HDF 322 1st Edition Lecture 16 Outline of Last Lecture I Credit Outline of Current Lecture II Characteristics of Insurable Risks III What is Insurance IV Risk Management V Risk Management Process VI Risk Evaluation VII Self Insure VIII Insurance Poor IX Reduce Insurance Costs X When to Review Insurance XI Insurance Policies XII Insurance Regulation XIII Purchasing Insurance XIV Components of Employee Compensation XV Cafeteria Style Plans Current Lecture I Characteristics of Insurable Risks These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute a these characteristics MUST be included if risk is going to be insured all 6 have to be in effect some related to eachother these all have to be met to be an insurable risk II What is Insurance when you are protecting an asset physical or your life health disability income where you pay a premium dollar amount and you contract with an insurance company for consideration they will insure a certain asset to a certain amount that s a premium III Risk Management a identify the risk that you are subject to there are personal losses and property losses we are keen on property bc we can see it car and house but personal losses can put you in courthouse even though we don t value as much they have most detrimental effect on is if we lose our health life ability to work IV Risk Management Process liability important to have you did something disability income is income replacement if you are disabled personal losses property losses once you have identified risks and need to manage you can avoid reduce retain and transfer avoid is avoiding it completely and transferring means paying premium large in dollar amount but small probability high dollar losess that have low probability of happening that but you insured and if you know its gonna be a loss teeth cleaning just budget it V Risk Evaluation frequency how often and how severe avoiding is where you stop you don t smoke don t eat fries everyday you don t do something many risks you can avoid by not doing them reduce is where you reduce likelihood of suffering a loss seatbelt drive speed limit exercise retaining risks is where you finance things you do this if you don t have insurance credit card these are losses you have ongoing Teeth cleaning credit card loss you can retain a deductible and co pays you can fully retain or partially retain the loss parents retain loss of a text book if you lose it they will buy you a new one VI Self Insure have to look at past 3 5 years how ahs past record been have you had car accidents theft medical issues your cost of premium or will people try to sue you bc of your financial position are you wealthy can you afford premiums do you want to retain it 100 or partial you need to self insure VII Insurance Poor people underinsure in some areas and overinsure in the other areas some people pay too much some people have the wrong coverage VIII Reduce Insurance Costs after deductible insurance steps in and pays it all always keep premium as low as possible bc you don t know when you will pay deductible and have a loss if you keep premium high deductible lower keep premiums use them wisely you wont pay deductible every year but you pay premium every year paying premiums annually semi annually saves if monthly that is added fee paying premiums LESS often that will save you a little money group insurance for health life disability this is less costly bc we have large number of people and you get better coverage in a group policy buying big policy every policy has its own cost so if you buy 5 you buy 5 costs so if you buy 1 big one that s better higher coverage amount has LOWER PREMIUM Bigger policy lower cost premium buying directly from company can save you money bc if you buy from other companies or middle men or those who don t theres no agents to help you so you have to do it all by yourself if you don t buy directly there will be agents to help you service you with claims IX When to Review Insurance people buy insurance and then forget to review it people should review every 2 to 3 years review every major life event X Insurance Policies they are so hard to read we are trying to get policies on line so people can shop for itright now you cant see until you buy thingsXI Insurance Regulation insurance regulation is state regulated you have to be aware of it if you move to a new state TDI is texas department top 5 in nation for insurance departments NAIC comes together 3 times a year to promulgate laws and model legislation and every state goes back to their legislature and tries to get it through insurance is ONLY industry that has state regulation XII Purchasing Insurance shop around with 2 or 3 different companies they all have different quotes you can get different pricing on the internet insurance companies are rated and they are rated for financial stability if you get low ratings they are questionable XIII Components of Employee Compensation you can look at it as tangible the dollars cents bonuses you can get might be cash equivalent benefits intangible not dollar amount but make work life pleasant don t underestimate them XIV Cafeteria Style Plans this cafeteria plan gives you certain money a month and you place it where you want it to go COLA FOR 2014 1 5 so they get an increase of 1 5 average of 19 dollars a pay check for Social Security Benefits Social Security Benefits now its every time you make a certain amount you get a certain quarter quarters matter bc when full insured you need 40 quarters 32 and lower in age but until you are 25 26 you need 6 quarters and as you get older quarters increase as long as you get the quarters you are covered meet individual family s needs use long term approach excess cost is paid by employee when selecting a plan look at long term needs when you get to choose go for long term approach make sure you have retirement plan and health anything above 500 example 300 dollar