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Essential Standard 5.00

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Essential Standard 5.00 Understand business credit and risk management. * – PowerPoint PPT presentation

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Title: Essential Standard 5.00


1
Essential Standard 5.00
  • Understand business credit and risk management.

2
Objective 5.02
  • Understand risk management and insurance.

3
Topics
  • Types of risk
  • Ways to handle risks
  • Business Insurance
  • Uninsurable risks

4
Types of risk
5
Types of Risk
  • What is risk?
  • What is risk management?
  • Different types of risk
  • Economic and non-economic
  • Pure risk and speculative
  • Controllable risk and uncontrollable
  • Insurable risk and uninsurable

6
Types of Risk continued
  • Economic
  • Results in financial loss.
  • Three categories of economic loss
  • Personal risk Result in personal losses
  • Property risk Loss of personal or business
    property including money, buildings and vehicles.
  • Liability risk Harm or injury to other people
    or their property because of your actions.
  • Example Freds Diner incurred a loss due to a
    fire.

7
Types of Risk continued
  • Non-economic
  • May result in embarrassment or inconvenience
    without financial impact.
  • Example Requesting for customers to move to
    another check-out lane.
  • Pure
  • Threat of a loss without an opportunity for gain.
  • Example Frost damages a strawberry patch.

8
Types of Risk continued
  • Speculative Risk
  • Offers the chance of gain or loss.
  • Example Mary opened a shoe store that operated
    for only six months.
  • Controllable Risk
  • Occurs when conditions can be controlled to
    lessen the chance of harm.
  • Example Sears installed centralized customer
    service stations in order to increase
    convenience.

9
Types of Risk continued
  • Uncontrollable Risk
  • Cannot be controlled or reduced by your actions.
  • Example Riding along a highway with other
    speeding automobiles.
  • Insurable Risk
  • Meets criteria of an insurance company for
    coverage.
  • Example An artist purchased insurance to cover
    his collection.

10
Types of Risk continued
  • Unpredictable amount of loss
  • Example A competitor of Staples, an office
    supply store, moved right across the street.

11
Ways to handle risks
12
Ways to Handle Risks
  • Avoid
  • Transfer
  • Insure
  • Assume

13
Ways to Handle Risks
  • Avoid the risk
  • Declining to engage in particular activities.
  • Example A book company decline an order to
    produce 6000 books in one day.
  • Transfer the risk
  • Allowing someone else to assume the risk.
  • Example A book company has a contract for a
    trucking company to transport its books.

14
Ways to Handle Risks continued
  • Insure the risk
  • Purchasing insurance to cover risk.
  • Example General Electric sells insurance to
    customers to cover their appliances.
  • Assume risk
  • Finishing an activity and accepting full
    responsibility
  • Example Mary runs a coffee shop and offers a
    variety of services.

15
Business insurance
16
Business Insurable Risks
  • Personnel
  • Health insurance provides protection against the
    high costs of individual health care.
  • Disability insurance provides payments to
    employees who are unable to work for an extended
    period due to serious illness or injury.
  • Life insurance pays the amount of the insurance
    policy upon the death of the insured.

17
Business Insurable Risks continued
  • Property
  • Insurance is purchased to protect business from
    financial loss due unsuspectingly damages to
    their buildings, equipment, and building
    contents, including inventory.
  • Business Operations
  • Coverage as a result of accidents, injuries, and
    property damage.

18
Types of Uninsurable Risks
  • Economic Conditions
  • Consumer Demand
  • Action of Competitors
  • Technology Changes
  • Local Factors
  • Business Operations

19
Health insurance coverage
20
Health Insurance Coverage
  • Hospital insurance
  • Classified as medical insurance.
  • Covers for most or all of the charges during a
    stay in the hospital.
  • Surgical Insurance
  • Covers all or part of the surgeons fees for an
    operation.

21
Health Insurance Coverage continued
  • Regular medical insurance
  • Covers fees for nonsurgical care given in the
    doctors office, the patients home, or a
    hospital.
  • Major medical insurance
  • Covers cost of extended and specialized care out
    of the hospital such as medicine and special
    nursing care.

22
Health Insurance Coverage continued
  • Comprehensive Medical Policy
  • Combines the features of hospital, surgical,
    regular, and major medical insurance.

23
Health Insurance Coverage continued
  • Dental Insurance
  • Contains deductible and coinsurance to reduce the
    cost of premiums.
  • Covers examinations, X rays, cleaning and
    filling.
  • Covers dental injuries resulting from accidents.
  • Covers part or all of complicated dental work
    such as crowns or bridges.

24
Health Insurance Coverage continued
  • Vision Care Insurance
  • Cover eye examinations, prescription lenses,
    frames, and contact lenses.
  • Some plans cover the cost of laser eye surgery
    that eliminates the need for glasses.

25
HEALTH INSURANCE PROVIDERS
  • Health insurance may be obtained through
    employer related groups. They include
  • Group health insurance
  • Managed care plans
  • Health Maintenance Organizations (HMO)
  • Preferred Provider Organizations (PPO)
  • State Government Programs

26
HEALTH INSURANCE PROVIDERS
  • Group Health Insurance
  • Most popular way to buy health insurance.
  • Companies pay part or all of the premium for
    their employees.

27
HEALTH INSURANCE PROVIDERS
  • Managed Care Plans
  • Health Maintenance Organization (HMO)
  • Consists of a staffed medical clinic to serve
    members.
  • Members are entitled to a wide range of prepaid
    health care services, including hospitalization.
  • Preferred Provider Organization (PPO)
  • Provides a group of physicians, a clinic, or a
    hospital that contract with an insurance company.
  • Providers agree to charge a set fee for services.
  • Members are encouraged but not required to use
    the PPO services.

28
HEALTH INSURANCE PROVIDERS
  • State Government Assistance
  • Workers Compensation that provides medical and
    survivor benefits for people injured, disabled,
    or killed on the job.

29
Life insurance
30
Life Insurance Principles
  • Life insurance protects survivors against
    financial loss associated with death.
  • Two basic types
  • Term
  • Permanent

31
Types of Life Insurance
  • Term Life Insurance
  • Provides financial protection from losses
    resulting from a death during a definite period
    or term.
  • Least expensive form of life insurance.
  • Only life insurance that is purely life insurance
    without savings and investments.

32
Types of Life Insurance continued
  • Permanent Life Insurance
  • Has cash value and an investment feature.
  • Part of the premium paid is used for insurance
    that provides protection.
  • The insurance company invests part of the
    premium.

33
Types of Life Insurance continued
  • Group Life Insurance
  • Covers a group of people.
  • Offers term rather than permanent insurance.
  • Individual is covered by their employer
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