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

4. Potential Risks

5. Potential Risks

6. Potential Risks

7. Potential Risks

8. Questions: What are the costs of insurance?
Payment of premiums
If you pay $1000 for insurance premiums, you lose the opportunity to invest these funds and earn what?
Interest rate or rate of return
If you could earn a 10% rate of return on your invested funds, then what would be the total cost of buying $1000 worth of insurance?
$1100= $1000 (1+.10)

9. What can be done? Assume the risk Reduce the risk Transfer 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

10. Groups Please get into six to eight groups and refer to Activity 10-5.
Choosing coverage:
You are to determine what level of coverage you would like from each category.
Keep in mind that all states require basic liability coverage, so everyone must choose at least option #3 when it comes to Automobile Insurance.
Compare risks and premiums, and be sure to buy enough coverage to protect yourselves from losses, but not so much that you are spending far more on insurance than its worth.
The maximum that you can spend annually on premiums is $4000.
With respect to disability insurance, there is a maximum coverage of four units ($2000/month) based on an annual income of $24,00/ year.

11. Choosing Insurance

12. Choosing Insurance

13. Filling out your activity sheet

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

15. Risks

16. Risks

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

18. 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…