1. Chapter 6 Personal Risk Management

2. Slide 2 What Is Risk? 6-1 Risk Assessment and Strategies 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.

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

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

5. Slide 5 Risk Assessment 6-1 Risk Assessment and Strategies Risk Probability of Occurrence Seriousness Rating* Possible Consequences Losing my jobMedium10  Missed payments  Lower credit rating Getting in a car accident Unknown10  Personal injury  Lawsuit Suffering physical injury from snowboarding Medium3  Missed work time  Medical bills Having bike stolen Low2  New/used bike purchase * 1 is low risk; 5 is medium risk; 10 is high risk

6. Slide 6 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. 6-2 Protecting Income o Fee-for-service o PPO o HMO Medicare and Medicaid are government- sponsored insurance.

7. Types of Plans Fee for service – choose any doctor – reach your deductible then pay a % above (usually more expensive) PPO – no referral – copay – benefits are limited when you go out of network HMO – need referral to go out of network - copay Medicare/medicaid – government sponsored Slide 7

8. Types of Coverage Basic – medical, hospital, surgery (does not include elective surgery) Major – major surgeries such as transplants Dental/vision – deductible and copay Catastrophic illness – cancer Long term care – nursing homes Slide 8

9. Managing Costs Flexible spending account – must use or you lose (Pretax) Health savings account – will carry over (Pretax) Deductibles and copays Stop loss provision – reach deductible, policy pays 100% Slide 9

10. Slide 10 What Is the Purpose of Disability Insurance? 6-2 Protecting Income 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 (receive 65% of pay for 3 months – 2 years) long-term (receive 60% of pay 2 – 5 years after short term) Social Security Disability – if you cannot work, government pays you

11. Slide 11 Who Needs Life Insurance? 6-2 Protecting Income Life insurance pays money to a beneficiary upon the death of the insured person. Group life insurance is available through employers.

12. Temporary Insurance Term life insurance – pays death benefit for the period of the policy (ex. 20 years; if death occurs after that, no payment) a. Renewable – you can renew each year until a certain age after the length of the policy b. Decreasing – coverage goes down each year and the death benefit goes down c. Level term – death benefit does not change but the cost each year fluctuates (These do not gain cash value so you cannot borrow against them or withdraw cash) Slide 12

13. Permanent Insurance Permanent insurance provides a death benefit and builds cash value. a. Whole life – pay premiums as long as policy is in effect – pays face value to beneficiary – can borrow against but decreases value to beneficiary b. Limited pay life – pay premiums for a limited amount of time and then stop – pays face value to beneficiary Slide 13

14. Permanent continued c. Universal life – can change death benefit and premiums throughout policy d. Variable life – fixed premiums – money invested in securities chosen by the policyholder Slide 14

15. Slide 15 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. o Fire and other hazards o Criminal activity o Personal Liability Acts of nature may not be covered. Renters insurance Rider – additional coverage for expensive items 6-3 Protecting Property

16. Slide 16 Home Inventory 6-3 Protecting Property Create a home inventory in case you need to file a claim.

17. Slide 17 How Does Insurance Protect Car Owners? 6-3 Protecting Property 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.

18. Slide 18 Types of Coverage 6-3 Protecting Property Full coverage is required if you have a car loan. It includes: o Liability – 25/50/10 required in KY o Collision – with a deductible o Comprehensive – with a deductible o Medical payments o Uninsured/Underinsured Motorist o Towing/Rental Car o No Fault – your company pays you until they figure it out with other company

19. Slide 19 How Can You Reduce Insurance Costs and Maximize Benefits? 6-3 Protecting Property 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.