Introduction to Risk Management © South-Western Educational Publishing What Is Insurance? What is risk? Risk Management

Spreading the Risk Insurance is a method for spreading individual risk among a large group of people to make losses more affordable for all. © South-Western Educational Publishing

Insurance Terminology Actuarial table Actuary Beneficiary Benefits Cash value Claim Coverage Deductible Exclusions Face amount Grace period Hazard Insurance agent Insured Loss Peril Proof of loss Standard policy Unearned premium © South-Western Educational Publishing

Actuarial table Actuary Beneficiary-person named to receive the benefits Benefits-amount specified in the contract Cash value-Amount payable when a life Ins. Policy is discontinued Claim-request for payment for a loss Coverage-protection provided by the terms of the insurance Deductible-specified amount the policyholder pays before the insurance pays Exclusions-specified loss the insurance policy does not cover Face amount-amount paid at death

© South-Western Educational Publishing Grace period-time allowed beyond when the premium is due Hazard- condition that increases the likelihood of a loss Insurance agent Insured Loss-unexpected loss in the value of the insured’s property due to some peril Peril Proof of loss- written or picture verification Standard policy- general coverage contract adopted by many companies Unearned premium

Purpose © South-Western Educational Publishing Insurance is meant to compensate for actual losses. The principle of indemnification means putting the policyholder back in the same financial condition before the loss was incurred. Probability is the mathematics of chance or the likelihood that something will happen.

Insurable Risks Personal risks Property risks Liability risks © South-Western Educational Publishing To be insurable, the risk must have the potential to result in serious financial loss. Life, Health, Disability Home, car, possessions

Risk Management Pure Risk Speculative Risk Insurable interest Risk Management © South-Western Educational Publishing The chance for loss with no chance for gain Not accidental – can gain or lose Requires a financial interest Managing risk

Risk-Management Process Step 1: Identify risks of loss ◦Pure risk ◦Speculative risk Step 2: Assess seriousness of risks Step 3: Handle risks ◦Risk avoidance ◦Risk reduction ◦Risk assumption © South-Western Educational Publishing

Reducing Insurance Costs Increase deductibles. Purchase group insurance. Consider payment options. Look for discount opportunities. Comparison shop. © South-Western Educational Publishing