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Personal Risk Management (Insurance)

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1 Personal Risk Management (Insurance)

2 High School Financial Planning Program
Lesson 6-3: Selecting Insurance Do You Know? What are the top five most expensive states for car insurance? Young adults in their 20’s and 30’s account for what percentage of new long-term disability claims? Zero, they haven’t worked long enough to file disability claims A small portion because of their good health and youth (0-5 percent) A significant portion (20 percent) Which of the following is a major factor in nearly a third of all business bankruptcies? employee theft customer theft poor management Student Guide, page 20 Arrange for students to respond independently, in pairs, or as a whole class to the three Do You Know questions. Share the responses and ask students what they find interesting or surprising about the statistics. 1. The five most expensive states for car insurance are: Louisiana, Michigan, Oregon, Georgia, Oklahoma, and Washington DC. (Source: The Most and Least Expensive States for Car Insurance, March 14, 2013, This report is updated annually and includes details about how the information is collected and compared.) Point out that where a person lives can be a factor that impacts insurance costs, particularly auto insurance, renters’ insurance, and homeowners’ insurance. More details will be explored later in this lesson. 2. One in five filers of new long-term disability claims are in their 20’s and 30’s. (Source: The Council for Disability Awareness Long-Term Disability Claims Review, canhappen.org/research/CDA_LTD_Claims_Survey_2012.asp) Point out that while people might not consider the value of having disability insurance coverage, this can be a valuable option as a way to have income in the event a person is unable to work due to a health issue or injury. This is a good time to read “The Odds” statistics and the story about Katie’s aunt (Student Guide, page 20). More details about disability insurance will be explored later in this lesson. 3. Thirty-three percent of all business bankruptcies are due to employee theft. (Source: Statistic Brain, Employee Theft Statistics, September 18, 2012, Point out that businesses can carry insurance to cover losses due to theft, but the cost of coverage is passed on to customers. This is an example of insurance coverage that will be explored in more detail later in this lesson. ©2013 National Endowment for Financial Education |

3 High School Financial Planning Program
Lesson 6-3: Selecting Insurance Do You Know? What are the top five most expensive states for car insurance? Louisiana, Michigan, Oregon, Georgia, Oklahoma, and Washington DC Young adults in their 20’s and 30’s account for what percentage of new long-term disability claims? Zero, they haven’t worked long enough to file disability claims A small portion because of their good health and youth (0-5 percent) A significant portion (20 percent) Which of the following is a major factor in nearly a third of all business bankruptcies? employee theft – 33% of all bankruptcies due to employee theft customer theft poor management Student Guide, page 20 Arrange for students to respond independently, in pairs, or as a whole class to the three Do You Know questions. Share the responses and ask students what they find interesting or surprising about the statistics. 1. The five most expensive states for car insurance are: Louisiana, Michigan, Oregon, Georgia, Oklahoma, and Washington DC. (Source: The Most and Least Expensive States for Car Insurance, March 14, 2013, This report is updated annually and includes details about how the information is collected and compared.) Point out that where a person lives can be a factor that impacts insurance costs, particularly auto insurance, renters’ insurance, and homeowners’ insurance. More details will be explored later in this lesson. 2. One in five filers of new long-term disability claims are in their 20’s and 30’s. (Source: The Council for Disability Awareness Long-Term Disability Claims Review, canhappen.org/research/CDA_LTD_Claims_Survey_2012.asp) Point out that while people might not consider the value of having disability insurance coverage, this can be a valuable option as a way to have income in the event a person is unable to work due to a health issue or injury. This is a good time to read “The Odds” statistics and the story about Katie’s aunt (Student Guide, page 20). More details about disability insurance will be explored later in this lesson. 3. Thirty-three percent of all business bankruptcies are due to employee theft. (Source: Statistic Brain, Employee Theft Statistics, September 18, 2012, Point out that businesses can carry insurance to cover losses due to theft, but the cost of coverage is passed on to customers. This is an example of insurance coverage that will be explored in more detail later in this lesson. ©2013 National Endowment for Financial Education |

