YUFINPLAN#6 - LECTURE #6 RISK MANAGEMENT AND INSURANCE...

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1 LECTURE #6 RISK MANAGEMENT AND INSURANCE (LIFE, HEALTH AND DISABILITY) PERSONAL FINANCIAL PLANNING, CHAPTER #9 & 10
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2 CHAPTER #9-RISK MANAGEMENT Learning objectives: 1. Understand the terminology in the industry. 2. Understand the main characteristics of each type of insurance. 3. Understand the insurance needs of your client.
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3 The Risk Management Process STEP #1-Identify the Risks Separate these risks into three categories: a. Life or health b. Property c. Liability to Others When We Cause Pain or Property Damage (Torts-legal wrongs or injuries one person causes another). See Table 9.1 for more details.
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4 The Risk Management Process- Continued STEP #2-Evaluating the Risks Use 2 criteria for evaluating the risk: a. Size of the potential loss; and, b. Frequency or probability of occurrence. General rule is that if the damage caused would affect the family’s standard of living then the risk is too high and therefore some control(s) must be put in place. (See Step #3 for controls)
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5 The Risk Management Process- Continued STEP #3-Controlling the Risks 1. Avoidance-Don’t participate in risky activities. 2. Separation-Spouses should avoid traveling on the same plane in case of crash. 3. Prevention and reduction of frequency- Prevention (Health-healthy eating, exercise; Property-smoke detectors, door locks, etc.) The significance of the potential loss usually determines how much you are willing to spend to avoid it.
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6 The Risk Management Process- Continued STEP #4-Financing the Risks (Through purchasing Insurance). Basic Principles of Insurance Insurance is based on the law of large numbers. Insurance companies use the law of averages to determine how much they will have to pay out each year in claims-they just don’t know to which client’s the payments will be made. Insurance Co.’s then charge premiums that will cover this likely costs, plus cover the administrative costs, plus profit for the shareholders. Tools of the trade-Actuarial tables and Mortality tables. (See Appendix B of the book).
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7 The Risk Management Process- Continued STEP #5-Monitoring the Risk Profile Risk Management is a life-long cycle. Your risks will change (and your ability to support them) will change as you move through the life cycle. When would you be most likely to revise your estimation of your risk situation? (after every major change in the life cycle.)
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8 Risk Management Questions Please try all of the Multiple Choice Questions. We’ll take them up in class. Problem #1, Page #197 . Review each of the 4 cases and determine: a) What the risks are; and, b) What type of insurance is needed to control the risks.
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9 Chapter #10-Life, Health & Disability Insurance Learning Objectives: 1. Evaluate your client’s insurance needs. 2.
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This note was uploaded on 10/16/2011 for the course ADMS 3541 taught by Professor Staff during the Fall '10 term at York University.

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YUFINPLAN#6 - LECTURE #6 RISK MANAGEMENT AND INSURANCE...

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