Chapter 25 Introduction to Risk Management
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Transcript Chapter 25 Introduction to Risk Management
Chapter 25
Introduction to
Risk Management
What Is Insurance?
Risk Management
© South-Western Educational Publishing
Lesson 25.1
What Is Insurance?
GOALS
Explain the concept of insurance.
Define basic insurance terminology
and types of risk.
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Spreading the Risk
Risk is the chance of financial loss
from perils to people or property
Perils to people include declining health,
injury, or death
Perils to property include fire damage,
vandalism, car accidents, and theft
Insurance is a method for spreading
individual risk among a large group of
people to make losses more
affordable for all.
© South-Western Educational Publishing
Spreading the Risk
Insurer is a business that agrees to
pay the cost of potential future losses
in exchange for regular fee payments.
When people buy insurance, the join a
risk-sharing group by purchasing an
insurance contract. Under the
contract, the insurer agrees to
assume an identified risk for a
premium.
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Spreading the Risk
The insurer collects premium from
policyholders under the assumption
that only a few policy holders will
have financial losses at any given
time.
To make a profit, the insurer must
collect more money in premiums
than it pays out for losses.
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Spreading the Risk
Indemnification – putting an
insurance policyholder back in the
same financial condition as before a
loss occurred
Probability – the chance that a loss
may occur
Insurers set premiums based on
statistical probability, they estimate
the likelihood of potential losses.
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Insurance Terminology
Actuarial Table – A table of premiums
rates based on ages and life expectancies
Actuary – A specialist in insurance
calculations and statistics
Beneficiary – A person named on an
insurance policy to receive benefits from
the policy
Benefits – Sums of money to be paid for
specific types of losses under the terms of
an insurance policy
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Insurance Terminology
Cash Value – The amount of money
payable to a policyholder upon
discontinuation of a life insurance policy
Claim – A policyholders request for
reimbursement for a loss under the terms
of an insurance policy
Coverage – Protection provided by the
terms of an insurance policy
Deductible – The specified losses that the
insurance policy does not cover
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Insurance Terminology
Exclusions specified losses that the insurance
policy does not cover
Face amount – The amount stated in a life
insurance policy to be paid upon death.
Insurance Agent – A professional insurance
salesperson who acts for the insurer in
negotiating, servicing, or writing an insurance
policy.
Insured – The person or company protected
against loss
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Insurance Terminology
Loss – An unexpected reduction in value of
the insured property caused by a covered
peril; basis of a valid claim for reimbursement
under terms of the insurance policy
Proof of Loss – Written verification of the
amount of a loss that must be provided by
the insured to the insurer before a claim can
be settled
Standard Policy – Contract form that has
been adopted by many insurers, approved by
state insurance divisions or prescribed by law
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Insurable Risks
Personal risks - Possible losses involving income or
standard of living.
Protect against personal risk by buying life,
health, and disability insurance.
Property risks - The chances of loss or harm to
personal or real property
Protect against property risk by buying home and
automobile insurance.
Liability risks - The possibilities of loss due to error
or negligence.
Protect against liability risk by buying liability
insurance.
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