Intro to Insurance

The purpose of insurance is to…

• build wealth

• transfer risk

• manage assets

• build relationships

Why is it important for insurance companies to have a large risk pool of people paying premiums?

• If a large pool of people pay premiums, insurance company employees will get more bonuses included in their next paycheck

• The premium payments of all the insured clients will cover the costs for the emergencies of the few who need it

• The more people that pay premiums, the more careful each insured client becomes with their lifestyle choices

• A large pool of people paying premiums allows insurance companies to have a larger social media following

What role does math play in the insurance industry?

• Insurance companies use statistics to find how likely a client will need to use the insurance so they can set premiums in order to have the highest chance of making a profit

• Insurance companies use algebra and geometry to calculate the distance from clients' major emergencies to nearest hospitals

• Insurance companies use statistics to hypothesize how likely clients are to switch over to competitive companies

• Insurance companies use calculus to find out how likely a client will need to use the insurance so they can set premiums in order to have the highest chance of making a profit

Jerry has an insurance policy with a premium of $150 per month. In June, he causes an accident and receives a bill with a total cost of $6000. His deductible is $1500, and his coverage limit is $10,000.

How much money will Jerry have to pay for the accident's bill?

Jerry has an insurance policy with a premium of $150 per month. In June, he causes an accident and receives a bill with a total cost of $6000. His deductible is $1500, and his coverage limit is $10,000.

How much total money will Jerry have to pay in the month of June?

If a coverage limit is high, the premium will be...

• high

• low

• the same

After the accident, Jerry starts thinking, “Wow, that $1500 deductible is a lot to pay for all at once! Who knows when I’ll get in another accident, but I sure wish my deductible were lower!” He asks his auto insurance agent, who shows him this chart:

Jerry's auto insurance agent is trying to tell him if the deductible is low, the premium will be...

• high

• low

• the same