Grade: 7 Lesson # 6

How is personal financial risk created by unexpected events?

SS.8.FL.6.1Analyze the fact that personal financial risk exists when unexpected events can damage health, income, property, wealth, or future opportunities.

SS.8.FL.6.1 Analyze the fact that personal financial risk exists when unexpected events can damage health, income, property, wealth, or future opportunities.

Risk Management Strategies

Lesson Number: 6

Correlated Florida Standards (See Full Text on Cover Page)

LAFS.7.RI.2.4,LAFS.7.W.2.4, LAFS.7.W.3.7, LAFS.7.W.3.8, LAFS.7.SL.1.2

Essential Question

  • How is personal financial risk created by unexpected events?
  • What risk management strategies can be used to minimize damage from unexpected events?

Learning Goals/Objectives

  • Understand and explain “risk”
  • Identify personal financial risk created by unexpected events
  • Explain different risk management strategies

Overview

Students will explore personal financial risks created by unexpected events. They will examine and be able to explain different strategies used to protect and manage risk.

Materials

  • Computer with internet connection
  • Promethean or smart board
  • Video: Talking About Risk- (2:33)
  • Reading: Protecting Your Wealth (Included)
  • Handout # 1 Types of insurance (Included)
  • Handout # 2: Minimizing Damage fromUnexpected Events. (Included)
  • Handout # 2: Minimizing Damage fromUnexpected Events. Answer Key(Included)

Time

50 minutes

Activity Sequence

INTRODUCTION/HOOK (3 minutes)

Ask students if anyone can explain the meaning of the word “risk.” Discuss answers. Risk: Aprobabilityorthreatofdamage,injury,liability,loss, or any other negative occurrence that is caused by external or internalvulnerabilities, and that may be avoided through preemptiveaction.

Brainstorm with students to create a list of unexpected events that can damage health, income, property, wealth, or future opportunities.

ACTIVITY( 37 minutes)

1.Have students look at the list of unexpected events they have created. They have probably listed: accidents; illness; job loss; fire; flood; earthquake; hurricane; lightening; and maybe financial loss through investments. Introduce and discuss personal financial risk(2 minutes)

2.Explain that many of the risks listed also cause a financial burden. Discuss items on the list and what kind of financial burden each might bring. Example: Car Accident- loss of car; bodily injury; unable to work due to injury= loss of income; loss of transportation to work=loss of income; car repairs= loss of savings; Propertydamage to others=loss of money or savings. After reviewing several items ask students to explain the connection of unexpected events and loss.(3 minutes)

3.Explain to the students that although these are unexpected events there are ways to insure your money and investments in case of these events.(1 minute)

4.Explain to students that one way to minimize risk is to purchase insurance. Insuring your investments for these unexpected events is called risk management and these are strategies that can be put in place in order to diminish the impact of the financial risk.These strategies are known as Risk Management Strategies(1 minute)

5.Show students the Scholastic Video: Talking About Risk- Discuss concepts presented in the video. (4 minutes)

6.Write the words risk management strategies on the board(1 minute)

7.Introduce the concept of insurance as a strategy for managing financial risk(1 minute)

8.Explain that there are many different types of insurance(5 minutes)

Insurance Types Include:

  • Auto Insurance
  • Homeowner's Insurance
  • Renter’s Insurance
  • Medical Insurance
  • Disability insurance
  • Life Insurance
  • Long-term Care Insurance
  • Flood Insurance
  • Windstorm Insurance

9.Distribute Reading: Protecting Your Wealth. Discuss terms in the reading that might be unfamiliar to students before you begin: Deductible; Premium; Liability; Out of Pocket C0-Pays; Coverage. You may complete the reading as a class or have students read individually. Discus each form of insurance presented in the reading. (8 minutes)

10.Distribute Handout # 1 - Types of Insuranceand have students fill in information using the information on the website or research each type of insurance and fill in the information.(8 minutes)

11.Review worksheet (3 minutes)

CLOSURE (10 minutes)

Distribute Handout # 2: Handout # 2: Minimizing Damage from Unexpected Events. (Included) Give students time to complete. Discuss answers as a class and revisit the lesson’s essential question.

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING

  1. Research a catastrophe. List the damages that the catastrophe caused. Explain what kind of insurance would help minimize risk in case the same catastrophe occurs again.
  2. Give students different scenarios of unexpected events and have them identify ways that they could have managed their risk
  3. Have students read and complete the Wall Street Journal Consumer Ed Activity: In Case of Emergency – Insurance Can Keep a Bad Day From Getting Worse

Sources/Bibliographic Information that contributed to this lesson:

Federal Reserve of Dallas

Finance in the Classroom

Reading:

After working hard to create personal wealth, you need to protect it. People acquire insurance to protect themselves from major financial loss. Insurance is simply a promise of reimbursement for a loss in return for a premium paid. When shopping for insurance products, consumers should match their needs with what the product offers and seek out the best deal. A solid credit history is also important because insurers use credit information to price some types of insurance policies. You can buy insurance to cover all kinds of risks, but basic needs can be met with property, health and life insurance.

Property Insurance

Auto Insurance State laws require that all motor vehicles have liability insurance to cover injury to other people or damage to their property. If you have a loan on your vehicle, your lender will also require physical damage coverage on it. You may select a higher deductible (the amount you pay out of pocket before insurance kicks in) and receive a more affordable rate on theinsurance premium(the cost of the policy).

