Personal Finance
Intro to Insurance
Learning Guide
UNIT: INSURANCE
INTRO
QUESTION OF THE DAY: What is the cost to repair an iPhone screen?
Answer the question on the first slide in the space below. Then, compare your answer to the
answer on the second slide.
1. What is the cost to repair an iPhone Screen?
$29 to $379
LEARN IT
VIDEO: Intro to Insurance
Insurance is a way to protect yourself financially in case something unexpected happens, like
damaging your phone, and AppleCare+ is one example of insurance that can greatly reduce the
cost of repairing your iPhone's screen if it breaks. Watch this video and answer the questions
below.
1. The purpose of insurance is to…
a. build wealth
b. transfer risk
c. manage assets
d. build relationships
2. Why is it important for insurance companies to have a large risk pool of people paying
premiums?
a. If a large pool of people pay premiums, insurance company employees will get more
bonuses included in their next paycheck
b. The premium payments of all the insured clients will cover the costs for the
emergencies of the few who need it
c. The more people that pay premiums, the more careful each insured client becomes
with their lifestyle choices
d. A large pool of people paying premiums allows insurance companies to have a larger
social media following
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3. What role does math play in the insurance industry?
a. Insurance companies use statistics to find how likely a client will need to use the
insurance so they can set premiums in order to have the highest chance of
making a profit
b. Insurance companies use algebra and geometry to calculate the distance from
clients' major emergencies to nearest hospitals
c. Insurance companies use statistics to hypothesize how likely clients are to switch
over to competitive companies
d. Insurance companies use calculus to find out how likely a client will need to use the
insurance so they can set premiums in order to have the highest chance of making a
profit
INFOGRAPHIC: Insurance Premiums, Deductibles + Limits
In addition to having a fixed premium, most insurance plans also have a deductible and a
coverage limit. Use this infographic to answer the questions.
1. Jerry has an insurance policy with a premium of $150 per month. In June, he causes an
accident and receives a bill with a total cost of $6000. His deductible is $1500, and his
coverage limit is $10,000.
a. How much money will Jerry have to pay for the accident’s bill?
$1,500
b. How much total money will Jerry have to pay in the month of June?
$1,650
2. Make an assumption about the relationship between coverage limit and premium.
Explain your thinking.
More coverage means a better premium as the insurance company reimburses you for a
covered loss.
After the accident, Jerry starts thinking, “Wow, that $1500 deductible is a lot to pay for all at once!
Who knows when I’ll get in another accident, but I sure wish my deductible were lower!” He asks
his auto insurance agent, who shows him this chart:
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Source
3. What is Jerry’s auto insurance agent trying to tell him? What will Jerry need to do in
order to pay a lower deductible?
If he goes for the lower premium, the deductible in return will go up; therefore, he would
need to pay a higher premium to pay a lower deductible.
4. Do you think Jerry should go for the lower deductible plan? Why or why not?
Yes, he doesn’t have to face the big deductible like he did last time.
LEARN IT
VIDEO: How Does Insurance Work?
This final video will explain how insurance companies manage to make money, when it seems
they might be stuck paying out huge claims for ruined houses, wrecked cars, and stolen laptops.
Watch the video and answer the questions.
1. Why do you think the mathematical models used by insurance companies are so
complex?
Because each mathematical model is what best suits their company and the
direction they are heading.
2. What is at stake if an insurance company’s models aren’t particularly good at
predicting risk?
The company.
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3. Provide at least two reasons why self-insurance for risks involving your car or home
isn’t feasible for most Americans.
- Americans may not be able to afford it
- It’s not the most reliable
EXIT TICKET
Check your understanding by answering the following questions:
1. Piper is willing to pay a high premium for their disability insurance. What are the likely
outcomes of paying that higher premium?
a. They receive a low deductible and a low monthly payment
b. They receive a low deductible and a low coverage limit
c. They receive a low deductible and a high coverage limit
d. They receive a low deductible and a high risk assessment
2. Why is risk pooling essential for the insurance industry to exist?
a. Risk pooling eliminates everyone who files expensive claims and makes them
uninsurable
b. Risk pooling creates large groups to spread the risk level out while maximizing
the amount of premiums that can be collected
c. Risk pooling provides every insured person with a monthly check, called a premium,
so they can pay whatever bills they need
d. Risk pooling is a low-cost way for everyone to save their premiums in a saving
account to use later
3. Karishma has a renters insurance policy with a coverage limit of $25,000. While she’s
on vacation a fire breaks out, ruining $9,000 worth of possessions before the fire
department puts it out. Her deductible is $500. How much will Karishma and the
insurance company each pay?
a. Karishma pays $0, while the insurance company pays $500
b. Karishma pays $0, while the insurance company pays $9,000
c. Karishma pays $500, while the insurance company pays $8,500
d. Karishma pays $500, while the insurance company pays $24,500
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