FHCE 2100 Lecture Notes - Lecture 8: Life Insurance, Risk Aversion, Term Life Insurance

• School: University of Georgia
• Department: Financial Planning, Housing and Consumer Economics
• Course: FHCE 2100
• Professor: Carswell

Document Summary

Over 1 million people are employed by the 35,000 insurance companies. Almost 1 out of every 12 dollars spent in the u. s. economy goes to pay for insurance. When you have financial interest in something, you face risk that your budget cannot absorb a decrease or a loss of that item. Risk possibility of experiencing harm, suffering, danger or loss. Risk aversion theory: rational people will try to reduce or avoid risk, risk is subjective in that individuals define their own level of risk and uncertainty. Life insurance policy terms from death, accidents or health problems. Insurance is an example of risk pooling people share financial risk to reduce catastrophic losses: premium monthly cost of the policy, face value benefit due upon death. Insured person whose life is covered by policy: policy owner individual or business that pays for and owns the policy, beneficiary the recipient of the benefit upon the death of the insured.