Road to
Retirement
Risk Management & Insurance
What’s my Risk?
• Risk Avoidance: To avoid becoming involved
or to eliminate yourself from a situation to
avoid risk.
• Risk Reduction: To take measures to reduce
your overall risk in a given situation.
• Risk Sharing: To take measures to share your
risk with another, through insurance or risk
transfer.
• Risk Retention: To accept a given risk and
budget to prepare for that risk.
R1
What is Insurance?
• Insurance is an agreement that protects you or your
property in the case of injury, damage, or theft.
• Insurance protects your investment. If anything happens
to something covered by your policy, the insurance
company will pay for replacement, repair, or a cash
settlement.
• Why do people purchase insurance? To protect:
o Cars
o Homes
o Health (medical, dental)
o Liability
o Belongings (renter’s insurance)
o Lost Income (life insurance)
R2
What is Insurance?
• Protects you.
o In cases of medical emergencies or accidents, insurance can provide access to doctors, medication, and
other things you need to remedy the situation.
o When you insure your car, the insurance company pays to repair damage to the vehicle.
• Protects your family.
o It gives you peace of mind knowing your family will be provided for if you pass away.
• Protects your assets and income.
o Having insurance can protect your assets and income in cases of accidents and lawsuits.
o Insurance can significantly reduce costs of having to pay for major disasters on your own.
• Protects your credit.
o If you are issued judgment from a lawsuit, your credit rating will be affected negatively.
• Protects items you own.
o Belongings you insure can be replaced if something happens.
R2
What is Insurance?
If you roll:
• Doubles (1s through 5s) – nothing, you are extra safe and get 1 extra ticket.
• 3 – You fall and hurt your leg. If you have medical insurance you pay 1 ticket. If you do not you pay 4
tickets.
• 4 – You get into a car accident. If you are insured you pay 1 ticket. If you are not you pay 6 tickets.
• 5 – Your apartment is broken into. If you are insured you pay 1 ticket. If you are not you pay 5 tickets.
• 6 – You get the flu and need prescription antibiotics and a blood test. If you are insured you pay 1 ticket. If
you are not you pay 4 tickets.
• 7 – Someone hits your car in a parking lot. If you are insured you pay 1 ticket. If not, 3 tickets.
• 8 – A pipe bursts in your apartment and ruins your couch and TV. If you are insured you pay 1 ticket. If you
are not you pay 6 tickets.
• 9 – A rock hits your car and breaks your windshield. If you are insured you pay 1 ticket. If you are not you
pay 5 tickets.
• 10 – You trip and fall and sprain your ankle. You need crutches, an x-ray, and pain medication. If you are
insured you pay 1 ticket. If you are not you pay 8 tickets.
• 11 – You want to get a flu shot. If you are insured you pay 1 ticket. If you are not you pay 3 tickets.
• 12 – The roof collapses and damages all your belongings. If you are insured you pay 1 ticket. If you are
not you pay 10 tickets.
R2
What Insurance Do I Need? The Basics
• Example: Auto Insurance
o It’s the law in most states
o Accidents can happen, even to the best drivers
o Can you afford to repair or replace a damaged car?
o Can you guarantee that other drivers won’t hit you?
• Example: Lawsuits
o You can be sued even if you’re broke
o Even a fender bender can cost $100K in damages
o Expensive cars can run up to $20K just to fix a bumper
• Example: Health
o Can you afford to pay for a doctor’s visit ($95-265)?
o Are you certain you won’t break an arm or catch a virus?
o Do you have allergies, wear contacts or glasses?
o Do you need prescription medication ($50 average)?
R3
What Insurance Do I Need? The Basics
Aspects of Heath Insurance
• HMO/PPO: Different premiums and levels of flexibility.
• Doctor/Facility Availability: Companies often contract with specific
doctors and facilities.
• Premium: Monthly cost within your budget.
• Deductible: Out-of-pocket fee before the insurance company pays.
• Co-payment: Like a deductible; applied to individual services and
prescriptions.
• Exclusions: Not all services are covered.
• Out-of-pocket maximum: Amount where your obligation ends and the
company pays100%.
• Claim handling. Will a third party be involved?
What Insurance Do I Need? Advanced
Homeowners Insurance
• Covers:
o
o
o
o
o
Liability for bodily injury and property damage due to your negligence.
Accidents in your home and on your property.
Accidents away from your home for which you are responsible.
Injuries occurring to others in or around your home.
Limited coverage for money, gold, jewelry, stamp/coin collections.
• Does not cover:
o Flood
o Hurricane
o Earthquake
R4
What Insurance Do I Need? Advanced
Disability Insurance
• Odds of disability are higher than other
risks.
• Most contracts unaffected by Social
Security.
o SS requires 12 months total
disability to collect.
o Stringent qualification criteria.
• Other coverage uses:
o Buy-sell agreements
o Key-person indemnification
o Business overhead
• Chances of becoming disabled increase
How to Buy Disability Insurance
• Benefit amount: Maximum monthly
benefit. (Use worksheet to determine
your need.)
• Occupation (disability) definition:
Everything else stems from how the
policy defines “disability.”
• Elimination period: Number of days you
pay before the insurance company kicks
in (AKA “waiting period”).
• Benefit period: Length of time benefit is
paid.
with age.
R4
What Insurance Do I Need? Advanced
Long-term Care Insurance
Pays expenses not covered by health insurance or Medicare.

