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Chapt 14.1: Insurance Basics
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Risk Management
You cannot eliminate risk from your life, but you can manage it.
Risk management: limiting possible financial losses to amounts you can handle.
To manage your risk of financial loss due to illness, injury, or damage, you must buy insurance.
In exchange for this protection, you must make (monthly) payments called a premium.
Shared Risk
One type of risk is investment risk.
To prevent investment risk, you may choose to diversify.
Diversify - to spread your funds over different investments.
Why is it a good idea to diversify your investments?
If you lose or don't do so well in one investment, you have others to compensate for it.
Insurance Policy
When you sign up for insurance, you sign a policy.
Policy - a legal contract binding you to your insurance, making you responsible for making premium payments.
Depending on what type of policy you sign up for depends on what you are covered under.
If you have a loss that is covered in your policy, you must file a claim, a formal request for payment from the insurance company.