4 What is risk? Risk—uncertainty as to a loss, increased by perils and hazards. Three types of risk are Personal Property Liability Risk Management —a plan to protect you from risks and reduce financial loss. The three-step risk management process is identify, assess, and handle. Snow skiing involves risk of personal injury. Insurance —a method of spreading the risk to protect assets and income. Personal Insurance Program —a program based on life stage and individual needs. Ways to reduce costs include deductibles, group insurance, payment schedules, discounts, and comparison shopping. Slide 4

5 Types of Personal Financial Risk
PERSONAL RISKS possible losses that involve income and personal standard of living life, health, disability LIABILITY RISKS possible losses caused by errors in judgment or negligence driving accidents, personal injuries, business mistakes PROPERTY RISKS possible losses that could cause harm to personal or real property fire, theft, wind, rain, accident, natural disaster Slide 5

6 Risk Management Assessment
Identify the risks Assess Seriousness of risks Handle risks RISK EXAMPLES Risk Probability of Occurrence Seriousness Rating* Possible Consequences Losing my job Medium 10 Payments could be missed. Credit rating suffers. Car accident Unknown Personal injury Lawsuit Physical injury from snowboarding 3 Missed work time Medical bills *1 is a low risk; 5 is a medium risk; 10 is a high risk Slide 6

7 Risk Strategies Risk avoidance: avoid situations that involve risk
2. Risk reduction: take measures to lessen severity of potential loss 3. Risk transfer: cover potential losses through the purchase of insurance 4. Risk assumption: self-insure—take personal responsibility where cost of insurance is too high Having a home security alarm system may reduce premiums on homeowner’s insurance. Slide 7

8 High School Financial Planning Program
Lesson 6-2: How Insurance Works INSURE-able The risk must have certain qualities to be insurable. Insurable interest Numerous Specific loss Unintentional and unexpected Reasonable cost Estimatable Student Guide, page 9 Point out that while there is insurance coverage for nearly every type of misfortune, certain requirements need to be met for obtaining insurance coverage. Show the INSURE-able qualities that help determine whether or not something can be insured. In general, to get insurance coverage, the loss must be unintentional and unexpected, you must be directly impacted financially, and there must be a way to provide evidence of loss. NOTE: More detail is displayed on page 9 of the Student Guide. ©2012 National Endowment for Financial Education |

9 Insurance Is spreading the risk to protect assets and income.
Is risk sharing with other policyholders. Is based on life stage and individual or family needs. Is centered on probability or the likelihood of loss. Slide 9

10 High School Financial Planning Program
Lesson 6-2: How Insurance Works Yes or No? Are these INSURE-able situations? Katie insure the school’s rental saxophone Aaron’s dad purchase cruise trip insurance A parent or guardian purchase your life insurance You buy insurance to cover pens/pencils lost at school You insure your vocal chords when you are a famous singer Student Guide, pages 8-9 Display the scenarios, and arrange for students to work in pairs (2-3 minutes) to decide whether or not each situation meets the INSURE-able guidelines. Ask the teams to defend their answers as you display each scenario. All scenarios are insurable except the coverage for lost pens or pencils. This is too trivial to bother with coverage. However, a business that sells large quantities of pens or pencils might insure the pen/pencil inventory because it has a significant value and a loss will financially impact the business. EXTENSION: Students may find it interesting to discuss examples of strange insurance coverage for unusual circumstances. For example, a professional ice cream taster had his taste buds insured as does a coffee bean taster. Search online for more examples of “strange insurance” or “unusual insurance.” Debrief by discussing the reasons for these types of unique insurance policies. ©2012 National Endowment for Financial Education |

