RISK MANAGEMENT Insurance

Insurance Terminology Risk Risk: uncertainty, unpredictable events which lead to loss or damage Insurer Insurer: business that agrees to pay the cost of potential future losses Insured Insured: person or company protected against loss Policy Policy: contract between the policy holder and the insurer specifying the terms of the insurance arrangements Premium Premium: the fee paid to the insurer Deductible Deductible: the amount paid out of pocket by the policy holder before insurance coverage begins

Insurable Risks Personal Risks Personal Risks : loss involving your income and standard of living Life Insurance Health Insurance Disability Insurance Property Risk Property Risk : loss to personal or real property Property insurance for homeowners, renters, car, other possessions Liability Risks Liability Risks : loss that occur when your errors or inappropriate actions result in bodily injury to someone else or damage someone else’s property Liability Insurance

Types of Insurance Health Disability Life Homeowner’s/Renter’s Automobile

Health Protects against financial loss resulting from injury, illness, and disability. Covers emergencies and routine medical expenses Doctor Visits Hospital Surgical Dental Vision Long-term care Prescriptions 61% of Americans have employer-based health insurance Very Expensive to find health insurance as an individual

Types of Health Insurance Coverage Basic Health Basic Health : medical, hospital, and surgical costs Office visits, X-rays, laboratory tests, prescriptions (generic) Necessary surgeries only: not cosmetic or elective surgeries Major Medical Major Medical : protects against catastrophic expenses of serious injury or illness Dental & Vision Dental & Vision : usually at additional cost with maximum benefits per year per person May cover only certain types of services. Insured pays the difference

Health Plans Preferred Provider Organization Preferred Provider Organization: healthcare providers that band together to provide health services for set fees. Patients choose doctors from list Limits on types of services and fees Co-pay usually required in addition to premium Health Maintenance Organization Health Maintenance Organization Has its own facilities and offers prepaid medical care to its members. Patient chooses one doctor to be Primary Care Physician PCP Health Savings Accounts Health Savings Accounts: set pre-taxed money aside to pay medical expenses not paid by your insurance. Money remaining grows Flex Spending Accounts Flex Spending Accounts: Like HSA except it must be used up in the year set aside or you lose it

Disability Insurance 1 out of 10 people will become disabled before age 65 Replaces a portion of one’s income if they become unable to work due to illness or injury Typically pays between 60%-70% of full time wages Usually requires a waiting period days Duration would be until age 65 Often part of a benefits package an employer offers its employees

Worker’s Compensation Covers your expenses if your injury or illness resulted from your job. Pays monthly Carries a death benefit Burial Payment Allowance for living expense for survivors Determined by your earning and work history

Life Insurance 75% of American adults have life insurance Money is paid upon the policy holder’s death only Beneficiary Beneficiary: the recipient of policy's proceeds Purpose: provide money for family members or dependents when wage earner dies

Types of Life Insurance Term Life Insurance Policy Term Life Insurance Policy Contract remains in effect for specific time period At specified time coverage ceases with no remaining value Like paying rent—Money is gone if you are still living at end of time period Low cost Decreasing Term: coverage decreases each year while premium remains the same Renewable Term: gives insured right to renew each year without having to pass a physical exam. Premiums increase death benefit is the same Permanent Life Insurance Policy Permanent Life Insurance Policy Policy continues as long as premium is paid Cash Value: savings accumulated in a permanent policy that you would receive if you canceled your policy. Policy holder can cash out the policy Get money back.

Life Insurance Purposes of Life Insurance To pay off a home mortgage or debt upon death To provide lump-sum payment to children when they reach a specified age To provide an education or income for children To make charitable bequests after death To provide for retirement income To accumulate savings To make estate and inheritance tax payments To take care of children’s needs as they are growing up To provide cash value that can be borrowed

How Are Premiums Determined? Age: Age: Mortality Tables Mortality Tables predict the probability of death at different ages Younger people means lower premiums Health Factors Health Factors Diabetes or heart disease probably means you are uninsurable Smoker will pay higher premiums Occupation Occupation Risky jobs = higher premiums

Homeowner’s Insurance Fire occurs in someone’s home in the US every 74 seconds Combines property and liability insurance Property Property : damage to structure and possessions Possessions are protected worldwide Fire, wind, water, smoke, criminal activity Liability Liability : protect the insured party from being held liable for other’s financial losses Someone falls on your steps

Renter’s Insurance Protects insured from loss to the contents of the dwelling only – not the dwelling itself Homeowner’s Insurance will not cover possessions of renters Covers Loss of Use: hotel accommodations until dwelling is habitable again May have to buy special coverage for some items Can get Liability included for additional premium

How Much Insurance is Enough? Insure contents for half the value of the building Insure building for replacement cost. Insurance won’t pay more than replacement value Prepare a Comprehensive Personal Property Inventory Earthquake or Flood endorsements add more coverage for a higher premium Personal Property Floater: coverage for expense specific expensive pieces of property (jewelry) no matter where is may be located Attractive nuisance: swimming pool homeowner is liable for injuries

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