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.

Resources for This Standard• Take Charge Today• Types of Insurance• Begin the lesson by watching a video clip relating to insurance.

Complete the “What Covers This Risk” activity to help participants differentiate between different types of insurance. Conclude the lesson by playing an interactive round of Spoons or interviewing an adult about insurance concepts. To assess knowledge, have participants complete a scenario that simulates a real-life situation.

© Take Charge Today – August 2013 – Types of Insurance – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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TYPES OF INSURANCEAdvanced Level

© Take Charge Today – August 2013 – Types of Insurance – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 - Types of Insurance – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

AN ILLUSTRATION OF HOW INSURANCE WORKS

Suppose there are 100 people in a

health insurance group

Insurance shifts the risk of big loss from the individual to the insurance company

With a 1% chance that any one of

them could get sick and require $10,000

in medical care

But, no one knows who will

get sick

If each person pays $100 into a “pool” they will

collectively have $10,000 to cover the medical

costs of the person who gets sick

So, everyone gives up $100, but nobody

loses more than $100

99 people do not collect anything, but they gain

peace of mind and important protection

against a large loss

© Take Charge Today – August 2013 – Types of Insurance – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 - Types of Insurance – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

THE BENEFITS OF INSURANCE Payments received from an

insurance policy can far exceed the premiums paid

Provides financial security and peace of mind

Why is the best outcome to have insurance but

never collect on it?

Types of Insurance

Long-term Care

Health

Disability

Life

Property & Liability

© Take Charge Today – August 2013 – Types of Insurance – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 - Types of Insurance – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

THE INSURANCE PROCESSClaim – a formal request to an insurance company asking for a payment when the policyholder has an accident, illness or injury

Deductible – the out-of-pocket money paid by the policyholder

before an insurance company will cover the remaining costs

attributed to the loss

Co-insurance – requires the insured individual to pay a fixed percentage of the loss after the deductible has

been paid

Event occurs resulting in loss

Policyholder makes claim to

insurance organization

Insurance organization

determines if event is covered by policy

If so, policyholder pays a deductible

Remaining amount owed is paid by co-

insurance (if applicable)

© Take Charge Today – August 2013 – Types of Insurance – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 - Types of Insurance – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

LOUISE’S ACCIDENT

Louise has a health insurance policy with

a $500 deductible and 20% co-insurance

this means

then

Even with insurance Louise still

needs funds to pay the

deductible and co-

insurancewhat if…

What would Louise’s options have been if she did not have insurance?

Louise pays the first $500 of any covered

medical care plus 20% of the remaining

costs

Louise is in an accident resulting in a

$5,000 medical procedure that is

covered by insurance

Louise pays $500 + 20% of the remaining $4,500 for a

total of $1,400

The insurance company pays $3,600

© Take Charge Today – August 2013 – Types of Insurance – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 - Types of Insurance – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

WHY DO INSURANCE POLICIES INCLUDE DEDUCTIBLES AND CO-INSURANCE?

• When the act of insuring an event increases the likelihood it will occur

• Deductibles and co-insurance place some of the loss on the policyholder

Reduce the problem of moral hazard

• Not locking a car or parking it in a theft-prone area in hopes it will be stolen and automobile insurance will pay for a new vehicle

For example…

Dollars paid from an insurance policy are not intended to make a person better off than before the loss happened

Resources for This Standard• Financial Fitness for Life (Council for Economic Education)• Grades 9-12, Lesson 19: Scams and Schemes

• Financial Freedom (Florida Council on Economic Education)• Fraud & Identity Theft Protection

Resources for This Standard

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

Potential Risks

Potential Risks

Potential Risks

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

MCEE Lesson 10• http://www.mcee.umn.edu/sites/mcee.umn.edu/files/mpfd-_

units_one-ten.pdf

Groups• Please get into four to six groups.

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…