Copyright 2007 Thomson South-Western Chapter 6 Personal Risk Management

Slide 2 What is risk? Risk is the chance of injury, damage, or economic loss –Personal risk 6-1 Risk Assessment and Strategies Snow skiing involves risk of personal injury. –Risk of financial loss –Risk of financial resources

Slide 3 Risk Assessment Identify the risks Decide how serious they are 6-1 Risk Assessment and Strategies RISK EXAMPLES Risk Probability of Occurrence Seriousness Rating* Possible Consequences Losing my jobMedium10Payments could be missed. Credit rating suffers. Car accidentUnknown10Personal injury Lawsuit Physical injury from snowboarding Medium3Missed work time Medical bills *1 is a low risk; 5 is a medium risk; 10 is a high risk

Slide 4 Risk Strategies Reducing risks –Use preventative strategies Avoiding risks Transferring risks –Having insurance Assuming risks –Self-insuring 6-1 Risk Assessment and Strategies Having a home security alarm system may reduce premiums on homeowner’s insurance.

Slide 5 Self-Insuring A form of Assuming Risk A calculated amount of money is set aside by a person who is preparing for a future uncertain loss This is done to avoid paying insurance premiums to an insurance company, but still allows for the possibility of a future loss Not used for potential catastrophic loss

Slide 6 Building Communications Skills Reading Speed Affects how much material you can read in a given time Affects how well you remember what you read Can be improved with practice –Preview material before reading –Read everything in order –Use a pacer to focus your eyes on the page –Read in a quiet place 6-1 Risk Assessment and Strategies

Slide 7 Health Insurance Is a plan for sharing the risk of medical costs from injury or illness Three basic types of health insurance plans are available –Fee-for-service plans (typically pay %) –Preferred provider organization plans (PPO) Patients choose their doctors –Health maintenance organization plans (HMO) 6-2 Income Protection

Slide 8 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 9 Types of Health Coverage Basic health care –Office visits, hospital stays and surgery services Major medical (serious injury or illness) Dental care Vision care Catastrophic illness 6-2 Income Protection Health insurance plans often include vision care.

Slide 10 Managing Costs Deductibles and co- pays Stop-loss provisions Health savings accounts – Health Flexible spending 6-2 Income Protection Medical emergencies can be very expensive.

Slide 11 Health Flexible Spending Allows people to set aside money pretax to pay for qualified medical expenses –Usually includes co-pays, prescription drugs, and over-the-counter drugs –Most useful to people with children or the elderly who have more doctor visits than healthy adults

Slide 12 Health Insurance Premiums If you increase your deductible and your co- pay, your premiums will be lower. –(pay more later) If you decrease your deductible and co-pay, your premiums will be higher. –(pay more now) A premium is the amount you pay for insurance A deductible is what you pay out of pocket before your insurance kicks in A co-pay is what you pay when you go to the doctor’s office or hospital

Slide 13 Disability Insurance Provides money to replace a portion of normal earnings Pays immediately when the insured is unable to work Covers an injury or illness that is not job-related May be short-term (up to 2 years) or long-term 6-2 Income Protection

Slide 14 Life Insurance Term insurance (provides a death benefit only, builds no cash value) –Renewable term insurance –Decreasing term insurance –Level term insurance Permanent insurance (provides a death benefit and builds cash value) –Whole life insurance –Limited-pay life insurance –Universal life insurance-no fixed premium or fixed death benefit –Variable life insurance

Slide 15 Group Life Insurance Is purchased through an employer or an organization Has much lower premiums than individual policies 6-2 Income Protection Life insurance can provide benefits for children when a parent dies.

Slide 16 Success Skills Dealing With People in Difficult Situations Focus on the person causing the problem Listen to what the person is saying Talk to others affected by the behavior Try to resolve the situation and keep the goodwill of others 6-2 Income Protection

Slide 17 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-provides protection for you if someone is injured on your property –Acts of nature 6-3 Property Protection

Slide 18 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 19 Sample Home Inventory 6-3 Property Protection

Slide 20 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 6-3 Property Protection Renter’s insurance protects you from losses as a result of fire.

Slide 21 Automobile Insurance Protects the owner of a car from losses as a result of accidents Types of coverage –Liability –Collision –Comprehensive-covers damage to your car from fire, theft, hail, water, falling objects or vandalism –Personal injury –Uninsured/underinsured motorist –Towing/rental car 6-3 Property Protection

Slide 22 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 –Get good grades in school –Install Security Devices on your car

Slide 23 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 24 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 25 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