Essential Standard 5.00
Objective 5.02
Topics
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Types of risk
•
Ways to handle risks
•
Business Insurance
Types of Risk
• What is risk?
The possibility of incurring a loss
• What is risk management?
It is a systematic process of managing risk to achieve set objectives
• Different types of risk:
Economic and non-economic
Pure risk and speculative
Controllable risk and uncontrollable
Types of Risk continued
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Economic
Results in financial loss.
Three categories of economic loss:
Personal risk – Result in personal losses
Property risk – Loss of personal or business property
including money, buildings and vehicles.
Liability risk – Harm or injury to other people or their
property because of your actions.
Types of Risk continued
• Non-economic
May result in embarrassment or inconvenience
without financial impact.
Example: Requesting for customers to move to
another check-out lane.
• Pure
Types of Risk continued
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Speculative Risk
Offers the chance of gain or loss.
Example: Mary opened a shoe store that operated
for only six months.
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Controllable Risk
Occurs when conditions can be controlled to lessen the chance of harm.
Example: Sears installed centralized customer
Types of Risk continued
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Uncontrollable Risk
Cannot be controlled or reduced by your
actions.
Example: Riding along a highway with other speeding automobiles.
•
Insurable Risk
Meets criteria of an insurance company for
coverage.
Types of Risk continued
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Unpredictable amount of loss
Example: A competitor of Staples, an office
Ways to Handle Risks
Avoid
Transfer
Insure
Ways to Handle Risks
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Avoid the risk
Declining to engage in particular activities.
Example: A book company decline an order to
produce 6000 books in one day.
•
Transfer the risk
Allowing someone else to assume the risk.
Example: A book company has a contract for a
Ways to Handle Risks continued
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Insure the risk
Purchasing insurance to cover risk.
Example: General Electric sells insurance to
customers to cover their appliances.
Assume risk
Finishing an activity and accepting full
responsibility
Example: Mary runs a coffee shop and offers a
Business Insurable Risks
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Personnel
Health insurance provides protection against the
high costs of individual health care.
Disability insurance provides payments to
employees who are unable to work for an
extended period due to serious illness or injury.
Life insurance pays the amount of the insurance
Business Insurable Risks
continued
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Property
Insurance is purchased to protect business
from financial loss due unsuspectingly
damages to their buildings, equipment, and building contents, including inventory.
•
Business Operations
Coverage as a result of accidents, injuries,
Types of Uninsurable Risks
Economic Conditions
Consumer Demand
Action of Competitors
Technology Changes
Local Factors
Health Insurance Coverage
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Hospital insurance
Classified as medical insurance.
Covers for most or all of the charges during
a stay in the hospital.
•
Surgical Insurance
Covers all or part of the surgeon’s fees for
Health Insurance Coverage
continued
• Regular medical insurance
Covers fees for nonsurgical care given in
the doctor’s office, the patient’s home, or a hospital.
• Major medical insurance
Covers cost of extended and specialized
Health Insurance Coverage
continued
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Comprehensive Medical Policy
Combines the features of hospital, surgical,
Health Insurance Coverage
continued
Dental Insurance
Contains deductible and coinsurance to
reduce the cost of premiums.
Covers examinations, X rays, cleaning and
filling.
Covers dental injuries resulting from
accidents.
Covers part or all of complicated dental
Health Insurance Coverage
continued
•
Vision Care Insurance
Cover eye examinations, prescription
lenses, frames, and contact lenses.
Some plans cover the cost of laser eye
HEALTH INSURANCE PROVIDERS
•
Health insurance may be obtained
through employer related groups. They
include:
Group health insurance Managed care plans
Health Maintenance Organizations (HMO) Preferred Provider Organizations (PPO)
HEALTH INSURANCE PROVIDERS
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Group Health Insurance
Most popular way to buy health insurance. Companies pay part or all of the premium
HEALTH INSURANCE PROVIDERS
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Managed Care Plans
Health Maintenance Organization (HMO)
Consists of a staffed medical clinic to serve members.
Members are entitled to a wide range of prepaid health care
services, including hospitalization.
• Preferred Provider Organization (PPO)
Provides a group of physicians, a clinic, or a hospital that
contract with an insurance company.
Providers agree to charge a set fee for services.
Members are encouraged but not required to use the PPO
HEALTH INSURANCE PROVIDERS
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State Government Assistance
Workers Compensation that provides medical
Life Insurance Principles
• Life insurance protects survivors against
financial loss associated with death.
• Two basic types: Term
Types of Life Insurance
Term Life Insurance
Provides financial protection from losses
resulting from a death during a definite period or term.
Least expensive form of life insurance. Only life insurance that is purely life
Types of Life Insurance
continued
Permanent Life Insurance
Has cash value and an investment feature. Part of the premium paid is used for
insurance that provides protection.
The insurance company invests part of the
Types of Life Insurance
continued
Group Life Insurance
Covers a group of people.
Offers term rather than permanent
insurance.
