Topic 5.2 · Managing Personal Risk
Managing Personal Risk
Insurable risks, types of insurance, choosing coverage based on needs and risk tolerance, and protecting yourself from predatory lending and fraud.
25 min read Reviewed
Learning objectives
- 5.2.AIdentify types of insurable risks individuals face.
- 5.2.BDescribe types of insurance individuals use to protect themselves from financial loss.
- 5.2.CRecommend appropriate insurance coverage based on an individual’s or household’s risk tolerance and needs.
- 5.2.DExplain how individuals and households can protect themselves from risks associated with financial fraud.
Objective statements © College Board, quoted from the Course and Exam Description.
Everyone faces risks: a car accident that causes expensive damage, or an illness that limits the ability to work. Insurance transfers some of that financial risk to an insurer.
What makes a risk insurable?
It must involve a chance loss, such as an accident or a weather event, and be quantifiable and statistically predictable, so the insurer can estimate the likelihood and cost.
| Risk type | Involves | Example |
|---|---|---|
| Personal | Your health and well-being | Injury, illness |
| Property | Your property | Fire damage to your home, a stolen car |
| Liability | Others' property or health | Your car hits a parked car or a pedestrian |
Types of insurance
| Insurance | Covers |
|---|---|
| Health | Medically necessary care and sometimes preventive care. Often an employee benefit |
| Auto | Damage to your car and liability for harm you cause |
Key terms
- Insurable risk
- A potential loss due to chance that is quantifiable and statistically predictable.
- Personal risk
- Risk to the insured person's health and well-being.
- Property risk
- Risk of loss or damage to the insured's property.
- Liability risk
- Risk of harming someone else or their property.
- Premium
- The regular payment for an insurance policy.
- Claim
- A request for reimbursement under an insurance policy after a loss.
- Deductible
- The amount the policyholder pays out of pocket before insurance pays. Higher deductibles usually mean lower premiums.
- Beneficiary
- The person designated to receive life insurance proceeds.
- Phishing
- A scam that tricks people into revealing personal or financial information.
- Credit freeze
- Blocking access to your credit report so fraudsters can't open accounts in your name.
- Predatory lending
- Deceptive or aggressive lending practices that exploit borrowers.
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