Risk & Protection
 Insurance claims involving teens 100% higher
than adults
 Teen crash rates drop 40% 6 months after
getting license
 75% of Americans experience some form of
disability this year
 At work, a disabling accident occurs every 8
seconds

Risk is the chance of financial loss from perils to property or
people

Insurance is a method for spreading individual risk among a
large group of people to make losses more affordable to all

Important in financial planning
Common Exposures to Loss
Accident/Illness
Property Ownership
Liability
• Loss of income from inability
to work
• Uninsured medical bills
• Death
• Potential Loss UNLIMITED
• Your property is damaged,
destroyed, lost, or stolen
• Potential Loss: AMOUNT
NEEDED TO REPLACE YOUR
PROPERTY
• You are found liable for
injuries to other people OR
damages to their property
• Potential Loss UNLIMITED
Exposure
Accidents/Illness
Risk
Loss of Income
Medical Bills
Death
Evaluate
How much will I
lose if I can’t
work?
What is the most
this could cost
me?
Permanent
Potential Loss
UNLIMITED LOSS
Exposure
• Property
Ownership
Risk
• Damaged,
destroyed,
lost, or
stolen
Evaluate?
• Specific
dollar
amount
from your
Personal
Property
Inventory
Potential Loss
• $ ________
• Liability for injuries
to other people or
damages to their
property
Risk
Evaluate?
• What is the most
this could cost me?
• Unlimited
Potential Loss

Becoming sick (lost
wages)

Dying prematurely
(loss of income for
family)

Becoming disabled
(lost wages)

Insurer is a company that
agrees to pay the cost of
potential future losses in
exchange for regular fee
payments

Policy a written insurance
contract

Premium is a fee paid for the
insurance policy. Usually paid at
regular intervals by the owner of
the policy (policyholder). These
are determined by actuaries.

Important to have
right kind of
insurance at the
right time

Beware of under
insured or over
insured

Hazard: A condition that
creates or increases the
likelihood of some loss
 Example: lightning or
defective wiring can cause a
fire

Peril: An event whose
occurrence can cause a loss.
 Example: Fire, storm,
explosions, robbery, accident

Loss: Unexpected reduction
in insured property, caused
by a peril.
 Example: Crushed car caused
by a storm

Waste of current income

Other needs might go
unmet
Insurance is not meant
to enrich; only to
compensate for actual
losses incurred.
 This principle is called
indemnification.

 Personal risks
 Take safety precautions, like wear a helmet
 Avoid risky behaviors altogether
 Stop hanging out with friends who smoke or
drink; go do something else
 Reduce/avoid property risks
 Install smoke detectors in your home
 Use your burglar alarm

Means putting the policyholder back in the same financial
condition he or she was in before the loss occurred

Probability is the mathematics of chance and the root of
indemnification.

Every event can be described in terms of probability or
likelihood that something will happen
You suffer a loss
Someone (you, your
doctor, or insurance
agent) makes a claim
• Requesting
reimbursement
The insurance
company pays you
benefits, sums of
money to be paid for
losses

Risks that can be big
losses
 Large loss is a cost that
would create financial
hardship
▪ Medical bills
 Small loss is inconvenient
▪ car repair
 Should change with time
 Life insurance for married spouse & kids
 Disability if head of household
 Liability on 1st car (used)
Make of car
How much
you use the
car
Driver’s education
Credit rating
Where you live
Driving record
Marital status
Gender
Type of car
Do you take the car to work?
Your age
6-F
If you’re a good student
Help manage financial losses
Professional risk takers
Spread risk among people
Policyholders pool premium in reserves so those suffers can be
compensated
5. Predictable cost for company
1.
2.
3.
4.
Policy A: Liability
Bodily injury or property
damages that you are responsible
for because of an accident
involving your car
Suggested Minimum Coverage
• MINIMUM COVERAGE REQUIRED by
LAW in MISSOURI
• $25,000/person for bodily injury
• $50,000/accident for total bodily injury
(multiple people injured)
• $10,000/accident for property
Policy B: Medical
Coverage
Medical and/or funeral expenses
for you, members of your family,
and other persons injured in an
accident while in your vehicle.
Also covers your family members
as pedestrians if struck by an
auto.
OPTIONAL in Missouri BUT
Suggested Minimum Coverage
$10,00 per person
Would help pay your accidentrelated medical bills
Policy C:
Uninsured/Underinsured
Two Types:
• Bodily Injury: Your injuries caused by an
uninsured, hit-and-run, or underinsured
driver.
• Property: Damages to your vehicle
caused by uninsured/underinsured driver
Suggested Minimum Coverage
• MINIMUM COVERAGE REQUIRED by
LAW in MISSOURI
• $25,000/person for bodily injury
• $50,000/accident for bodily injury

Might want to consider
if driving older car

Deductible might be
higher than insurance
company will pay
 The cars value

Shop at least three places; compare rates and policies; ask about
discounts and special rates.

Read sources of information such as Consumer Reports®.

Purchase more than one type of insurance from the same
company; insure all cars with the same company.
Let’s get
ready to
BUNDLE!
• Basic info about policy
Declarations • Period of coverage, premium, limits, & deductibles
Page
Copy of
Policy
• Spells out coverage
• Spells out what is NOT covered AND under what circumstances are items NOT covered
• Hurricane insurance does not cover flooding inside the home; only covers exterior
Exclusions

Importance?
 Single greatest asset is potential earning power

Pays income if policy holder gets sick and
can’t work

Limited to 2/3 gross income

Designed to encourage return to work ASAP

Protects from losses to:
 House, garage, furniture, other personal property

Cover losses due to fire, weather damage, theft,
vandalism

Also pays cost of living elsewhere while home is
being rebuilt or repaired

Can buy additional coverage against floods,
earthquakes, jewelry, expensive paintings etc. called
a rider

Never covers acts of war

Typically insure
structure for 80% of its
value

Renters insurance same
coverage as
homeowner’s policy
except doesn’t cover
structure just contents
inside

BUY RENTERS
INSURANCE

You better shop
around!
 WHY? Because I said so!

The way to get the
best deal is to shop
around the different
companies. Their
prices and coverage
vary greatly!
Whole
•Same premium your entire life
•Builds cash value over time
•You can borrow against the cash value
•Can cash in at retirement age OR continue to pay premium & receive death
benefits
•Monthly payment is based on value of policy
•If you stop paying, your policy is still good-it just doesn’t accumulate
Term
• Protection for a specific and finite period of time (5, 10, 20 years and
up)
• Initially less expensive, greatest immediate coverage per dollar
• Good if need large coverage for a known period of time
• Allows for maximum coverage with minimum premiums
• Pays benefits only if you die during period covered in policy
• If you stop paying policy, policy stops
• No cash value
Renewable
• At the end of coverage, you
can renew it for another term
• Won’t have to provide evidence
of insurability
• Premiums will increase as you
get older
Convertible
• Converts to a whole life policy
• No medical physical