RMI 2302 Exam 3 Module 7 iClicker Questions Q I am ultimately responsible for my own health care A True Q I am ultimately responsible for my own retirement planning A True Q A family can get by on 50 000 a year A False Q At what salary are people the happiest A Princeton University says 50 000 based on a survey of 450 000 people because higher salary means more time working A more recent survey of 10 000 people says 75 000 Q Should you switch your choice from Door 1 to Door 2 A Yes it doubles your chances of winning You start with a 1 3 chance of winning with door 1 your have 2 3 chance of door 2 or door 3 But we know that nothing is behind door 3 so it means there is actually a 2 3 chance of winning with door 2 Q Being forced to think faster increases your willingness to take risk A True National Geographic Brain Games Risk Probability needs to be taken into account when determining what is riskier The faster you think the more risk you take Individual Risk Management There are a lot of ways categories of looking at risk at the individual level 1 Property 2 Liability threat of being sued for money 3 Life Premature Death Long Life 4 Health 5 Financial We categorize individual risks based on risk management techniques The categories may not be mutually exclusive some risks may appear in multiple categories Loss Exposures any condition or situation that presents a possibility of loss regardless of whether that loss actually occurs There are three Elements to a loss exposure 1 Asset exposed to loss 2 Cause of loss 3 Financial consequences of the loss RMI 2302 Exam 3 1 Property Asset exposed to loss etc can think of Financial Consequences something Increased expenses Real property land buildings crops etc Personal property mobile your stuff furniture jewelry art autos watercraft Cause of Loss can be a fire theft windstorm accidents lost pretty much anything you Reduction in property value this is immediate and occurs the minute you purchase Lost income if property is used to generate income example renting out a car when you lose the property you lose the income 2 Liability being held liable for actions inactions Asset exposed to loss Money income other financial assets freedom job Types of Damages 1 General Damages someone lost income because you hurt them and they cannot work due to the injury 2 Special Damages harder to quantify loss of consortium wife sues you for killing her husband pain suffering permanent back damage 3 Punitive Damages punishment to make sure you don t do it again People use this as a way to cheat the system and get a lottery ticket to receive money o Example McDonald s Coffee Lawsuit Cause of Loss Claim Lawsuit Civil Law deals with the disputes between individuals organizations or between the two in which compensation is awarded to the victim o Have to provide preponderance of evidence beyond the balance of probabilities that they are guilty Criminal law deals with crime and the legal punishment of criminal offenses o Have to prove beyond a reasonable doubt that they are guilty o Innocent until proven guilty Tort a wrongful act or an infringement of a right other than under contract leading to civil legal liability o Example driving on the wrong side of the road Contracts a written or spoken agreement especially one concerning employment sales or tenancy that is intended to be enforceable by law Statutory not violating the law but still involved in an accident Negligence failure to take proper care in doing something Financial Consequences Defense costs RMI 2302 Exam 3 Monetary damages Specific Types of Liability 1 Property owners 2 Automobiles 3 Employer employee this relationship doesn t stop when you leave work the employer is liable for employee s actions 4 Parents and children 5 Animals Attractive Nuisance Doctorate property owners have a duty to protect and care for a child on their property in order to avoid liability This duty is not given to trespassers and criminals but you cannot set a trap to catch them You have to warn people on your property about dangerous conditions and have to fix those conditions Probability of Dying is 1 The question is when will you die 3A Life Premature Death Asset exposed to loss Your life Cause of Loss Financial Consequences Wage earning adult Premature death illness accident stupidity Married Single with dependents huge risk Single with no dependents Non wage earning adult Married Single with dependents Single with no dependents Child low financial impact There is no financial impact directly to the deceased The financial impact gets transferred to those who surround the deceased as listed above Dependents can refer to children or to the elderly The more dependents you have the bigger the issue 3B Life Long Life Asset exposed to loss Your savings retirement wealth Cause of Loss Outliving assets expenses income for too long Financial Consequences What happens when retired RMI 2302 Exam 3 Income decreases Expenses fluctuate but they start to outweigh income Life expectancy upper 70s early 90s 67 is the normal retirement age Annual rate of return on savings is about 6 4A Health Asset exposed to loss Your health livelihood Cause of Loss Financial Consequences Poor care poor genes bad luck injury illness etc Ability to earn income may decrease or cease as in premature death Living expenses may continue or increase Evaluate same exposure categories as premature death 4B Health Disability Asset exposed to loss Your health livelihood Cause of Loss Poor care poor genes bad luck injury illness etc Financial Consequences Ability to earn income may decrease or cease as in premature death Living expenses may continue or increase Evaluate same exposure categories as premature death 5 Financial Asset exposed to loss Your wealth Cause of Loss Health disability unemployment poor planning etc Financial Consequences Inadequate savings Back to work Can t retire lower productivity Individual Risk Management Risk Management Process 1 Determine Objectives 2 Identify Risks 3 Evaluate Risks 4 Choose your alternatives 5 6 Review Evaluate Implement RMI 2302 Exam 3 Think what are my objectives These will change throughout life what do you think they will be Think what are the risks These will also change throughout life example premature death 20 s not many people relying on you your income 30 s family life changing significant risk 40 s you re grown up and don t even know it highest this risk will ever be 50 s risk beginning to diminish 60 s
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