1. How Insurance Works
Now that you understand the basic concept of insurance and how it works, let’s explore specific types of insurance. Here’s a list of the most common types of insurance. We discussed these briefly in the Money Management unit and will explain each type in more detail later in this unit.
Often, people are not able to purchase all types of insurance, so that have to choose what types of insurance they need most. Their decision will depend on their situation. The next exercise will help you start to make choices about the types of insurance you might need most.
T.J. is 25 years old, single, and has a good paying job, a car and a house. He’s self-employed and must buy his own health insurance
. He has $5,500 to spend on all of his insurance for the year.
Look at the table below, and choose the insurance coverage types you think T.J. should purchase.
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Amount and Probability
Remember, it is important to consider the amount of possible loss and the probability of loss when you decide which types of insurance to buy because both affect the economic impact to you of losses. This is one of the major reasons for purchasing insurance.