1. Personal Finance Managing Risk – Protecting Yourself & Your Assets. Betting on the Future, Insurance!

2. Managing Risk  Insurance, in essence, is a bet you make with an insurance company- you are managing risk, protecting yourself & property against accidents.  You are betting the insurance company that you will: die, have a fire, become disabled, have a car accident, fall off a ladder, horribly maim someone, get cancer, etc. & the insurance company is betting you won’t.  Policy- written agreement between you & an insurer; outlines your payments & what will & will not be covered*. ex. My homeowners insurance covers against fire damage but not flood damage. ex. Minimum coverage car insurance only protects you from liability (hurting someone else)!!!  Premiums – payments by the customer to the insurer to hedge/protect against a future accident (every month you don’t have an accident, die, etc. –you lose!!)  In the event of an accident, the insurance company covers your loses in the form of a CLAIM.  No accident = money for the insurance company, they hope enough of their customers do not have accidents (claims), so they are spreading the risk among all of their clients (RISK Management)

3. The Cost of Insurance  If you have a claim (ex. Car wreck), the insurer makes the customer pay for the first part of the claim, this is called a deductible (you deduct this amount from the claim).  Ex. My car is damaged by hail- the bill to fix it is $2,000 – I pay (deduct) the first $500 & the ins. company writes me a check for the rest $1,500.  Monthly Premiums (How much you pay!) are based on the risk involved in insuring the customer.  Low risk = lower premiums & lower deductibles.  High risk = high premiums & higher deductibles.  Teacher v. Sky Dive instructor- who pays the higher life insurance Premium?

4. Examples  Teen drivers have, on average, more accidents (more DUI’s), so they are riskier & more expensive to insure= high premiums /high deductibles.  Obese, diabetic, smokers – will have very high (or no) health & life insurance premiums.  People who live in dangerous areas: flood plains, hurricane areas, tornado alley, inner cities (cars), pay higher premiums & have higher deductibles.  Old people are more likely to die than young = more expensive life insurance.  The insurance company has to charge more, because these clients are riskier to insure & more likely to file a claim!!!

5. Types of Insurance  Life – protect your family against “untimely” death. * Whole life – like a savings account/ put money in beneficiary receives it upon you death. * Term life – pay lower premiums for a specific “term” or time period (ex. 30 year term = $100 /month, if I die my wife gets $500,000)  Disability – protect against accidents that leave you unable to work & or function.  Auto – protect against theft, accidents, & most importantly your personal liability if you hurt someone in an accident.  Home/ property – theft, fire, damage, some liability, etc.  Healthcare* – reduces upfront costs for medical care.  Businesses must also insure to protect against: theft, liability, lawsuits, etc.  Doctors pay huge Malpractice Premiums.  Insurance is the reason we have so many lawyers in this country!!!!!!!!!!!

6. Who needs insurance?  Any driver- protect yourself (parents!) if you hurt & or kill another driver or passenger  Parents- to insure your children are provided for if & when you die  Homeowners – protects your most important asset (house) against fire, theft, tornadoes, etc.  Everyone (health insurance) – people do not plan to get sick; major illnesses like cancer can bankrupt families (therapies, Dr. visits, hospital stays =very expensive!).  Married Couples- disability; again no one plans on getting hurt in an accident & long term care for paralysis etc. is very expensive.  Other insurance to consider: long term care for elderly, pet insurance, people with unique talents -singers (voices), athletes, etc.