5.2 Managing Personal Risk

Everyone faces financial and physical risks: a car crash that causes expensive damage, an illness that keeps you from working. A risk is insurable when the loss happens by chance (like an accident or a storm) and is measurable and statistically predictable, so an insurer can estimate how likely it is and what it would cost.

You pay a premium (monthly, twice a year or yearly) for a policy with a chosen amount of coverage. If you have a covered loss, you file a claim to be paid back. Many policies have a deductible, the amount you pay yourself before insurance pays.

• Health insurance pays for medically necessary care and sometimes preventive care. Many employers pay part or all of the premium as a benefit.
• Auto, homeowner's and renter's insurance cover damage to your own property and your legal liability for damage you cause to others.
• Life insurance pays money to beneficiaries (people you name) if you die, to replace your income, cover end-of-life costs or provide for dependents.
• Extended warranties and service contracts on cars or appliances work like a kind of insurance on that item.

It depends on legal requirements, risk tolerance and dependents. Most states require auto liability insurance, and mortgage lenders require homeowners to insure the property. People with low risk tolerance may buy fuller coverage with higher premiums to avoid surprise costs. People with higher risk tolerance may buy less coverage or choose a higher deductible, accepting bigger out-of-pocket costs if something goes wrong. People with dependents usually need more: family health coverage, coverage on more cars and more life insurance.

You can lower premiums by lowering risk, such as keeping a clean driving record or not smoking. Lying on an application or filing a false claim is insurance fraud, a crime; so is an insurance seller misrepresenting a policy.

Predatory lenders use deception and pressure tactics. Scammers use phishing (fake messages that try to get your information), identity theft and online scams. Ways to protect yourself:

• Compare loan terms from several lenders, don't let anyone rush you, and talk to a nonprofit credit counselor before signing.
• Check whether an offer is credible; if it sounds too good to be true, it probably is.
• Never share personal or financial information because of an unexpected call, text or email.
• Freeze your credit at each of the three credit bureaus. Placing and lifting a freeze is free, and while it's on, no one can open new credit in your name (FTC, consumer.ftc.gov, checked October 2026).
• If you've been scammed, report it and seek legal help.