Risk
Uncertainty about the outcome
Risk
A specific cause of damage or injury
A peril
Potential consequences of an incident
Severity
Pay for the Out-of-pocket
Accept
______ you cannot afford
Insure
Likelihood x Consequence =
Risk
A potential loss due to activity or event
An exposure
How often incidents occur within a specific timeframe
Frequency
What is Avoid?
Don't do it/Don't buy it
_______ the risks you can afford
Retain
What is the first step of the Risk Management Process
Identify your risk exposures
A condition or situation that has the potential to cause injury
A hazard
What is the risk formula?
Risk = likelihood of an occurrence x severity of consequences
Give the cost to the insurance company
Transfer
How often should you evaluate or adjust your plan? (4 acceptable answers)
-Annually -When you move -Make a major purchase -Family situation changes
What is the third step of the Risk Management Process?
How to handle your Risk of Loss
-Risk -Avoid -Transfer -Reduce
A frayed wire increases the chance of a fire, which is the direct cause of loss, while the home is susceptible to that loss.
What is the frayed wire?
A hazard
What is the Risk Matrix?
A matrix that can be used in order to determine where it is worth it to transfer, avoid, retain, or reduce risk based on the frequency and severity of the consequence
What is Reduce?
Pay the deductible to the insurance company pays the rest
What is the Large Loss Principle?
Insure the risks you cannot afford and retain the ones you can
What is the fifth step of the Risk Management Process?
Evaluate and Adjust
A car is destroyed in a car crash after the driver decided to drive while under the influence.
What is the crash?
A peril
You are involved in a serious car accident. Is this an example of severity or frequency?
Severity
Cutting expenses to save money, pay off debt, or reach other financial goals
Is this Accept, Avoid, transfer, or reduce?
Reduce
Name one type of insurance (of the main six we discussed in class)
-Auto -Homeowner's/Renter's - Term Life Insurance -Long-term Disability -Long-term Care -Health