Standard and Benchmarks
National Standards for Financial Literacy
Standard 6: 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.
Grade 12 Benchmarks
1. Probability quantifies the likelihood that a specific event will occur, usually expressed as the ratio of the number of actual occurrences to the number of possible occurrences.
2. Individuals vary with respect to their willingness to accept risk. Most people are willing to pay a small cost now if it means they can avoid a possible larger loss later.
3. Judgment regarding risky events is subject to errors because people tend to overestimate the probability of infrequent events, often because they’ve heard of or seen a recent example.
4. 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.
5. People may be required by governments or by certain types of contracts (e.g., home mortgages) to purchase some type of insurance.
6. An insurance contract can increase the probability or size of a potential loss because having the insurance results in the person taking more risks. 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).
7. People can lower insurance premiums by behaving in ways that show they pose a lower risk.
8. Heath insurance provides funds to pay for health care in the event of illness and may also pay for the cost of preventive care. Large health insurance companies can often negotiate with doctors, hospitals, and other health care providers to obtain lower health care prices for their policyholders.
9. Disability insurance is income insurance that provides funds to replace income lost while an individual is ill or injured and unable to work.
10. Property and casualty insurance (including renters insurance) pays for damage or loss to the insured’s property and often includes liability coverage for actions of the insured that cause harm to other people or their property.
11. Life insurance benefits are paid to the insured’s beneficiaries in the event of the policyholder’s death. These payments can be used to replace wages lost when the insured person dies.
12. In addition to privately purchased insurance, some government benefit programs provide a social safety net to protect individuals from economic hardship created by unexpected events.
Protecting and Insuring - Talking Points
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.
6. There are a variety of types of insurance:
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. Beyond private insurance, some government-benefit programs provide a social safety net to protect individuals from economic hardship or loss caused by unexpected events. These include government transfer programs such as Social Security disability benefits, unemployment insurance, workers’ compensation, Medicare, and Medicaid
9. 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.
10. There are federal and state regulations designed to provide some remedies and assistance for victims of identity theft.