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INSURANCE AND RISK MANAGMENT

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

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INSURANCE AND RISK MANAGMENT

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  1. INSURANCE AND RISK MANAGMENT UNIT THREE – CHAPTER 13 – LESSON ONE

  2. 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

  3. WHAT IS INSURANCE? A person joins the risk-sharing group by purchasing an INSURANCE POLICY That person becomes a policy holder Under the policy, the policyholder agrees to pay a PREMIUM (fee) and the company agrees to take on the risk The protection provided by the policy is known as COVERAGE

  4. 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

  5. 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)

  6. 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

  7. LESSON REVIEW • WHAT ARE THE THREE MAIN TYPES OF INSURABLE RISKS? • HOW CAN PURCHASING AN INSURANCE POLICY HELP YOU “SHIFT RISK”? • WHY WOULD A BANK ISSUING A CAR LOAN REQUIRE THE BORROWER TO OWN CAR INSURANCE?

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