25.2- Managing Risk

Reducing Insurance Costs Ways to save on insurance costs:

-Increase deductibles -Purchase Group Insurance -Consider Payment Options -Look for Discount Opportunities -Comparison Shop

Look for Discount Opportunities Many insurance companies offer discounts for special conditions, for example:

-nonsmokers can get lower premiums on fire and health insurance -taking driver's education courses and getting good grades can reduce automobile insurance costs for teenagers -having more than one vehicle or more than one insurance policy with a company can result in multiple-policy discounts.

Risk Assessment: is a three-setp process

1. Identify risks of loss 2.Assess seriousness of risk 3.Handle risks (serious risks, nonserious risks)

Step 3: Handle Risks 4 techniques you can consider to handle risk:

1. shifting 2. avoiding 3. reducing 4. assuming risk

You can find ratings for different insurers in print and online publications fo the...

A.M. Best company and Standard & Poor's -ask people you know for recommendations about insurers they have used. -Check with your state insurance commissioner to see what companies are legally doing business in the state and which companies have had complaints filed against them

Comparison Shop

Get quotes from several insurers: -make sure to give each one the same infomation so you can compare exact coverage and costs.

Purchase Group Insurance

The premiums for group plans are usually considerably lower than for an individual plan, especially for health insurance. If group plans are available to you through your job, credit union, a social or professional organization, or other similar group, you will likely save money by enrolling in them.

A good risk-management plan uses...

a combination of the 4 strategies to: -balance risk -the cost of insurance -your potential losses

You cannot eliminate risk but you can manage it so...

a loss does not become financially devastating

Risk management begins with

a systematic study of the risks that you face.

People who self-insure plan to...

absorb the costs of some risks themselves -This strategy can reduce the cost of insurance

To reduce your premiums, you can...

accept a higher deductible.

Agreeing to have your premiums automatically deducted from your checking account or paying electronically may...

also reduce your costs.

Some premiums are paid...

annually or semiannually

When a risk is significant and can have drastic consequences, then shifting the risk...

by purchasing insurance is a good idea.

Many potential losses could occur, even though they may not happen as a result of your error our fault, you sitll...

can be held responsible for damages to others and to property

Monthly payments usually...

contain an extra charge, while semiannual payments do not.

The Risk-Management Plan When you allow events to control your life, tehy also...

drain your finances in unpredictable and expensive ways.

Step 1: Idnetify Risks of Loss: Ask yourself what financial risks you take daily, such as

drive a car own a house plan a partly etc.

Risk management begins...

early in life and remains in effect throughout your life

To help cushion your financial burden, you could...

establish a monetary fund to cover the cost of a loss.

Maintaining a good driving record is important when...

getting price quotes for automobile insurance

Risk mangement

is an organized strategy for controlling financial loss from: -pure risks -insurable risks

Generally, the higher the deductible, the....

lower the insurance premium ex: Premiums for a policy with a $100 deductible will be considerably higher than for a policy with a $500 deductible.

2. Risk avoidance

lowers the chance for loss by not doing the activity that could result in the loss, ex: -instead of having a party at your house and risking damage, you could reserve a section of a restaurant. -instead of participating in a dangerous sport, you could go camping

3. Risk reduction:

lowers the chance of loss by taking measures to lessen the frequency or severity of losses that may occur, ex: -put studded snow tires on your car -install fire alarms or sprinklers in your home -use seat belts

When getting costs estimates for many types of insurance, you...

need to know what your property is worth.

1. Risk shifting also called Risk transfer

occurs when you buy insurance to cover financial losses caused by damaging events ex: fire theft injury or death

The insurer's obligation to pay begins...

only after you have paid your full deductible.

In some cases, the cost of insuring against a particular risk may be too great, or the probability that the risk will occur may be too low, to justify...

paying an insurance premium

In general financial advisers say that a basic insurance plan should help ...

reduce risk and protect against the following: 1. Potential loss of income due to the premature death, illness, accident, or unemployment of a wage earner. 2. Potential loss of income and extra expense resulting from the illness, disability, or death of a spouse or other family memeber. 3. Potential loss of real or personal property due to fire, theft, or other hazards. 4. Potential loss of income, savings, and property resulting from personal liability (injuring a person or damaging the property of others).

To avoid possible financial disaster, create a ...

risk-management plan listing: -listing the risks you identified -your assessment of their financial impacts -the techniques that you plan to use to mange each risk

Consider Payment Options How you pay premiums can...

save you considerable money over a short period of time.

Based on the nature and seriousness of the risks you identify, you should...

select the risk-management techniques that best address each risk. Ex: -own a car, because of serious risk = buy auto insurance to shift most of the risk. -bungee jumping, because of high risk =do not do the activity -home needs major repairs soon, assume risk by= starting a home-maintenance fund.

As soon as you have something to lose (assets, wealth, income, etc) you have...

something to lose so you must begin to think about how you can protect yourself from loss

4. Risk assumption

the process of accepting the consequences of risk

By making premium payments, you shift...

the risk of major financial loss to the insurance company.

Increase Deductibles A deductible is...

the specified amount of a loss that you must pay.

Other types of risk may have a relatively low financial consequence or may have only a very small chance of occurring so these types of risk are,

therefore of a lower priority

Step 2: assess Seriousness or Risk Some risks are high priority because...

they could have serious financial consequences ex: driving your car: you could destroy the property or others, injure others or even kill someone, so driving is a high-priority risk.

Even after death your estate can be

vulnerable to attacks from those who would like to take part of your wealth from your heirs.

For each risk that you will face, you can find...

ways to reduce, avoid, or assume part of the risk yourself.

Always compare payments options and...

weigh the differences in costs.

It is also important to know exactly...

what coverage you need -and don't need- before talking to insurers.