Insurance

Use of math disciplines to determine risk/set rates

-Auto insurance: rates are higher for teens than other demographics, because you are more likely (statistically) to have an accident than an adult with more driving experience. -Life insurance: smokers are likely to pay higher rates, as they have more health problems (cancer & heart disease) that are not hereditary _Sounds unfair, but those are facts! -They have been able to gather this information over decades, so they have a clearer picture.

How do insurance companies determine how much to charge you/someone else?

-Insurance companies know how to measure risk -They must estimate how many accidents, illnesses, or deaths there will be within a certain group of policyholders. _Done by math techniques, such a probability and statistics

Use of math disciplines to determine risk/set rates

-Probability: the chance of something happening within a certain number of occurrences. For example: -Odds of becoming a pro athlete are 22,000:1 -Odds of identity theft are 200:1

Insurer

A person or company that underwrites an insurance risk; the party in an insurance contract undertaking to pay compensation.

Insurance

A practice by which a company provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

Deductible

A specified Amount of money that the insured must pay before an insurance company will pay a claim.

Liability

The state of being responsible for something, especially by law.

Coverage

the total amount and type of insurance carried

How can the insurance company afford to pay for your financial loss?

-Insurance is based on the principle of shared risk, or risk pooling. _The $ (from your premium) is put together with the premiums of many other people. _That large pool of $ is used to pay for the losses suffered by individual members of the group

Use of math disciplines to determine risk/set rates

-Law of large numbers also called the law of averages: The larger the group/number of events analyzed, the more accurately events can be predicted. -By collecting data on large numbers of people, insurers are able to predict with precision the probability of loss for particular groups _Teenage boys, senior citizens, middle-aged adults

Math principles in action...

-This same principle (but more sophisticated) is how insurance companies set rates. -This is why agents will ask a series of questions to make sure you are put into the correct group, or risk classification, and charged a fair premium.

How do you protect yourself, your loved ones and the things you own?

-You (the insured) buy an insurance policy from an insurer to protect against things that can threaten your financial health or your family's financial future. -These things can range from damage to your car, home, to injury, illness or even premature death.

How do you protect yourself, your loved ones and the things you own?

-You pay a fee (premium) monthly, quarterly, or annually -If something happens - you become ill/involved in an auto accident - your insurance company will cover a portion or sometimes all expenses you incur as a result of what happened to you

Claim

A formal request to an insurance company asking for a payment based on the terms of the insurance policy

Premium

An amount to be paid for an insurance policy.

Policy

An insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the "policyholder", who also is often the person insured.

Insured (or policyholder)

The person, group, or property for which an insurance policy is issued. The condition of having insurance.