Chapter 6 Personal Risk Management

What Is Risk? Risk is the chance of injury, damage, or economic loss. Probability is the likelihood of a risk. A loss refers to physical injury, damage to property, or disappearance of assets. 6-1 Risk Assessment and Strategies Slide 2

What Are the Types of Consumer Risk? Personal risk means you could lose something of personal value. Example: breaking a leg  missing fun activity Some risks result in a financial loss. Example: driving without insurance  paying a lot of money to repair car Some risks jeopardize financial resources. Example: getting sued for causing an injury to another  having your wages garnished to pay for judgment against you 6-1 Risk Assessment and Strategies Slide 3

How Can You Manage Risk Using Risk Strategies? Risk assessment involves identifying risks and deciding how serious they are. Use risk strategies to protect yourself against loss. Reduce risk (change your actions) Avoid risk (stop a certain behavior) Transfer risk (buy insurance) Assume risk (self-insure) 6-1 Risk Assessment and Strategies Slide 4

Risk Assessment Risk Probability of Occurrence Seriousness Rating* Possible Consequences Losing my job Medium 10 Missed payments Lower credit rating Getting in a car accident Unknown Personal injury Lawsuit Suffering physical injury from snowboarding 3 Missed work time Medical bills Having bike stolen Low 2 New/used bike purchase * 1 is low risk; 5 is medium risk; 10 is high risk 6-1 Risk Assessment and Strategies Slide 5

Why Do You Need Health Insurance? Health insurance is a plan for sharing the risk of medical costs. There are three basic types of plans. Fee-for-service PPO HMO Medicare and Medicaid are government-sponsored insurance. 6-2 Protecting Income Slide 6

What Is the Purpose of Disability Insurance? Disability insurance provides income when the insured cannot work due to nonwork-related injury or illness. It replaces a portion of normal earnings. Short-term, long-term, and social security disability insurance are all options. 6-2 Protecting Income Slide 7

Who Needs Life Insurance? Life insurance pays money to a beneficiary upon the death of the insured person. Temporary insurance provides a death benefit only. Permanent insurance provides a death benefit and builds cash value. Group life insurance is available through employers. 6-2 Protecting Income Slide 8

Focus On . . . Health Care Reform Most Americans will have insurance by 2020. Purchasing health insurance will be mandatory. Citizens cannot be denied coverage for pre-existing conditions. Tax increases will pay for health care reform. A major omission from the reform is a control on health care costs. 6-2 Protecting Income Slide 9

Success Skills Dealing With Health Care Fraud Health care fraud is false billing for medical services. Examples: falsifying a diagnosis to justify unneeded tests, upcoding, unbundling Ten cents of every dollar goes toward fraudulent health care claims. Consumers can help prevent fraud. Examples: ask questions about services and charges, audit bills, report suspected fraud 6-2 Protecting Income Slide 10

What Is Homeowner’s Insurance? Homeowner’s insurance protects the policyholder from risk of loss to a home and its contents. It covers three types of risk. Fire and other hazards Criminal activity Personal Liability Acts of nature may not be covered. 6-3 Protecting Property Slide 11

Home Inventory Create a home inventory in case you need to file a claim. 6-3 Protecting Property Slide 12

How Does Insurance Protect Car Owners? Automobile insurance protects a car owner from losses as a result of accidents and other events. Cost depends on model and style of car, age, and driving record of driver. 6-3 Protecting Property Slide 13

Types of Coverage Full coverage is required if you have a car loan. It includes: Liability Collision Comprehensive Personal injury protection Uninsured/Underinsured Motorist Towing/Rental Car 6-3 Protecting Property Slide 14

How Can You Reduce Insurance Costs and Maximize Benefits? Reducing costs can raise overall risk. Lower costs using strategies such as higher deductibles, buying online, or comparison shopping. Maximize benefits by reviewing your policy or getting umbrella coverage. 6-3 Protecting Property Slide 15