Insurance Bell Ringer 1

Piper is willing to pay a high premium for their disability insurance. What are the likely outcomes of paying that higher premium?

• They receive a low deductible and a low monthly payment

• They receive a low deductible and a low coverage limit

• They receive a low deductible and a high coverage limit

• They receive a low deductible and a high risk assessment

Why is risk pooling essential for the insurance industry to exist?

• Risk pooling eliminates everyone who files expensive claims and makes them uninsurable

• Risk pooling creates large groups to spread the risk level out while maximizing the amount of premiums that can be collected

• Risk pooling provides every insured person with a monthly check, called a premium, so they can pay whatever bills they need

• Risk pooling is a low-cost way for everyone to save their premiums in a savings account to use later

Karishma has a renters' insurance policy with a coverage limit of $25,000. While she’s on vacation, a fire breaks out, ruining $9,000 worth of possessions before the fire department puts it out. Her deductible is $500. How much will Karishma and the insurance company each pay?

• Karishma pays $0, while the insurance company pays $500

• Karishma pays $0, while the insurance company pays $9,000

• Karishma pays $500, while the insurance company pays $8,500

• Karishma pays $500, while the insurance company pays $24,500

What is an insurance premium?

• Your monthly payment to your insurer, regardless of whether you use any services

• A list of the procedures covered by your insurance carrier

• An added cost you pay in order to receive higher-quality services

• The amount you pay out-of-pocket for a specific procedure or service

Insurance companies make money by...

• Refusing to pay out claims to policyholders

• Collecting money from the government

• Collecting more in premiums than they need to pay out each year

• Keeping costs low with minimal advertising

Bruce has just graduated from college and decides that instead of paying for insurance, he'll work on building up his emergency fund. This way, if something goes wrong, he can just pay for it using cash. Why is this a risky idea?

• It is mandatory to have auto, health, life, disability, and renters/home insurance, so he'll have to pay 5 penalties per year for not enrolling in these insurance types

• An accident or illness can strike at any time and be quite expensive, so it's possible he'd need a big sum of money well before his emergency fund was large enough

• Having insurance not only protects you financially, but also physically, so he'll be less likely to experience illness or accident if he has insurance

• The sooner he starts paying for insurance, the sooner he will reach his maximum lifetime requirement and can stop paying altogether for coverage

Insurance companies operate by charging individuals different prices for coverage depending on their risk levels. Then, they collect everyone's monthly premiums together and use the money to make payments when people file a claim (for example, someone is in an auto accident or needs to see a doctor). This concept is known as…

• Comprehensive coverage

• Risk pooling

• Underwriting

• Risk management

In general, how do insurance companies decide how much to charge an individual for their monthly premiums?

• The company assesses the individual's risk factors and assigns higher premiums to higher risk individuals

• The company looks at the individual's tax filings from the previous year to assess overall wealth and ability to pay

• The company charges the same premium for every individual eligible for coverage

• The company increases or decreases premium rates based on the stock market