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CHAPTER 37 THE FUNDAMENTALS OF INSURANCE CHAPTER 37 THE FUNDAMENTALS OF INSURANCE

RISK • Economic Risk--property liability and personal well being • Personal Risk--illness, disability, loss RISK • Economic Risk--property liability and personal well being • Personal Risk--illness, disability, loss of income, unemployment, old age, premature death • Property Risk--damage or loss due to theft, wind, fire, flood, or other hazard • Liability Risk--potential losses to others caused by you

SHARING ECONOMIC RISK • Avoid large economic losses by sharing the loss with other SHARING ECONOMIC RISK • Avoid large economic losses by sharing the loss with other people…Insurance companies

INSURANCE • Planned protection provided by sharing economic losses • Insurance Companies--businesses that provide INSURANCE • Planned protection provided by sharing economic losses • Insurance Companies--businesses that provide planned protection against economic losses • Insured (policy holder)--the person for whom the risk is assumed • Policy--contract issued by the company for coverage for the policy holder

INSURANCE • Premium--amount the policyholder must pay for insurance coverage • Claim--policyholder’s request for INSURANCE • Premium--amount the policyholder must pay for insurance coverage • Claim--policyholder’s request for payment for a loss that is covered by the policy • Deductible--amount policyholder pays before the insurance company pays a claim

INSURED LOSSES • You can insure almost anything! Can you think of some examples? INSURED LOSSES • You can insure almost anything! Can you think of some examples? • Common losses: vehicle, property, life, and health insurance • Self-Insurance--assume total risk • Co-Insurance--pay deductible and share the remaining loss with insurance co. (for example 80 -20)

COST OF INSURANCE • Premiums charged based on past experiences (Why do 17 year COST OF INSURANCE • Premiums charged based on past experiences (Why do 17 year old males have high costs of insurance? ) • More claims from policy holders the higher the premiums • Everyone benefits if the losses covered by insurance decrease

PURCHASING INSURANCE • Employer can provide insurance for health and life • Buy directly PURCHASING INSURANCE • Employer can provide insurance for health and life • Buy directly from insurance agent 1. Work for a large insurance company 2. Independent agent--may sell policies from a number of companies • SHOP AROUND!!

INSURANCE FOR ECONOMIC SECURITY • Reduces financial hardships • PEACE OF MIND • Helps INSURANCE FOR ECONOMIC SECURITY • Reduces financial hardships • PEACE OF MIND • Helps economy--opportunity to do things you may be reluctant to do without insurance (buy a house) • Premiums are invested or used to make loans that help the economy grow