2. What is risk?
Risk is the chance of loss.
Q. What risk is this man facing?
A. The risk of dismemberment
or death from falling off of the
tightrope.
3. Is risk part of everyday life?
Yes!
Ex. You have a 1 in 150 trillion risk of
being struck by a comet, asteroid, or
meteor.
What is another example of an everyday
risk?
4. How do you deal with risk?
You use one of the following risk
management methods:
▪ Risk avoidance
▪ Risk reduction
▪ Risk assumption
▪ Risk shifting
5. What is risk avoidance?
Risk avoidance is not engaging
in activities that are likely to
cause loss.
Ex. Not texting while driving
What is another example of risk
avoidance?
6. What is risk reduction?
Risk reduction is engaging in activities
that are likely to prevent loss.
Ex. Eating a balanced diet and exercising
What is another example of risk
reduction?
7. What is risk assumption?
Risk assumption is accepting full
responsibility for a potential loss.
Ex. Establishing a monetary fund to cover
the cost of a specific loss (self-insurance)
What is another example of risk
assumption?
8. What is risk assumption?
Risk assumption is accepting full
responsibility for a potential loss.
Ex. Establishing a monetary fund to cover
the cost of a specific loss (self-insurance)
What is another example of risk
assumption?
9. What is risk shifting? Also known as Risk Transfer
Risk shifting is transferring the risk to an
insurance company.
Ex. Purchasing life insurance
What is another example of risk shifting?
10. What is risk shifting? Also known as Risk Transfer
Risk shifting is transferring the risk to an
insurance company.
Ex. Purchasing life insurance
What is another example of risk shifting?
11. What is insurance?
Insurance is protection from potential
financial loss.
Ex. You purchase zombie insurance if you
want to be protected from the possible
financial loss of being turned in a zombie.
What is another example of insurance?
12. What is insurance?
Insurance is protection from potential
financial loss.
Ex. You purchase zombie insurance if you
want to be protected from the possible
financial loss of being turned in a zombie.
What is another example of insurance?
14. How do I get insurance?
You purchase an insurance policy
from an insurance company.
You will talk to an insurance broker.,
someone who sells insurance.
Ex. You can a purchase life insurance
policy from the New York Life
Insurance Company.
What is another company that sells
insurance?
15. How much does insurance cost? Based on Risk
Factors
The price of your policy will vary based
on your risk factors.
Ex. Professional athletes pay more for
disability insurance than fans do
because they have higher risks of
sustaining disabling injuries from
playing sports than fans do from
watching them.
What is another example of how risk
factors will affect the price of your
policy?
16. How does insurance work?
Insurance is based on the following
principles:
▪ Pooled Risks
▪ Law of Large Numbers
17. What is the principle of pooled risks?
By pooling resources, individuals can spread
the risk of financial loss from destructive
events.
Ex. 100,000 individuals purchase health
insurance from Geico. Each policy costs
$1,000 a month. Thus, Geico has
$10,000,000 each month in its insurance
fund to pay for the medical expenses
covered under this policy for these policy
holders.
18. What is the law of large numbers?
The more data you collect and
analyze, the more accurately you can
predict the theoretical probability of
various destructive events.
Ex. Each cigarette you smoke reduces
your life expectancy by 12 minutes.
20. Coverage
▪ Coverage = the amount of money the insurance company will pay
if you need its services (ex. Wreck your car, go to hospital)
21. Deductible
▪ Deductible = the amount of money you pay when you have a loss,
such as when you get in a car accident. You may incur $2,000
worth of damage, but you only have to pay your deductible, which
may be $500.
▪$ COST TO YOU
22. Claim
▪ Claim = the formal request for payment sent to the insurance
company to cover the loss
▪$ TOTAL COST
