INSURANCE AND RISK MANAGMENT UNIT THREE – CHAPTER 13 – LESSON ONE.
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Transcript of INSURANCE AND RISK MANAGMENT UNIT THREE – CHAPTER 13 – LESSON ONE.
WHAT IS INSURANCE?
INSURANCE is protection against possible financial loss
Insurance allows you to be prepared for unexpected property loss, illness, and injury
Insurance can grant you peace of mind and protection (financially speaking)
An INSURANCE COMPANY is a risk-sharing business that agrees to pay for losses that may happen to someone it insures
WHAT IS INSURANCE?
o A person joins the risk-sharing group by purchasing an INSURANCE POLICYo That person becomes a policy holder
o Under the policy, the policyholder agrees to pay a PREMIUM (fee) and the company agrees to take on the risk
o The protection provided by the policy is known as COVERAGE
TYPES OF RISKS
RISK is the chance of loss or injury
Insurance companies takes a risk every time they issue a policy
PERIL is anything that may possibly cause loss
HAZARD is anything that increase the likelihood of loss through peril
NEGLIGENCE is the failure to take ordinary or reasonable care to prevent accidents from happening
RISK MANAGEMENT METHODS
RISK AVOIDANCE
Most risk avoidance is practical – do not engage in risky behavior (driving in the snow, drinking, etc.)
RISK REDUCTION
When unavoidable, risk can be reduced by simply taking precautions (wearing a seatbelt, not smoking, etc)
RISK MANAGEMENT METHODS
RISK ASSUMPTION
Taking on responsibility for the negative results of a risk is known as Risk Assumption
When insurance coverage for a particular item is expensive, it may not be worth insuring (old items)
RISK SHIFTING
The most common way to deal with risk is to transfer it to the insurance company (in exchange for a fee)
DEDUCTIBLE is the set amount that the policy holder must pay per loss on an insurance policy