11 Specialist Insurance Topics
High School Financial Planning Program Lesson 6-3: Selecting Insurance Specialist Insurance Topics Auto Dental Disability Fidelity Bond Health Homeowners’ Liability Life Renters’ Unemployment Vision Workers’ Compensation Student Guide, pages 16-21 PREPARATION: Divide the class evenly into two groups, labeled Group A and Group B. A member from each group will be assigned to research at least one specific type of insurance so all types are assigned within each group. Should you have fewer than 20 students, consider doubling up insurance topics. They will use the jigsaw method* to gather information to bring back to the one or two types of insurance to research. Create stations around the classroom where a member from each group can meet to become one of the classroom’s two “specialists” for each topic by researching the type of insurance that was assigned. The stations should be stocked with brochures, books, the Student Guide, computer with Internet access, and other resources students can use to address the assigned questions. Inform the students that they will each learn about a specific type of insurance so they can teach their classmates about the insurance. By the end of this lesson, all students will use what they have learned about all types of insurance to complete a check quiz. Allow students a predetermined amount of time for research and collaboration to check facts before reconvening the original Group A and Group B. Arrange for the two groups to meet simultaneously so each student specialist takes a turn teaching group members about a type of insurance. The specialist will address each of the five questions while the others in the group take notes. ©2013 National Endowment for Financial Education |

12 High School Financial Planning Program
Lesson 6-2: How Insurance Works Get Covered Student Guide, pages 12-13 Lead into this section by using the Learning the Lingo story on page 12 to point out the value of knowing what is agreed to when buying insurance. Submit an application (hard copy or online) for insurance coverage. When approved, insurance company will set specific coverage limits and conditions. The policyholder may have some flexibility in setting limits, but the conditions are typically set by the insurance company as they are standard for all policyholders. Point out that a policyholder can add “riders” for additional coverage of specific items. (Refer to Insuring Treasures for more information about riders.) Policyholder makes regular premium payments to continue insurance coverage. Outline the process to get insurance coverage as you introduce students to common insurance terminology. NOTE: At this time, only outline the process. More details about how insurance companies review applications and establish premiums are addressed in Lesson 6-3. ©2012 National Endowment for Financial Education |

13 Coverage and Conditions
High School Financial Planning Program Lesson 6-2: How Insurance Works Coverage and Conditions Coverage Examples - Rent Condition Examples - Rent Specify amount limits: Up to $XXX on jewelry usually at residence Up to $XXX on electronic equipment usually at residence What is excluded from coverage: Property of a boarder Animals Loss caused by earth movement (i.e earthquake, mudflow) Intentional loss What to do in case of a loss: Give notice to an agent Report any theft to police Protect property from further damage Submit request within XX days Payment procedures: Amount paid determined after deductible is applied to the loss Who payment will be made to Option for cash settlement or pay cost to repair or replace Student Guide, page 13 Give examples of how coverage limits and conditions might appear on a policy. Guide the students to examine an insurance policy as they complete Part A of Activity 6.2: Read the Fine Print. Note: They will complete Part B later in the lesson. RECOMMENDED: The samples provided are state specific. If possible, obtain sample policies that apply to your state. ©2012 National Endowment for Financial Education |

14 High School Financial Planning Program
Lesson 6-2: How Insurance Works Cover a Loss Student Guide, pages 14-15 Arrange for the students to read about Aaron’s car damage situation (Student Guide, page 14). Refer to Aaron’s situation as you outline the common phases to recover losses from a misfortunate event. Introduce students to insurance terminology (page 15) as you summarize the claim process. Policyholder files claim form to describe details of a qualifying event. An insurance claims adjuster will investigate the event to determine if the claim is payment. If payable, the adjuster will establish the settlement amount. If the claim is approved, the insurance company will settle the claim by paying the policyholder with a check. If a claim is denied, the insurance company will notify the policyholder of why the claim was denied. ©2012 National Endowment for Financial Education |

