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Chapter10Overheads - Chapter 10 Risk Management and...

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Chapter 10: Risk Management and Property/Liability Insurance
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Objectives Define risk and apply the risk- management process to personal financial affairs. Define insurance terminology and explain the relationship between risk and insurance.
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Objectives Design a homeowner’s insurance program to meet your needs and keep the cost of the plan to a minimum. Design an automobile insurance program to meet your needs and keep the cost of the plan to a minimum.
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Objectives Describe property and liability insurance policies designed to meet needs other than those related to housing and automobiles. Outline the steps to make a claim against a property or liability insurance policy.
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Risk Management A plan to protect accumulated resources and assets from the possibility of financial loss. CONSIDER…
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Coverage and Type of Risk Pure Risk Insurable Accidental, unintentional Always results in a loss Can be personal, property or liability risk. Speculative Risk Loss or gain possible Uninsurable Such as investing in stocks or gambling
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Risk Avoidance Risk Shifting Risk Assumption Risk Reduction Ways to Manage Risk
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Gather information Evaluate risk and potential losses Choose mechanisms Administer program Evaluate and adjust Risk and Risk Management RISK MANAGEMENT PROCESS:
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Decision Making Matrix
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Risk and Risk Management Risk avoidance Risk retention Loss control Transferring risk Risk reduction CHOOSE MECHANISMS:
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What is Insurance? Insurance is strange. It's a product that most consumers buy, but few want to use. And many people find insurance confusing. It's unlike any other consumer product on the market. You can't see it, touch it, smell it, hear it or taste it. But without it, the world would be a much different place. Just think about it. Would you casually drive to the grocery store knowing that everything you ever worked for could be at risk if you were involved in an accident? How much would you be willing to spend on a home without insurance to cover it? Who would dare start a new business without the safety net of insurance? Insurance allows people to take risks, make investments, protect their hard- earned assets and provides peace of mind. Insurance and other risk management techniques have been around in some form for thousands of years. Insurance has its roots in ancient China. Shipping merchants in 2500 B.C. were the first to introduce a concept vital to the role and purpose of insurance -- spreading the risk of loss from the individual to a group of individuals. Before sailing through dangerous waters, merchants gathered and divided their goods so that each boat carried some of the contents of the others. That way no one merchant shouldered the risk alone, protecting themselves from a potential total loss of goods.
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