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Health Insurance 101
Introduction to health insurance
| Term | Definition |
|---|---|
| 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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