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Health Insurance 101

Introduction to health insurance

TermDefinition
Insurance Transfer of Risk
Risk Uncertainty/Possibility of a loss
Speculative Risk Chance of loss or gain (not insurable) i.e. gambling or investments
Pure Risk Chance of loss only (insurable) i.e. car accident
Exposure Risks for which the insurance company would be liable
Peril a cause of loss
Hazard Something that causes an increase in the chance of loss
Physical Hazard the hazard can be seen or determined i.e. heart condition, wet floor
Moral Hazard a belief that intentionally causing a loss is acceptable i.e. dishonesty
Morale Hazard carelessness i.e. leaving doors unlocked
Methods of Handling Risk STARR - Sharing, Transfer, Avoidance, Retention, Reduction
Sharing (Methods of Handling Risk) 2 or more individuals agree to pay a portion of any loss incurred by any member in the group
Transfer of Risk (Methods of Handling Risk) insurance
Avoidance (Methods of Handling Risk) Eliminating a particular risk by not engaging in a certain activity i.e. working from home if roads are icy
Retention (Methods of Handling Risk) Individual will pay for the loss if it occurs; without insurance a person will have to pay the bill if they need hospitalization. This is an example of intentionally retaining a risk.
Reduction (Methods of Handling Risk) Lessening the chance of a loss or lessening the extent of a loss i.e. wearing a seatbelt reduces the severity of an accident
Contract/Policy an agreement between the insured and the insurer
1st party of Contract/Policy Insured (Customer)
2nd party of Contract/Policy Insurer (Insurance company)
Law of Large Numbers Larger the group the more accurate losses can be predicted
Characteristics of risks that can be insured CANHAM - Calculable, Affordable, Non-catastrophic, Homogeneous, Accidental, Measurable
Calculable Able to calculate premiums
Affordable Affordable for the average consumer
Non-catastrophic Peril of war is not insurable
Homogeneous Individual risks covered must be similar in regard to factors that affect the chance of loss.
Measurable Must be able to estimate loss as a dollar amount.
Created by: cmash
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