15 Law and Order of Insurance
High School Financial Planning Program Lesson 6-2: How Insurance Works Law and Order of Insurance Take Responsibility Know Rights Provide accurate information Be honest Know procedures Pay premiums on time Keep own records in order for quick retrieval Know details upfront Receive notice of any policy or premium changes Expect fair and prompt processing of claims Receive explanation of why claim is denied Expect that personal information is securely protected Student Guide, page 23 Point out that an insurance policy is a formal contract between the insured and the insurer. The person who purchases an insurance policy agrees to take on responsibilities and also can expect the insurer to agree to certain behaviors. Student Guide, page 17 Give students a specific amount of time (2-3 minutes) to complete Activity 6.3: From Memory. Debrief by asking students whether they found this to be an easy task or a difficult task. Relate this activity to any property loss incidents that students may be familiar with from personal experience or news reports, such as homes lost due to fire, hurricane, tornado flooding, or mud slides. If any students have access to cars, they can try the same activity to inventory what is currently in their cars. EXTENSION: Ask a claims adjuster to speak to the class about how an insurance company determines what is paid out for a claim. ©2012 National Endowment for Financial Education |

16 High School Financial Planning Program
Lesson 6-3: Selecting Insurance Reflection What two or three types of insurance coverage do think are most important for teens and young adults? Why? Ask the students to reflect on what the types of insurance they think are most relevant for teens and young adults. Examples of family insurance that covers teens: automobile, dental, health, homeowners’, renters’, motorcycle, and vision. If not yet presented to students from the presentations, point out in a follow-up discussion that some types of insurance are required by law, by employers, and by lenders. For example, states have different requirements for minimum auto insurance coverage, a lender might require mortgage insurance as terms for taking out a home loan, and some professions such as physicians and contractors have liability coverage requirements. As of 2014, all Americans are expected to have health insurance. With few exceptions, people who aren’t insured will pay a penalty. [Student Guide, page 33] Find out more about the Patient Protection and Affordable Care Act at EXTENSION: Explain that under federal law, COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage allows for the temporary continuation of health insurance for people who no longer have employer-sponsored benefits due to specific life circumstances. Provide students with individual or family situation scenarios to decide whether or not an individual is eligible to apply for COBRA coverage. Source: Department of Labor, ©2013 National Endowment for Financial Education |

17 Personal Insurance Slide 17

18 Personal Insurance HEALTH INSURANCE DISABILITY INSURANCE
Basic health or Major medical Dental and vision DISABILITY INSURANCE Short-term and long-term disability coverage (group or individual) LIFE INSURANCE Temporary (term) insurance Permanent life insurance Slide 18

19 Health Insurance Is a plan for sharing the risk of medical costs from injury or illness Basic types of health insurance plans are available Fee-for-service plans Preferred provider organization plans (PPO) Health maintenance organization plans (HMO) Health savings account (HSA) Medicare & Medicaid Slide 19

20 Types of Health Coverage
Basic health care Major medical Dental care Vision care Catastrophic illness Health insurance plans often include vision care.

21 What are the Average Costs?
High School Financial Planning Program Lesson 6-1: Manage Risk What are the Average Costs? Repair torn ACL, $40,000-$65,000 Fill small cavity, $75-$160 + exam fee Repair chipped tooth, $200-$500 + exam fee Remove wisdom tooth, $140-$400 + anesthesia Remove dent from car, $50-$125 Remove multiple dents in car due to hail, $1,500-$11,000 Replace typical windshield, $100-$400 Claim for property damage due to vandalism, $4,512 Sources: aarp.org, webmd.com, dentalstraighttalk.com, yourdenstryguide.com, howmuchisit.org, costhelper.com, As you transition into the next task, share statistics about financial losses. Ask students to brainstorm ideas on how to cover the unexpected costs of property damage, property loss, injuries, disasters, or illnesses. Specifically ask them how they would cover the costs for something in their possession that was stolen, lost, or damaged, such as a cellphone, friend’s bike that was borrowed, a school-owned tablet/laptop, or the car used for driver’s education. ©2012 National Endowment for Financial Education |

22 Disability Insurance Provides money to replace a portion of normal earnings Pays when the insured is unable to work Covers an injury or illness that is not job-related May be short-term or long-term Waiting Period: Usually 30 to 180 days before benefits begin. Maximum Benefit: Between 50 and 75 percent of regular pay. Renewability Option: Protection against cancellation if your health declines. Slide 22

