1. Understand business credit and risk management.
Essential Standard 5.00
Understand business credit and risk management.

2. Understand risk management and insurance.
Objective 5.02
Understand risk management and insurance.

3. Topics Types of risk Ways to handle risks Business Insurance
Uninsurable risks

4. Types of risk

5. Types of Risk What is risk? What is risk management?
Different types of risk:
Economic and non-economic
Pure risk and speculative
Controllable risk and uncontrollable
Insurable risk and uninsurable
What is risk?
The possibility of incurring a loss.
What is risk management?
It is a systematic process of managing risk to achieve set objectives.

6. Types of Risk continued
Economic
Results in financial loss.
Three categories of economic loss:
Personal risk – Result in personal losses
Property risk – Loss of personal or business property including money, buildings and vehicles.
Liability risk – Harm or injury to other people or their property because of your actions.
Example: Fred’s Diner incurred a loss due to a fire.

7. Types of Risk continued
Non-economic
May result in embarrassment or inconvenience without financial impact.
Example: Requesting for customers to move to another check-out lane.
Pure
Threat of a loss without an opportunity for gain.
Example: Frost damages a strawberry patch.

8. Types of Risk continued
Speculative Risk
Offers the chance of gain or loss.
Example: Mary opened a shoe store that operated for only six months.
Controllable Risk
Occurs when conditions can be controlled to lessen the chance of harm.
Example: Sears installed centralized customer service stations in order to increase convenience.

9. Types of Risk continued
Uncontrollable Risk
Cannot be controlled or reduced by your actions.
Example: Riding along a highway with other speeding automobiles.
Insurable Risk
Meets criteria of an insurance company for coverage.
Example: An artist purchased insurance to cover his collection.

10. Types of Risk continued
Unpredictable amount of loss
Example: A competitor of Staples, an office supply store, moved right across the street.

11. Ways to handle risks

12. Ways to Handle Risks
Avoid
Transfer
Insure
Assume

13. Ways to Handle Risks Avoid the risk Transfer the risk
Declining to engage in particular activities.
Example: A book company decline an order to produce 6000 books in one day.
Transfer the risk
Allowing someone else to assume the risk.
Example: A book company has a contract for a trucking company to transport its books.

14. Ways to Handle Risks continued
Insure the risk
Purchasing insurance to cover risk.
Example: General Electric sells insurance to customers to cover their appliances.
Assume risk
Finishing an activity and accepting full responsibility
Example: Mary runs a coffee shop and offers a variety of services.

15. Business insurance

16. Business Insurable Risks
Personnel
Health insurance provides protection against the high costs of individual health care.
Disability insurance provides payments to employees who are unable to work for an extended period due to serious illness or injury.
Life insurance pays the amount of the insurance policy upon the death of the insured.

17. Business Insurable Risks continued
Property
Insurance is purchased to protect business from financial loss due unsuspectingly damages to their buildings, equipment, and building contents, including inventory.
Business Operations
Coverage as a result of accidents, injuries, and property damage.

18. Types of Uninsurable Risks
Economic Conditions
Consumer Demand
Action of Competitors
Technology Changes
Local Factors
Business Operations

19. Health insurance coverage

20. Health Insurance Coverage
Hospital insurance
Classified as medical insurance.
Covers for most or all of the charges during a stay in the hospital.
Surgical Insurance
Covers all or part of the surgeon’s fees for an operation.

21. Health Insurance Coverage continued
Regular medical insurance
Covers fees for nonsurgical care given in the doctor’s office, the patient’s home, or a hospital.
Major medical insurance
Covers cost of extended and specialized care out of the hospital such as medicine and special nursing care.

22. Health Insurance Coverage continued
Comprehensive Medical Policy
Combines the features of hospital, surgical, regular, and major medical insurance.

23. Health Insurance Coverage continued
Dental Insurance
Contains deductible and coinsurance to reduce the cost of premiums.
Covers examinations, X rays, cleaning and filling.
Covers dental injuries resulting from accidents.
Covers part or all of complicated dental work such as crowns or bridges.

24. Health Insurance Coverage continued
Vision Care Insurance
Cover eye examinations, prescription lenses, frames, and contact lenses.
Some plans cover the cost of laser eye surgery that eliminates the need for glasses.

25. HEALTH INSURANCE PROVIDERS
Health insurance may be obtained through employer related groups. They include:
Group health insurance
Managed care plans
Health Maintenance Organizations (HMO)
Preferred Provider Organizations (PPO)
State Government Programs

26. HEALTH INSURANCE PROVIDERS
Group Health Insurance
Most popular way to buy health insurance.
Companies pay part or all of the premium for their employees.

27. HEALTH INSURANCE PROVIDERS
Managed Care Plans
Health Maintenance Organization (HMO)
Consists of a staffed medical clinic to serve members.
Members are entitled to a wide range of prepaid health care services, including hospitalization.
Preferred Provider Organization (PPO)
Provides a group of physicians, a clinic, or a hospital that contract with an insurance company.
Providers agree to charge a set fee for services.
Members are encouraged but not required to use the PPO services.

28. HEALTH INSURANCE PROVIDERS
State Government Assistance
Workers Compensation that provides medical and survivor benefits for people injured, disabled, or killed on the job.

29. Life insurance

30. Life Insurance Principles
Life insurance protects survivors against financial loss associated with death.
Two basic types:
Term
Permanent

31. Types of Life Insurance
Term Life Insurance
Provides financial protection from losses resulting from a death during a definite period or term.
Least expensive form of life insurance.
Only life insurance that is purely life insurance without savings and investments.

32. Types of Life Insurance continued
Permanent Life Insurance
Has cash value and an investment feature.
Part of the premium paid is used for insurance that provides protection.
The insurance company invests part of the premium.

33. Types of Life Insurance continued
Group Life Insurance
Covers a group of people.
Offers term rather than permanent insurance.
Individual is covered by their employer