Download Law for Business

Stock Market Analysis and
Personal Finance
Mr. Bernstein
Risk Management, Insurance Companies
and Home Insurance,
pp 412-429
January 2017
Stock Market Analysis
& Personal Finance
Mr. Bernstein
What is a Insurance?
Protection against financial loss
Insurance companies share risk and charge a
premium which represents their estimate of
average losses plus a competitive profit
The contract outlining payments between you and
the insurance company is known as a policy
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
How insurance rates are established
Insurance companies will insure against risks which
both loss amounts and frequency can be estimated
Actuaries analyze data and make those estimates
Deductible amounts reduce premiums
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Risk Management Planning
As you accumulate wealth and assets, it is wise to
plan to protect yourself financially
Pure risks can be transferred to insurance companies:
Life insurance
Disability insurance
Property loss from fire, acts of nature or crime
Liability insurance against negligence
(unintentional) – Auto, Property
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Risk Management Planning
Must weigh costs against possible losses for each category
of risk
Example: Homeowner’s Insurance
Estimated cost: $1,500/year
Cost of rebuilding home in case of fire: $500,000
Cost of replacing contents of home: $50,000
Living expenses during rebuilding: $20,000
Partial damage is also covered, ie ice or falling trees
Liability also covered up to $100,000
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Homeowner’s Insurance Cost Factors
Location
Type of construction
Value of home
Risk reduction actions (ie smoke alarms, alarm
systems)
Additional items (ie jewelry, furs, boats, pets)
* - Most mortgage lenders will require insurance
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