Risks
What is pure risk, and how does it differ from speculative risk?
Pure risk means there's only a chance to lose, while speculative risk means there’s a chance to either lose or gain.
What is a premium in terms of insurance?
A premium is the amount of money you pay regularly to an insurance company to keep your insurance coverage active.
What is a deductible in an insurance policy?
A deductible is the amount the policyholder must pay out of pocket before the insurance begins covering costs.
What is an extended warranty, and how does it differ from a standard warranty?
An extended warranty extends the period of coverage beyond the standard warranty that comes with the product.
What is a contract, and why is it important in personal finance?
A contract is a legal agreement between two parties, providing structure and enforceability to financial commitments.
What is health insurance, and why is it important?
Health insurance helps cover medical expenses, protecting individuals from high costs associated with medical care and encouraging preventive health measures.
Name one example each of personal risk, property risk, and liability risk.
Personal risk: Injury or illness that prevents you from working.
Property risk: A house fire damaging your home.
Liability risk: Being sued if someone is injured on your property.
What does a deductible mean in an insurance policy?
A deductible is the amount you have to pay yourself for a claim before your insurance starts helping with the rest.
True or False: Choosing a higher deductible usually results in a lower insurance premium.
True. Higher deductibles typically mean lower premiums, as the policyholder assumes more initial cost.
True or False: Extended warranties cover all repairs for any issue that may arise.
False. Extended warranties often have exclusions and do not cover all repairs
True or False: A contract is always written and legally binding.
False. Contracts can be verbal and legally binding, but written contracts are usually easier to enforce.
True or False: Life insurance only provides benefits after a person dies.
False. Some life insurance policies (like whole life) have cash value benefits that can be accessed while the policyholder is alive.
True or False: Buying a home reduces all types of property risks.
False. Buying a home does not eliminate all property risks; risks like fire, theft, or natural disasters still exist.
Who is the policyholder in an insurance contract?
The policyholder is the person who owns the insurance plan and is responsible for paying the premium.
If a person has a $500 deductible and files a $1,500 claim, how much will the insurance company pay?
$1,000, as the policyholder covers the first $500 (the deductible).
Why might a person choose to purchase an extended warranty for a new car?
To cover the cost of repairs after the manufacturer’s warranty expires, reducing unexpected repair expenses.
Explain the concept of ‘breach of contract’ and one possible consequence.
A breach of contract occurs when one party fails to fulfill their obligations, possibly resulting in a lawsuit or financial penalties.
What is liability insurance, and in what situations might it be used?
Liability insurance covers financial responsibility for damages or injuries caused to others, commonly used in car insurance and homeowners insurance to cover accidents and damages.
What is the role of liability insurance in managing liability risks?
Liability insurance helps protect you by paying for costs if you accidentally hurt someone or damage their stuff.
Explain the term ‘indemnity’ and its importance in insurance.
Indemnity is a contractual agreement between two parties. In this arrangement, one party agrees to pay for potential losses or damage. It also states that the policy will not cover more than the value of the item.
Why might someone choose a higher deductible on their health insurance plan?
To lower their monthly premium costs, especially if they don’t expect frequent medical expenses.
Name one benefit and one potential downside of purchasing an extended warranty.
Benefit – Provides financial protection for repairs; Downside – Can be expensive and may not cover all issues.
What should a person look for in a contract before signing it?
Clear terms, all obligations and rights, penalties for breaches, and whether they can meet the contract’s requirements.
Explain the difference between renter’s insurance and homeowner’s insurance.
Renter’s insurance covers a renter’s personal property and liability, but not the building itself. Homeowner’s insurance covers both the home structure and personal property, as well as liability for accidents on the property.
Describe a situation where personal risk could increase a person’s financial burden.
If someone gets seriously injured and can’t work for a while, they may have to pay medical bills and lose their income, which can make it hard to cover everyday expenses.
What is risk classification, and why do insurers use it?
Risk classification is how insurance companies group people by how risky they are, like how likely they are to get hurt or have an accident. They use it to decide how much each person should pay for insurance.
Explain how a deductible reset works in health insurance and when it typically occurs.
Deductibles usually reset annually, meaning that any out-of-pocket expenses paid toward the deductible start fresh at the beginning of a new policy year.
Describe how extended warranties can impact a person’s overall budget and finances.
Extended warranties add an upfront cost, which can affect savings or monthly budgets, and may not always offer a return on investment.
What are the four essential elements required for a contract to be valid, and why is each one important?
What type of insurance might protect a business owner from financial loss due to damages to their physical storefront?
Property insurance for businesses, often called "commercial property insurance," covers damages to a business's physical assets, such as its storefront, due to events like fire, theft, or natural disasters