The Mathematics of Money

522

Insurance

and Risk

Management

“It’s a kind of spiritual snobbery that

makes people think they can be happy

without money.”

—Albert Camus

Learning Objectives

LO 1 Relate the law of large numbers to insurance

rating and underwriting.

LO 2 Be familiar with the various types of insurance

coverage.

LO 3 Calculate insurance premiums from a rate table.

LO 4 Apply deductibles, coinsurance, coverage limits,

and out of pocket maximums to determine the

amount to be paid on a claim.

LO 5 Understand the basic principles behind rate

calculations, and apply these to calculate

premiums for simple situations.

LO 6 Calculate the employees’ costs for insurance

benefi ts based on the employer’s contribution

formula.

Chapter Outline

13.1 Property, Casualty, and Liability Insurance

13.2 Health Insurance and Employee Benefi ts

13.3 Life Insurance

13.1 Property, Casualty, and Liability Insurance

Risk is a fact of life. Every decision made and every action taken carries with it the risk that

things will not work out as we want or expect. A big part of success in business (or in life

for that matter) is the ability to wisely assess the risks in different courses of action, weigh

them against their potential rewards, and manage these risks effectively.

Sometimes managing risks is mainly a matter of making good choices. A restaurant

manager might be able to save expenses by cutting corners on food safety practices, but

CHAPTER

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