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Insurance and Risk


Imagine that your family car was parked outside your house. In a big rainstorm, a bolt of lightning hit a tree, resulting in a large branch landing directly on your family’s car. The branch dented the roof and smashed the front window, letting a flood of rainwater into the car.


If your family didn’t have car insurance, your parents would have to pay the car repairs. If they have insurance, the insurance company would pay a portion of the repairs.


Through insurance, the cost of accidents, injuries, and disasters can be reduced. Although insurance costs money, it is a way to reduce risk by spreading your specific risk among all policyholders.


There are lots of things in life that are out of your control. In some cases unplanned


What’s Risky?ELEMENTARY SCHOOL Directions. Draw a line from each Action to the financial Result.


events can result in a financial benefit. In others, such as the storm’s damage to your car, they have costly consequences. As you consider what you value and the risk level associated with losing each, it is important to think about your insurance options. Although you can insure almost anything, there are three primary categories of insurance: life, health, and accident.


Purchasing life and long-term disability insurance might be good options for you, especially if you are financially responsible for the welfare of others. For example, if you are your family’s main source of income and something happens resulting in your inability to work, what does your family do? One alternative is to seek relief from the government or charitable organizations. This support may not cover all your family’s needs, but with proper insurance, you all will be better able to bear the hardships while you’re unemployed.


Positive Result


Finding $5


Breaking a Leg


Winning the Lottery


Negative Result Credit


Credit means trust. It is an expression of confidence. It is important that others have belief and confidence in your credit.


You build trust through your actions and words. Imagine that you receive a brand new cell phone. Your friend asks to borrow it and says that she only needs it for a couple of minutes. She returns it to you scratched, dented, and with a huge number of text messages sent. The next time she asks to borrow something, would you be more or less likely to lend it? You are probably less likely to let her borrow anything you value. Your trust in her ability to take care of your things went down. Basically, her credit with you was decreased by her actions.


Two keys to good credit are: • Pay your bills on time. • Keep your outstanding debt on your credit cards to a minimum.


14


Losing Your Phone


Wrecking a Car


In the financial world, there actually is a way to give you a grade on how good (or bad) your credit is. It is called a FICO score (commonly called a credit score). There are three credit bureaus that keep a file on you: Experian, TransUnion, and Equifax. The scores generated by each affect how much and what loan terms lenders will offer you—basically, how much they trust you with their money.


A lot of your ability to accomplish your financial goals relies on your credit score. For example, if you want to have a bigger line of credit on a credit card (more dollars available to spend) or get a lower mortgage rate, you need to have a good credit score.


Rule of thumb:


Getting a New Job Excellent


Above Average Good Fair Poor


730 or above 700-729


670-699 585-669


584 or below


Don’t max out your credit cards. Better credit scores reflect cardholders who use under 30 percent of their total credit lines.


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