Risk & Protection
Insurance claims involving teens 100% higher than adults
Teen crash rates drop 40% 6 months after getting license
75% of Americans experience some form of disability this year
At work, a disabling accident occurs every 8 seconds
Risk is the chance of financial loss from perils to property or people
Insurance is a method for spreading individual risk among a large group of people to make losses more affordable to all
Important in financial planning
Common Exposures to LossCommon Exposures to Loss
UNLIMITED LOSS
Becoming sick (lost wages)
Dying prematurely (loss of income for family)
Becoming disabled (lost wages)
Insurer is a company that agrees to pay the cost of potential future losses in exchange for regular fee payments
Policy a written insurance contract
Premium is a fee paid for the insurance policy. Usually paid at regular intervals by the owner of the policy (policyholder). These are determined by actuaries.
Important to have right kind of insurance at the right time
Beware of under insured or over insured
Hazard: A condition that creates or increases the likelihood of some loss Example: lightning or
defective wiring can cause a fire
Peril: An event whose occurrence can cause a loss. Example: Fire, storm,
explosions, robbery, accident
Loss: Unexpected reduction in insured property, caused by a peril. Example: Crushed car caused
by a storm
Waste of current income
Other needs might go unmet
Insurance is not meant to enrich; only to compensate for actual losses incurred.
This principle is called indemnification.
Personal risksTake safety precautions, like wear a
helmet Avoid risky behaviors altogether
Stop hanging out with friends who smoke or drink; go do something else
Reduce/avoid property risks Install smoke detectors in your homeUse your burglar alarm
Means putting the policyholder back in the same financial condition he or she was in before the loss occurred
Probability is the mathematics of chance and the root of indemnification.
Every event can be described in terms of probability or likelihood that something will happen
Risks that can be big losses Large loss is a cost
that would create financial hardship ▪ Medical bills
Small loss is inconvenient▪ car repair
Should change with time Life insurance for married spouse & kids Disability if head of household Liability on 1st car (used)
Your ageYour age
Make of carMake of car
Marital statusMarital statusDo you take the car to work?Do you take the car to work?
If you’re a good studentIf you’re a good student
GenderGender
Where you liveWhere you live
How much How much you use the you use the
carcarCredit ratingCredit rating
Driver’s educationDriver’s education
Driving recordDriving recordType of carType of car
6-F6-F
1. Help manage financial losses2. Professional risk takers3. Spread risk among people4. Policyholders pool premium in reserves so those
suffers can be compensated5. Predictable cost for company
Might want to consider if driving older car
Deductible might be higher than insurance company will pay The cars value
Shop at least three places; compare rates and policies; ask about discounts and special rates.
Read sources of information such as Consumer Reports®.
Purchase more than one type of insurance from the same company; insure all cars with the same company.
Let’s get ready to BUNDLE!
Let’s get ready to BUNDLE!
Importance? Single greatest asset is potential earning
power
Pays income if policy holder gets sick and can’t work
Limited to 2/3 gross income
Designed to encourage return to work ASAP
Protects from losses to: House, garage, furniture, other personal
property
Cover losses due to fire, weather damage, theft, vandalism
Also pays cost of living elsewhere while home is being rebuilt or repaired
Can buy additional coverage against floods, earthquakes, jewelry, expensive paintings etc. called a rider
Never covers acts of war
Typically insure structure for 80% of its value
Renters insurance same coverage as homeowner’s policy except doesn’t cover structure just contents inside
BUY RENTERS INSURANCE
You better shop around! WHY? Because I said
so!
The way to get the best deal is to shop around the different companies. Their prices and coverage vary greatly!