50% of Americans > 65 will require long-term care (CA Partnership
for Long-Term Care Comprehensive Brochure, August 2004)

2010 average daily rate for private nursing home room = $206
(Genworth Financial 2010 Cost of Care Survey)

Nursing home rates increased on average >5% per year over last
20 years

35% of people in nursing facilities stay 1-5 years (National Center
for Policy Analysis, 2005)

21% of people in nursing facilities stay longer than 5 years (CA
Partnership for Long-Term Care, 2005)

Average length of time spent in nursing home = 2.4 years (MetLife
Market Survey of Nursing Home and Assisted Living Cost, 2007)
R4
How Insurance Policies Work
o Insurance premium – The payment made
to an insurance company in exchange for
an insurance policy guaranteeing
protection or coverage on the insured
item.
o Deductible – The amount of loss you pay
out-of-pocket to the insurance company
on a damaged item.
o Insurance policy – A contract that
describes the terms and conditions of
insurance, including type and amount of
coverage, premiums, and deductibles.
o Coverage limits – The maximum amount
paid by the insurance company on a given
claim.
R5
How Insurance Policies Work
VOCABULARY
Insurance policy – A contract that describes the terms and conditions of
insurance, including type and amount of coverage, premiums, and
deductibles.
Insurance premium – The payment made to an insurance company in
exchange for an insurance policy guaranteeing protection or coverage on
the insured item.
Deductible – The amount of loss you pay out-of-pocket to the insurance
company on a damaged item.
Coverage limits – The maximum amount paid by the insurance company on
a given claim.
R5
Insurance Claims
Role Play Activity
• Insurance agent – The agent must take a
statement about the car accident and be very
critical of the policyholder. The agent acts in the
best interest of the company, meaning their goal
is NOT to pay claims to save money. The agent is
trying to get a job promotion and knows that the
company wants to pay the minimal amount
possible. The agent in this case only wants to
award the policyholder $1,900 total although the
repairs look like they will cost $4,275.
• Policyholder – You were rear-ended on the
freeway. You were driving carefully and being
cautious and you have never had a prior accident.
You documented the whole incident, filled out
and obtained a copy of the police report, and are
now trying to file a claim to get your car fixed. You
have received three quotes that average $4,275.
The insurance agent only wants to pay $1,900.
R6
Choosing an Insurance Company
• Choose a company by visiting
AM Best: www.ambest.com,
Fitch: www.fitchratings.com,
Moody’s: www.moodys.com, and/or
Standard & Poor’s: www.standardandpoors.com
• Ask questions.
• Be educated.
• Conduct due-diligence
• Visit your State Insurance Department Compliance.
Find your state at www.naic.org.com.
Your representative must be licensed in the state where
you work or live.
R7
How to Reduce your Risk
Why do you think it’s important to reduce risk?
?
R8
Estate Planning
Action Plan
•
Make a list of all of your possessions and desires if
you pass away.
•
Complete your will immediately.
•
If you have a fair amount of assets or any
dependents, have your will reviewed by a
professional.
•
If you have a lot of assets, learn more about creating
a living trust by doing research and talking to experts.
•
Send copies of your will or trust to a loved one and
keep it in a safe location.
•
Make adjustments as needed to add assets or
dependents.
R9