Insurance

Standard: Protecting and Insuring • People make choices to protect themselves from the financial

risk of lost income, assets, health, or identity. They can choose to accept risk, reduce risk, or transfer the risk to others. Insurance allows people to transfer risk by paying a fee now to avoid the possibility of a larger loss later. The price of insurance is influenced by an individual’s behavior.

How to Manage Risk• Risk is the possibility of financial loss.• What risks do we face daily?

Potential Risks

Potential Risks

Potential Risks

Potential Risks

Questions:

1. What are the costs of insurance?A. Payment of premiums

2. If you pay $1000 for insurance premiums, you lose the opportunity to invest these funds and earn what?

A. Interest rate or rate of return

3. If you could earn a 10% rate of return on your invested funds, then what would be the total cost of buying $1000 worth of insurance?

A. $1100= $1000 (1+.10)

What can be done?• Assume the risk• Live with it, save for it• Self - insure

• Reduce the risk• Avoid risky circumstances• Reduce harm if risk occurs

• Transfer the risk • Insurance

Groups• Please get into six to eight groups and refer to Activity 10-5. • Choosing coverage: • You are to determine what level of coverage you would like

from each category.• Keep in mind that all states require basic liability coverage,

so everyone must choose at least option #3 when it comes to Automobile Insurance.

• Compare risks and premiums, and be sure to buy enough coverage to protect yourselves from losses, but not so much that you are spending far more on insurance than its worth.

• The maximum that you can spend annually on premiums is $4000.

• With respect to disability insurance, there is a maximum coverage of four units ($2000/month) based on an annual income of $24,00/ year.

Choosing Insurance

Choosing Insurance

Filling out your activity sheet

Now: Life Happens!• Each group will be drawn a card…• An event will occur, depending on the card, to each group…

Risks

Risks

We will do four years…• Write in losses with insurance and losses without insurance…• After four years total…

Debrief• Who wishes they bought more insurance?• Who wishes they bought less insurance?• Notes:• The insurance is priced close to actuarially fair plus small profit.• Lesson 10 in Financial Fitness is simpler and does not look at

actuarially fair issue…