Insurance: Necessity or Nuisance

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Insurance Necessity or Nuisance?

• Joan Koonce, Ph.D., AFCSM
• Associate Professor and Extension Financial
  Planning Specialist

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Old Wise Saying

• What exactly does this mean?
• Is it true?

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Purpose of Insurance

• Protects against financial losses due to some
  type of risk.
  
• What is risk?
• Risk is uncertainty. The uncertainty of
  incurring a financial loss and the uncertainty
  about the size of the financial loss.
  
• Pure versus speculative risk.

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How to Handle Risks

• The most typical response from people is
• You can buy insurance for risksthat you will
  never encounter.
  
• Insurance may not be necessary to cover all
  risks.
  

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How to Handle Risks

• Risk Management Process
• Identify and evaluate your risk exposure and
  sources of risk.
  
• Determine what the possible financial loss would
  be if you encountered each of the risk identified
  and how often you may encounter each risk.
  
• Determine how to handle each of the identified
  risk.
  

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How to Handle Risks

• Risk Management Techniques
• Avoid risk
• Retain or accept risk
• Reduce risk or control loss
• Transfer or share
• risk

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Risk Management Techniques

• Avoid Risk
• Dont own items or expose yourself to activities
  that will cause a financial loss.
  
• Some examples
• Not parasailing.
• Not owning a vicious dog.
• Not owning a swimming pool.

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Risk Management Techniques

• Retain or Accept Risk
• Accept that if the financial loss occurs, you
  will have to cover the loss.
  
• Some examples
• No collision coverage if your car is old pay
  out-of-pocket for any damages.
  
• No insurance to cover lost or stolen credit
  cards liability limited to 50 per card.
  

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Risk Management Techniques

• Reduce Risk or Control Loss
• Reduce the frequency and/or size of the financial
  loss.
  
• Some examples
• Lock your doors on your car and home.
• Wear seatbelts.
• Install security systems and fire alarms.
• Exercise and eat healthy.
• Buy insurance with deductibles, coinsurance,
  co-payments, waiting periods, etc.
  

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Risk Management Techniques

• Transfer or Share Risk
• Pay someone else to cover your financial loss.
• The most common way of transferring risk is to
  pay an insurance company.
  

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Types of Insurance

• Insurance that all or some people need
• Health
• Disability
• Life
• Homeowners
• Automobile
• Long-term care
• Personal umbrella liability

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Types of Insurance

• Insurance that all or some people dont need
• Rental car and towing
• Gap
• Dental and vision
• Flood
• Private mortgage
• Credit life and disability
• Dread disease and accident health and life
• Childrens life

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Necessity or Nuisance?

• What insurance should you purchase?
• You have to decide for yourself.
• Insurance should be purchased when the
  likelihood of the financial loss occurring is
  small, but the size of the financial loss is
  large.

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www.gafamilies.com

• 1-800-ASK-UGA1