Essential Standard 5.00

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Essential Standard 5.00

• Understand business credit and risk management.

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Objective 5.02

• Understand risk management and insurance.

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Topics

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

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Types of risk
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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

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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.

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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.

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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.

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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.

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Types of Risk continued

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

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Ways to handle risks
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Ways to Handle Risks

• Avoid
• Transfer
• Insure
• Assume

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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.

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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.

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Business insurance
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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.

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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.

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Types of Uninsurable Risks

• Economic Conditions
• Consumer Demand
• Action of Competitors
• Technology Changes
• Local Factors
• Business Operations

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Health insurance coverage
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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.

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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.

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Health Insurance Coverage continued

• Comprehensive Medical Policy
• Combines the features of hospital, surgical,
  regular, and major medical insurance.

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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.

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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.

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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

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HEALTH INSURANCE PROVIDERS

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

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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.

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HEALTH INSURANCE PROVIDERS

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

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Life insurance
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Life Insurance Principles

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

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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.

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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.

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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