1. The Trouble with Chocolate Bunnies: Using Insurance to Manage Risk
Pedersen

2. INSURANCE A tool to reduce your risk of FINANCIAL LOSS.
 It’s for big potential losses that are fairly rare, predictable and verifiable (not heartbreak or bad haircuts!) .
INSURANCE should not be an INVESTMENT!!!! It isn’t supposed to make you BETTER OFF, but just prevent you from being WORSE OFF.

3. Insurance = RISK MANAGEMENT
You share risk with all the other people who buy a POLICY. It’s like a reverse lottery. The one who “wins” loses and has something bad happen to them. But since everyone else with a POLICY has “paid in,” there is a POOL of money. Your insurance bill is called a PREMIUM. You SHARE the RISK with other POLICYHOLDERS! For example……
Give three volunteers a chocolate bunny each, 5 play-money one dollar bills, and a ticket for a drawing. I offer each student insurance on their bunny, telling them I am an actuary from an insurance company and I KNOW one of them will suffer the loss of a bunny, I just don’t know which one. I put the replacement cost of the bunny at $6 (which none of them could afford to replace on their own). The premium is $2 for a rider with a $1 deductible or $3 for a rider with a $0 deductible. I reinforce the idea of “the lower the deductible, the higher the premium.” So I give the floater since the bunny is so easily “stealable” that it could just “float away” with the help of a light-fingered thief. So I collect the $2 or $3 from each student, and I show that the money I am collecting is from THEM (sharing the risk) by using a magnet to put the money on the whiteboard instead of in my pocket. I draw a number, take a bunny, and give the student $6 if they have a zero deductible or $5 if they have a $1 deductible. So the insurance company made money, the person with the loss has the choice to buy a bunny from me or keep the money, If they buy the bunny, they have a bunny and some money left while the other kids have a bunny and usually more money. I point out that this is how insurance works—sometimes you still loose a little, but not as much as you would have without the insurance. And it’s better not to have to use your insurance—that’s money you HOPE you throw away!

4. Risk Your Bunny? A Bunny Costs $6
An insurance policy is $2 with a $1 deductible OR
$3 with a $0 deductible
If your bunny is stolen, insurance will pay you for your loss after your pay your deductible.
Tragedy will strike ONE bunny owner…..
You can buy insurance or not—it’s up to you.

5. Insurance Policy FLOATER
1) You have a $1.00 deductible.
2) Your chocolate bunny is covered for REPLACEMENT VALUE.
3) You are covered in the event of fire, theft, or damage to your chocolate bunny.
Annual PREMIUM: $2.00
Insurance Policy FLOATER
1) You have a ZERO deductible.
2) Your chocolate bunny is covered for REPLACEMENT VALUE.
3) You are covered in the event of fire, theft, or damage to your chocolate bunny.
Annual PREMIUM: $3.00

7. Using Your Insurance When something happens, check your policy.
If you are covered, make a claim!
The insurance company makes you pay your deductible—the amount YOU are responsible for if you suffer a loss.
Your insurance pays the rest!