The Fundamentals of Insurance

1. The Fundamentals of Insurance Ch.32 – South Western 1997

2. RISK Risk – can be thought of as the possibility of incurring a loss Economic Risk – can be related to property liability and one’s own personal well-being Personal Risk – are risks associated with illness, disability, loss of income, unemployment, old age, and premature death

3. RISK Property Risk- the risk of damage to or loss of property due to theft, wind, fire, flood or some other hazard Liability Risk- are potential losses to others that occur as a result of injury or damage that you many have caused

4. Sharing Economic RISK • Large economic losses can be avoided by sharing the loss with other people • Example: sick bank, insurance associations

5. INSURANCE • Insurance – is the planned protection by sharing economic losses • Insurance Companies – are businesses that provide planned protection against economic loss • Insured (policyholder) – the person whom the risk is assumed • Insurance Agent - who you will buy insurance directly from

6. INSURANCE Policy – a contract issued by the insurance company for coverage for the policyholder Premium – the amount the policyholder must pay for insurance coverage Claim – is a policyholder’s request for payment for a loss that is covered by the insurance policy Deductible – is an amount you must pay before the insurance company pays a claim

7. Other Types of INSURANCE Self-Insurance – means that the individual, family, or business assumes the total risk of economic loss. Coinsurance – is the sharing of expenses by the policyholder and the insurance company