I’m actually gonna give you a few basic terms that are basic terms that I’m learning in my insurance class that I’m currently taking. Growing up, I’ve heard the term insurance, and obviously I know like you use insurance for like your home’s your auto you know life insurance, but that’s it- I don’t really know much about it, So I’m excited to dive deeper into some of the concepts. Although learning about Insurance isn’t the funnest topic to talk about, but it is something that everyone needs to think about because every person alive will have to deal with some type of loss and it is better to be prepared for it.
Risk is the possibility of loss, and “Insurance is the transferring of existing risk.” The types of losses that you can face, and loss exposure is when a client’s losses includes not only the direct cost of the risk, but also the cost of dealing with the losses associated with that risk. So for example there’s like a direct loss that’s like the first immediate loss that goes on, so you, if you have a house and the house burns down, the direct loss is that you lost your house right now, indirect losses. Okay maybe now you have to pace for somewhere else to stay, maybe you have to drive farther, So that’s more gas maybe gonna take off days from work.
So those are indirect losses. The real is the cause of loss, and this includes you know like unemployment, illness, old age, death, earthquake, windstorm, so that is what a peril is a cause of loss, and there’s different types of hazards. And a hazard is an act or condition that increases the likelihood of the currents of a loss, Or it increases the severity of a loss. If a peril does occur. There are three types of hazards, a physical hazard, there’s a moral hazard and there’s an attitudinal hazard. physical hazard and it’s important that when you’re applying for different insurances, they’re going to be checking what kind of risk are they taking on by by taking you and giving you Insurance. Is there any physical conditions with this person, that you know when they’re underwriting and evaluating you. They have to know okay, so do they have high blood pressure, is this do they have any dangerous hobbies going on, So these are, this is like a physical hazard. But when it comes to a moral hazard, that’s more so like like dishonest tendencies, and it’s often due to an insurance weakened financial condition.
If I bought a new car and I have this 500 all car payment, but I don’t want the car anymore, but I don’t want the car payment, I’m just gonna total the car and then get the insurance money, you know that’s like a moral hazard. Because you know this person is being dishonest with their attendance, especially an attitudinal hazard. It’s just like laziness, or just like you don’t care, and you know this is something like dental hygiene, laziness, and a lack of concern for other people. Or if you got a speeding ticket, you got two speeding tickets, it’s like did you really have to be speeding that kind of thing, that’s when it add us who will hazard is. Pure risk means loss or no loss, so when it comes to like home ownership for example.
I know owning a home they have its pros and it’s cons, and depending on where you sit on the fence, about the about being a homeowner or buying a rental property, but pure risk means that when it when you do own a property, you’re responsible for – you know if something goes wrong. You are responsible for, you know if a fire were to happen, if a thefts were somebody want to break into your house, it’s like you know there’s a flood damn it, if there’s a flood in, or when storm comes like you there, these are the risks that you’re responsible for, because you have this home.
And so that’s what it means like loss or no loss, like a speculative risk is when you have this home but there’s a potential chance that you could sell this home and make money, or you turn this home into a rental property and you’re making money from it that way. But there’s also a chance, that you know what you sell this home, and you don’t make a profit, and you actually lose money. So that is what speculative risk is a speculative risk could be a loss, no loss, again, or no gain, but a pure risk is there’s either a loss or no loss.
Hope you learned something new when it comes to risk and insurance management. Even if you don’t want to think about loss it is better to be safe to to protect yourself. If you’ve been thinking about any kind of insurance please reach out to a professional that can help you and your family. If you are looking for a money coach to help you create a realistic spending plan, pay off debt, and save more money you can sign up to work with me here. It’s been proven that having extra accountability can help you reach your goals faster.
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