APMacro: PF Insurance

Insurance can help you manage the risks of rare, but expensive events, throughout your life such as car accident, theft or fire. Without the protection of an insurance policy, you would be responsible for covering the loss you experienced. Insurance provides a way to reduce the risk of financial loss. The function of insurance is simply to restore your property and possessions to the point it was before the incident occurred, to re-establish normalcy in your life. The purpose of insurance is to spread risks out over many people. The economic structure of insurance is built around a system in which the cost of the losses of the few is shared among the many. Insurance can be viewed as a large pot into which all premiums are placed. The pot has to provide for payment of the losses of those who have claims. Insurance is all about managing risk and providing financial compensation in the event of a loss.

The decision to buy insurance depends on individual judgment about the future. The general guideline is not to allow a large portion of potential loss to remain uninsured. To illustrate some of the risks associated with choosing or refusing to purchase insurance, the class will participate in the big risk simulation activity. Students are to imagine that they have just graduated from high school. They own a number of assets that they are thinking of insuring, including an automobile, inherited jewelry, a rare coin set, and the contents of their rented apartment. Their employer provides a health insurance plan they can purchase. Students will examine the possible risks and dollar costs of insuring various things they would like to insure. They may not spend more than $2,900; they may spend less. Students will not be able to insure all items.



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