        your home or in an auto accident).
    –   Flood, for flood damage.

   6 Corner Game

   What type of insurance is needed in each
Insurance Terms

   The Insured: An individual covered by an
    insurance policy

   The Insurer: The company that provides
    insurance coverage

   Policyholder: The owner of an insurance
Insurance Terms

   Policy: A contract of insurance, describing
    the term, coverage, premiums and

   Premium: The payment you make to an
    insurance company in exchange for its
    promise of protection and help
    –   Can be paid monthly, quarterly, semi annually or
    How does insurance work, exactly?

• You recognize your risk     Continue paying
• You choose type of           your premium
  insurance for your risk
• Choose an insurance             Report a claim
                            Insurer determines if there
• Choose best type of               is coverage
                            Pay your deductible and/or
• Pay premium to                      copay
  purchase your
  insurance                   Receive a payment for
                                    your loss
Deductibles and Copays

   Deductible – The amount the insured pays
    on a claim before the insurer pays

   Copay – The percentage of your loss that
    you pay. (The insurer pays the other
How much is your loss?

Replacement Cost – the cost to replace the item
  You can pay a higher premium to be paid the replacement cost . Choose
  a policy with guaranteed replacement cost

Depreciation - decrease in value due to use,
 wear and tear, decay, etc.
Actual Cash Value – the Replacement Cost of
 the object, less Depreciation

       Actual Cash Value vs. Replacement Cost
The Math: Deductibles

 Amount of your loss:                                  $3,000
 (After depreciation, Actual Cash value)

 Less your deductible:                                  - $500
 (What the insured pays “out of pocket”)

 Payment from the insurer:                               2,500

Sometimes there is a “limit” or a maximum that your insurer will pay
The Math: Co-Insurance
Health insurance may have co-insurance

Amount of your loss:                                       $3,000
(After depreciation, Actual Cash value)

Less your deductible:                                      - $500
(What the insured pays “out of pocket”)

Subtotal:                                                   2,500
80/20 Co-Insurance:
(80% is paid by the insurer, 20% is paid by the insured)

Payment from the insured (20%)                                500
Payment from the insurer (80%)                              2,000
Sometimes there is a “limit” or a maximum that your insurer will pay

   Complete the worksheet to calculate how
    much the insured will receive in various

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