Homeowner’s Insurance. Homeowners insurance covers your home and possessions. The personal liability coverage in a homeowner’s policy protects you from loss resulting from any injuries that may occur on your property. Your mortgage lender will require you to carry a certain amount of insurance coverage as long as the mortgage is in place. You may also consider a higher-deductible insurance plan to save money on your homeowner’s coverage. Standard homeowner’s coverage insures your home and its contents against loss from such risks as fire and theft. You may require special insurance for flood,earthquake, windstorm,or other risks specific to your area. Contact your state department of insurance for more information on insurance in high-risk areas.

Another type of household protection, a home warranty, is a service contract that protects the homeowner from unexpected costs for repair or replacement of major systems. These might include heating and air-conditioning, plumbing, electrical systems or a water heater. Sellers will sometimes provide a one-year home warranty to give potential buyers added confidence. The homebuyer then has the option of renewing the warranty at the end of the year.

Renter’s InsuranceIf you are renting your home or apartment, you should purchase renters or contents insurance to cover your possessions against loss from fire or theft. Your landlord’s insurance will only cover damage to the building, not its contents. Also, if someone is hurt in your rented home, that liability is yours, not the landlord’s

Health Insurance

Medical Insurance No one wants to worry about a trip to the emergency room wiping out everything they’ve saved toward their financial goals. Studies show unexpected medical expenses are the leading cause of bankruptcy in America Late payments and defaults on medical debt may be reported on credit reports and affect a person’s credit score. Medical insurance pays for some, but not all, of your doctor, hospital and prescription drug costs. You must have enough emergency savings to cover the deductible and out-of-pocket co-pays? When you estimate the number of co-pays for doctor visits in a year, you might find that the health plan with the lowest premium is not such a good deal. Choose your medical coverage/deductibles carefully, and consider your household circumstances. For example, if you participate in sports, be sure you are covered in the event of an injury. Even if you have health insurance, you should make sure your emergency savings account is adequate to provide a safety net against unexpected medical costs.

Disability Insurance Statistics show that you have a higher risk of becoming disabled than of dying before age 65. Disability insurance helps you pay living expenses if you are sick or injured and unable to work for a long time. Your employer may offer this insurance in its benefits plan. Consider buying this protection even if you have to pay for part of the premium.

Life Insurance The need for life insurance depends on a person’s circumstances. In the event of your death, life insurance pays money to the person you choose (your beneficiary). Life insurance helps give financial protection to your children, spouse, parents or even your business.

Personal accident insurance may also offer a cushion to families if a member dies or is seriously injured in an accident. This kind of insurance is often available through your employer or other provider at relatively low cost.

Long-Term Care Insurance If you or a family member became very ill and needed a nursing home, who would pay for it? You would, until all your assets and those of your spouse are exhausted. Only then would government assistance help cover these needs. Long-term care insurance is not medical insurance, but it pays for such health-related items as nursing home, assisted living or in-home care.

Tips for Protecting Your Wealth

There are many types of property, health and life insurance, so do your research and seek good advice.

• Take advantage of group insurance through your employer or other associations you may have.

• Anticipate the needs of your family and decide how much you can afford to pay.

• Shop around and get at least two quotes.

• Consider a higher deductible to lower your premium.

• Ask about other discounts that may be available (for a good driving record, safety equipment, multiple policies with the same provider, etc.) to reduce your cost of coverage.

• Review your insurance coverage yearly to make sure you have appropriate coverage as your situation changes.

• As with all investments, be sure to get all the facts before parting with your hard-earned money.

Adapted from Federal Reserve of Dallas

Handout # 1 Name ______

Types of Insurance

Auto Insurance
Benefits: / Homeowner’s Insurance
Benefits:
Renter’s Insurance
Benefits: / Home Warranty
Benefits:
Medical Insurance
Benefits: / Disability Insurance
Benefits:
Life Insurance
Benefits: / Long Term Care
Benefits:

Handout # 2Name______

Minimizing Damage from Unexpected Events

  1. Why do people buy insurance?
  1. Why should renters buy insurance?
  1. What is the purpose of automobile liability insurance?

Is it optional?

  1. If you live in a flood zone, will a standard homeowner’s policy cover flood damage?
  1. What are the reasons for having medical insurance?
  1. What is disability insurance?
  1. What is the purpose of life insurance?
  1. Why might a younger person buy a long-term care policy?
  1. What is the most important advice you would give someone who is thinking about buying insurance?

From: Finance in the Classroom

Handout # 2Answer Key Name______

Minimizing Damage from Unexpected Events

1.Why do people buy insurance?

People buy insurance to protect themselves from major financial loss.

2. Why should renters buy insurance?

Renters’ possessions are not covered by a landlord’s insurance.

  1. What is the purpose of automobile liability insurance?

Automobile liability insurance covers injury to other people or damage to their property.

Is it optional?No, State law requires such insurance.

  1. If you live in a flood zone, will a standard homeowner’s policy cover flood damage?

A standard homeowner’s insurance policy will usually not cover flood damage.

  1. What are the reasons for having medical insurance?

A lack of medical insurance can result in a lot of debt if you have a serious illness or

accident.

  1. What is disability insurance?

Disability insurance helps pay for living expenses, if a person is sick, injured, or unable to

work for a long time.

  1. What is the purpose of life insurance?

Life insurance pays money to a “beneficiary”—usually a spouse, children, or family

member—when the insured person dies. It can serve to protect young families.

  1. Why might a younger person buy a long-term care policy?

A young person might choose to buy long-term-care insurance because the premiums are

usually less expensive, if the policy is bought while a person is still young

  1. What is the most important advice you would give someone who is thinking about buying insurance?

From: Finance in the Classroom

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