Title: Unit 6: Insurance & Risk Management (Teacher Only)
Course: Kentucky Sample Personal Finance Curriculum > Section: Unit 6: Insurance & Risk Management

Description
It is important for consumers to protect themselves from the financial losses associated with lost income, assets, health, or identity. People make choices to accept risk, reduce risk, or transfer risk to another through the purchase of insurance. Students will learn about the factors that determine the cost of insurance. They will weigh the costs and benefits of choosing to buy or forego insurance. They will also learn about the risk of identity theft and strategies to protect themselves.

Talking Points
1. Risk is the chance of loss or harm. Risk from accidents or unexpected events is an unavoidable part of life. People face personal financial risk when unexpected events damage health, income, property, wealth, or future opportunities.

2. People can choose to accept some risk, take steps to avoid or reduce risk, or transfer risk to others through the purchase of insurance. Each option has costs and benefits. Most people are willing to pay a small cost now if it means they can avoid a possible larger loss later.

3. People often judge potential risk incorrectly because when they hear of harmful events—for example, a storm or fire—they tend to think such events occur more often than they actually do.

4. One way to prepare for unexpected losses is to save for emergencies. Self-insurance involves accepting risk and saving money on a regular basis to cover a potential loss.

5. Insurance is a tool for protecting against risk. People choose different amounts of insurance coverage based on their willingness to accept risk as well as their occupation, lifestyle, age, financial profile, and the price of insurance.

- Insurance allows people to transfer the costs of a potential loss to a third party by paying a fee (called a premium).

- Insurance companies create insurance contracts (policies) by analyzing the outcomes of individuals who face similar types of risks.

- Insurance companies create pools of funds from which to compensate individual policyholders who experience a large loss by collecting relatively small amounts of money (premiums) from policyholders on a regular basis.

- People pay higher prices (premiums) for insurance policies that guarantee higher levels of payment (coverage) in the event of a loss.

- Insurance companies charge higher premiums to cover higher-risk individuals and events because the risk of monetary loss is greater for these individuals and events.

- Often, having insurance results in people taking more risk than they normally would, thus increasing the probability or size of a potential loss.

- Policy features such as deductibles and copayments are cost-sharing features that encourage the policyholder to take steps to reduce the potential size of a loss (claim).

- People can lower insurance premiums by behaving in ways that show they pose a lower risk. For example, taking a safe-driving course may lower a person’s car insurance premium.

6. There are a variety of types of insurance:

- Health insurance provides funds to pay for health care in the event of illness. It may also pay the cost of preventive care.

- Large health insurance companies can often negotiate with doctors, hospitals, and other health-care providers for lower prices for their policyholders.

- Disability insurance provides funds to replace income lost while an individual is ill or injured and unable to work.

- Property and casualty insurance (e.g., renters insurance and car insurance) pays for damage or loss to the insured’s property. These types of insurance often include liability coverage in the event that someone is harmed by the insured or on the insured’s property.

- Life insurance pays benefits to the insured’s beneficiaries in the event that the policyholder dies.

7. There are times when people may be required by governments or certain types of contracts (e.g., home mortgages) to purchase some types of insurance.

8. Social networking sites and other online activity can make individuals vulnerable to harm caused by identify theft or misuse of their personal information. Identity theft can result in loss of assets, wealth, and future opportunities. Managing personal information and carefully choosing the environments in which such information is revealed help individuals reduce and insure against the risk of loss due to identity theft.

9. There are federal and state regulations designed to provide some remedies and assistance for victims of identity theft.

Standard and Benchmarks

FL.H.23 Identify common types of risk management strategies, including insurance, legal contracts, emergency funds and estate planning.

FL.H.24Analyze the costs and benefits of using various insurance management strategies/

1. Identify the major types of insurance:
  - Liability
  - Property and casualty (auto, motorcycle, boat, jewelry, etc.)
  - Health/dental/vision
  - Life
  - Homeowners/renters
  - Disability
2. Explain the tax implications of insurance.

FL. H.25 Identify strategies for protecting personal financial information and resources.

1. Identify ways to avoid identify theft and fraud, such as securing sensitive financial data, using care in online activities and properly disposing of sensitive documents.
2. Describe steps to recover from fraud and identity theft.
3. Discuss ways to avoid financial scams such as Ponzi schemes and other illegal practices.