Insurancehttp://www.mcee.umn.edu/documents/UNIT_TEN_PROTECTING.pdf

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.

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

Potential Risks

Potential Risks

Potential Risks

What can be done?• Assume 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

Groups• Please get into four to six groups.

Choosing Insurance

Choosing Insurance

Filling out your activity sheet

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

Risks

Risks

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

Do the math!

Debrief• Who wishes they bought more insurance?• Who wishes they bought less insurance?

• What is covered?• Types of insurance (Health, Disability, Property, Life)• Deductibles (Why are they there?)

• 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…

Debrief• Actuarially fair….

• Example:• Renters’ Insurance: Option #1 ($250 deductible, $5,000 loss)

• Something happens with 10 or K. Each has 1/13 probability.• Expected Loss (10): 1/13 x $750 = $57.69• Expected Loss (K): 1/13 x $3,750 = $288.46• Total Expected Loss: $346.15 • Premium is $350.00.

Debrief• Hints:• I did not give you risks, but you might give students an idea of the

risks…• Teacher cheat sheet is included for (4) column…