23 Life Insurance Life insurance is the sharing of risk to protect dependents from loss due to death of an income provider. Life insurance is based on mortality tables; young people pay lower premiums because their risk of death is lower. Term insurance “temporary” insurance: Provides coverage for a defined time period, generally five, 10, or 20 years; pays cash benefits to a named beneficiary if the insured dies during the term of the policy. Whole life insurance Covers the insured for their whole life; benefits are paid to the beneficiaries when the policyholder dies. Universal life insurance Whole life insurance with more flexibility; allows the policyholder to maintain their policy and still make changes, such as decreasing the death benefit or changing the premiums. Slide 23

24 Group Life Insurance Is purchased through an employer or an organization Has much lower premiums than individual policies Life insurance can provide benefits for children when a parent dies. 6-2 Income Protection Slide 24

25 Property & Liability Insurance
Slide 25

26 Property & Liability Insurance
Homeowner's Insurance: protection for your place of residence and personal possessions. Automobile Insurance: protection for your car that includes almost everything that might happen to it except wearing out; also provides protection against loss if you damage someone else's property or injure someone else in an accident Umbrella Liability Insurance: to supplement your basic personal liability coverage (above minimum liability coverage on home and car) Slide 26

27 Homeowner’s Insurance
Protects from risk of loss in the home Covers the building and its contents Types of coverage Fire and other hazards Criminal activity Personal liability Acts of nature 6-3 Property Protection Slide 27

28 Renter’s Insurance Protects renters from the risk of losing personal property in their homes or cars Covers the cost of repairing or replacing personal property Is a low-cost way to manage risk Renter’s insurance protects you from losses as a result of fire. 6-3 Property Protection Slide 28

29 Automobile Insurance Protects the owner of a car from losses as a result of accidents Types of coverage Liability protects against loss as a result of injury to another person (100/300/50) Collision Protects you from damages to your car or property Comprehensive Protects against damages other than collision (fire, hail, vandalism) Personal injury protection Pays for you or passengers medical expenses Uninsured/underinsured motorist Towing/rental car Slide 29

30 High School Financial Planning Program
Lesson 6-1: Manage Risk Reflection What risks to you face on a daily basis? List at least two actions you can take to avoid and/or reduce specific risk in your daily routine. Ask the students to think about their daily routines and misfortune that could happen throughout the day. Have them list at least two actions they can take to reduce the potential for risks. ©2012 National Endowment for Financial Education |

31 Reducing Costs Choosing higher deductibles can save you money on insurance To lower costs for car insurance Take driver training classes Maintain a good driving record Buy more than one insurance policy from the same company Own a car with a high safety rating 6-3 Property Protection Slide 31

32 Umbrella Insurance Provides coverage in addition to car and home insurance Protects you from catastrophic losses Requires that you have liability coverage on your home and car 6-3 Property Protection Slide 32

33 Technology Corner Buying Insurance Online
Many insurance companies have Web sites Consumers can apply for insurance online With some companies, claims can be filed online Premiums may be lower with online companies Be sure that the company is reputable before buying online 6-3 Property Protection Slide 33

34 Ethics Driving Accidents
Most states have financial responsibility laws that require drivers to be insured Many people drive without insurance in violation of laws Driving without being able to pay for damages you cause to others is unethical 6-3 Property Protection Slide 34

35 Home Inventory Lists all the items of value in your home
Should include receipts for expensive items when possible Is useful when filing an insurance claim 6-3 Property Protection Slide 35

36 Sample Home Inventory 6-3 Property Protection Slide 36

37 Focus on... Being Uninsured in America
Millions of Americans do not have health insurance People who are not insured often have problems paying medical bills Uninsured patients often pay higher fees than patients who have insurance Having health insurance should be an important goal in your financial plan 6-2 Income Protection Slide 37

38 Managing Costs Deductibles and co-pays Stop-loss provisions
Health savings accounts Medical emergencies can be very expensive. 6-2 Income Protection Slide 38

39 Review Assignments Review Assignments are worth a total of 20pts.
6 Assignments for a total of 120 pts. 2 Parts to Each Assignment 15pts. Take home practice questions Must be completed prior to coming to class 5pts. In Class Notes Turned in at the end of each class Slide 39


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