1. Intro to Business Chapter 34
Dealing with Risk
Intro to Business
Chapter 34

2. Learning Objectives
Explain how insurance can help people protect themselves against possible financial loss.
Describe the process of purchasing insurance, and identify the more common types of insurance.
Identify the factors that affect the cost of insurance.
Explain important steps to follow to interpret a statistical table.

3. Questions to Ask Yourself
What can minimize the risk of financial loss?
Where can you buy insurance? What are the differences among the many kinds of insurance available?
What factors affect the cost of insurance?
How can you interpret a statistical table?

4. Managing Risk Sharing risk through insurance
Insurance-A protection plan that divides possible losses among large numbers of people
pay money in the hope that if they suffer a loss, the insurance coverage they purchased with their premiums will cover their financial loss.

5. Insurance Process Pay fee for protection Principle of large numbers
Financial risks are handled most effectively when large numbers of people share the risk.
Large number of people that pay the fee makes enough money available to cover the loss for the few people who have an emergency or disaster.

6. Risk Management Services
Provided by the insurance companies for a fee
Estimate the probability rate at which an emergency or disaster will occur
Cliff jumping (risky, higher premiums)
Area with many house fires (risky, higher premiums)

7. Purchasing Insurance
Insurable Interest-a financial interest in property or another person’s life that permits a person to buy insurance to protect against loss
customer must be able to prove that the loss of the person or item insured would cause a financial loss to the customer.

8. Purchasing Insurance Agents
offer info, help, and guidance to customers to find best program for their needs.
agent prepares an application for the customer after the plan is complete.
A policy is made after application is accepted.
Policy-formal written agreement between the purchaser and the company

9. Purchasing Insurance A policy identifies:
the insurer- the insurance company
the insured- the customer or policyholder
details of the protection, costs, rights, and responsibilities of the insured
conditions under which the insurer will or will not honor claims- requests for payment to cover financial losses.

10. Purchasing Insurance
A policy is a legal contract between the insured and the insurer.
Once policy is signed, the policyholder must pay a fee for the risk management service provided from the insurance company

11. Purchasing Insurance
Premiums-$ amount charged by insurance company for protection during a certain period of time (money charged by insurer)
Premiums pay for services received and paying claims. (cost of services/claims)
Some of the premiums are held in reserves for large disasters. (held in reserves)
Premiums also create profit for the company. (profit)

12. Purchasing Insurance
Deductible-amount the policyholder must pay first, before the insurance company pays anything
Higher deductibles generally mean lower premiums and vice versa

13. Regulating Insurance Regulated by the states
Insurance companies must be licensed within the state it operates
Important regulation is in premiums
Premiums may need to be approved by insurance commissioner

14. Automobile Insurance Types of Auto Insurance
Bodily Injury- covers injury or death to person(s) not in policyholder’s car
Property Damage Liability- covers damage to another person’s property during an accident
Medical Payments- covers medical expenses resulting from injury to the driver or others in policyholder’s car

15. Automobile Insurance Types cont
Collision- covers damage during an accident to the policyholder’s car
Comprehensive- covers storms, floods, falling objects, fire, vandalism, and theft
Uninsured Motorist- covers accidents caused by people who have no liability insurance and no money to pay for the damages they cause

16. Automobile Insurance Costs
As the risk of accident and potential cost of damage for a driver increases, so does the premium.
Factors that affect auto insurance premiums
Cost of automobile
Miles traveled per year
Driving record
Age
Where you live
Marital status

17. Real and Personal Property Insurance
Houses, buildings ,and other real property
Furniture, jewelry, and electronic equipment
Renter’s Insurance
Landlord/owner should have insurance on building
The insurance the landlord/owner has will not cover loss of or damage to personal property of renters.

18. Real and Personal Property Insurance
Homeowner’s Insurance
Homeowner’s insurance is a combination policy
Protects against most types of losses and liabilities related to home ownership
Fire, lightning, windstorm, hail, explosion, riots, aircraft crashes, smoke, motor vehicles, malicious mischief, vandalism, and burglary
Also covers liabilities for injuries to others while on the insured property.

19. Real and Personal Property Insurance
Homeowner’s Insurance (cont)
Many different policy options
Cost and options depend on the protection you want

20. Real and Personal Property Insurance
Property Insurance Costs
Factors:
Payment terms
Construction materials
Deductible
Replacement value of the home
Preventive measures

21. Life, Health, and Income Insurance
Life Insurance
Designed to protect the standard of living of the policyholder’s survivors
At policyholder’s death, the survivors are paid the face value of the insurance policy.
Proceeds- the money paid to the survivors

22. Life, Health, and Income Insurance
Life Insurance (cont)
Beneficiary- person who receives part of the proceeds
Beneficiaries are specified in the policy
Types of life insurance
Term insurance- covers a person for a specific period of time
Whole life insurance- provides death benefits and savings
Variable life insurance- covers until insured dies and accumulates value

23. Life, Health, and Income Insurance
Life insurance costs
Type of life insurance
Age of insured
Insured’s health
Sex
Face amount of policy
Company selected

24. Life, Health, and Income Insurance
Health Insurance
Hospitalization insurance
Surgical and medical insurance
Major-medical insurance
Dental and vision
Mental health
Most health insurance policies have a deductible that the insured must pay first.

25. Interpreting Statistics
Stats are numbers until you learn how to use them
Help understand trends and patterns, surveys, and make informed decisions.
Insurance industry uses statistics to assess potential risks and determine premiums.
Statistics gain meaning when they are compared to others.
After comparing stats, you can make inferences.