Moneyville

Life is a risky business. Large and small events occur, sooner or later, to everyone in which some loss is experienced. Some may be small...like losing a purse or umbrella, cutting your finger or having a portable CD player stolen. Some risks can be so large that they can cause financial ruin.

How would you recover financially from these situations:

• An accident that leaves a person disabled and unable to work and earn a living for two years.
• An accident on your property that results in your being sued for many millions of dollars.
• Cancer or leukemia or other long term illness.
• A tree falls down in a windstorm and does $10,000 damage to the house.
• Car accident with three vehicles causing $35,000 damage

Insurance is one way to manage - or take charge of - the ordinary risk that you face every day. Paying for insurance helps protect you from suffering devastating financial loss.

In this unit you will learn what insurance is and how it works. You will learn about different kinds of insurance, and how to understand insurance terms like policy, premium, deductible, coverage and rider. You will learn how to shop for insurance you need and ways to keep the cost of insurance as low as possible, while getting coverage for real risks that you face.

Basic Types of Risk:

• Property - Any of your personal property could be lost, stolen, damaged or destroyed.
• Liability - There is the possibility that your actions, or someone in your household, might cause damage or harm to someone else or their property. You are liable, that is, you are legally responsible to restore or replace that person's property. You must pay for the loss you have caused that person.
• Loss of Income - Injury or illness can occur that result in an inability of a person to earn a living, either for an extended period of time, or permanently. Accidental death of the breadwinner in a household can leave the family with no income.
• Additional Expenses - An injury or illness may result in extremely high additional expenses such as medical treatment, hospitalization or rehabilitation.

Well, as we said, life is a risky business. Bad things sometimes happen - even to really good - and young - people! When you own things and have financial assets to protect, you need to have a plan for managing the risk. There are several ways to manage risk:

1. You can avoid it. You can choose not to engage in risky activities that expose you to possible loss. If you do not buy a car, decide never to take up smoking, don't own a home or go sky diving you will avoid the risks and possible losses that could occur.
2. You can reduce the risk. That means you take steps and actions to reduce the likelihood that a disastrous event will happen. For example, you might choose to take a safe drivers course and wear seat belts, use sun screen when outside and exercise, and have smoke detectors in your home. All these actions reduce the risk of serious financial loss.
3. You can retain the risk. That means to insure yourself, or in other words, you decide that you will pay for any damage that occurs out of your own pocket. If your car were to be stolen, you would replace the car by paying for another one. If you break a leg sky diving, you will pay for all the hospital and medical bills yourself.
4. You can transfer the risk. You can transfer the risk. When you buy insurance, you transfer the risk to the insurance company. If your car is stolen, the insurance company would help you recover from the loss. If you break a leg sky diving, the insurance company would pay for some or all of the medical expenses for your recovery.