1. Insurance

2. Standard: Protecting and Insuring People make choices to protect themselves from the financial risk of lost income, assets, health, or identity. They can choose to accept risk, reduce risk, or transfer the risk to others. Insurance allows people to transfer risk by paying a fee now to avoid the possibility of a larger loss later. The price of insurance is influenced by an individual’s behavior.

3. Resources for This Standard Take Charge Today Types of Insurance Begin the lesson by watching a video clip relating to insurance. Complete the “What Covers This Risk” activity to help participants differentiate between different types of insurance. Conclude the lesson by playing an interactive round of Spoons or interviewing an adult about insurance concepts. To assess knowledge, have participants complete a scenario that simulates a real-life situation.

4. © Take Charge Today – August 2013 – Types of Insurance – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 TYPES OF INSURANCE Advanced Level

5. © Take Charge Today – August 2013 – Types of Insurance – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 © Take Charge Today – August 2013 - Types of Insurance – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona AN ILLUSTRATION OF HOW INSURANCE WORKS Suppose there are 100 people in a health insurance group Insurance shifts the risk of big loss from the individual to the insurance company With a 1% chance that any one of them could get sick and require $10,000 in medical care But, no one knows who will get sick If each person pays $100 into a “pool” they will collectively have $10,000 to cover the medical costs of the person who gets sick So, everyone gives up $100, but nobody loses more than $100 99 people do not collect anything, but they gain peace of mind and important protection against a large loss

6. © Take Charge Today – August 2013 – Types of Insurance – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 © Take Charge Today – August 2013 - Types of Insurance – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona THE BENEFITS OF INSURANCE  Payments received from an insurance policy can far exceed the premiums paid  Provides financial security and peace of mind Why is the best outcome to have insurance but never collect on it? Types of Insurance Long-term Care Health Disability Life Property & Liability

7. © Take Charge Today – August 2013 – Types of Insurance – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 © Take Charge Today – August 2013 - Types of Insurance – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona THE INSURANCE PROCESS Claim – a formal request to an insurance company asking for a payment when the policyholder has an accident, illness or injury Deductible – the out-of-pocket money paid by the policyholder before an insurance company will cover the remaining costs attributed to the loss Co-insurance – requires the insured individual to pay a fixed percentage of the loss after the deductible has been paid Event occurs resulting in loss Policyholder makes claim to insurance organization Insurance organization determines if event is covered by policy If so, policyholder pays a deductible Remaining amount owed is paid by co- insurance (if applicable)

8. © Take Charge Today – August 2013 – Types of Insurance – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 © Take Charge Today – August 2013 - Types of Insurance – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona LOUISE’S ACCIDENT Louise has a health insurance policy with a $500 deductible and 20% co-insurance this means then Even with insurance Louise still needs funds to pay the deductible and co- insurance what if… What would Louise’s options have been if she did not have insurance? Louise pays the first $500 of any covered medical care plus 20% of the remaining costs Louise is in an accident resulting in a $5,000 medical procedure that is covered by insurance Louise pays $500 + 20% of the remaining $4,500 for a total of $1,400 The insurance company pays $3,600

9. © Take Charge Today – August 2013 – Types of Insurance – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.5.G1 © Take Charge Today – August 2013 - Types of Insurance – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona WHY DO INSURANCE POLICIES INCLUDE DEDUCTIBLES AND CO-INSURANCE? When the act of insuring an event increases the likelihood it will occur Deductibles and co-insurance place some of the loss on the policyholder Reduce the problem of moral hazard Not locking a car or parking it in a theft-prone area in hopes it will be stolen and automobile insurance will pay for a new vehicle For example… Dollars paid from an insurance policy are not intended to make a person better off than before the loss happened

10. Resources for This Standard Financial Fitness for Life (Council for Economic Education) Grades 9-12, Lesson 19: Scams and Schemes Financial Freedom (Florida Council on Economic Education) Fraud & Identity Theft Protection

12. Resources for This Standard

13. How to Manage Risk Risk is the possibility of financial loss. What risks to we face daily?

14. Potential Risks

17. What can be done? Assume the risk Live with it, save for it Self - insure Reduce the risk Avoid risky circumstances Reduce harm if risk occurs Transfer the risk Insurance

18. MCEE Lesson 10 http://www.mcee.umn.edu/sites/mcee.umn.edu/files/mpfd- _units_one-ten.pdf http://www.mcee.umn.edu/sites/mcee.umn.edu/files/mpfd- _units_one-ten.pdf

19. Groups Please get into four to six groups.

20. Choosing Insurance

22. Filling out your activity sheet

23. Now: Life Happens! Each group will be drawn a card… An event will occur, depending on the card, to each group…

24. Risks

26. We will do four years… Write in losses with insurance and losses without insurance… After four years total…

27. Debrief Who wishes they bought more insurance? Who wishes they bought less insurance? Notes: The insurance is priced close to actuarially fair plus small profit. Lesson 10 in Financial Fitness is simpler and does not look at actuarially fair issue…