Lesson 3

Protecting Money: Insurance and Estate Planning

Lesson Overview:

Lesson 5 discusses: 1) risk; 2) insurance; and 3) estate planning.


Learning Objectives:

The students will:

  • Define risk.
  • Compare and contrast avoiding, reducing, transferring and retaining risk.
  • Name types of insurance.
  • Create a personal property inventory of assets.
  • Describe the benefits of estate planning.


Content Standards Addressed:

Common Core State Standards

National Standards



  • Beneficiary - a person chosen to receive money from an insurance policy or money and property from a will.
  • Deductible - specific amount of money for which an insured person is responsible.
  • Estate - money, personal possessions and property.
  • Insurance - a legal agreement protecting a person or property against damage, loss or death, in exchange for payments based on the risk of the event.
  • Inventory - a list of a person's possessions.
  • Premium - a regular payment made to an insurance company in exchange for financial protection on life, health, property, etc.
  • Risk - the chance that damage, loss or death will occur.
  • Will - a legal document stating what is to be done with a person's money, property and possessions, etc., after his or her death.



To reinforce Lesson 2, review these points:

  • Loan debt significantly increases over time due to compounding interest.
  • An individual's credit score may determine whether he or she can receive a loan, open accounts, rent an apartment, etc.
  • Those with serious debt should admit the problem and take steps to pay it off as soon as possible.
  • Declaring bankruptcy can help with overwhelming debt, but negatively affects credit scores for as many as 10 years.


Part 1: What Is Risk?

Introductory Discussion:

  • What are you afraid of?
  • Are there particular reasons you have these fears? (For instance, someone once chased by a dog may have a fear of them.)

Experts say common fears include:

  • Fear of spiders.
  • Fear of enclosed or restricted spaces.
  • Fear of thunder.
  • Fear of heights.
  • Fear of air travel.

People's fears are often due to the dangers associated with them. They may fear thunder because of the danger of being struck by lightning. They may fear flying in a plane because of the danger of an air crash.

Life is full of risks. Risk is the likelihood that harm will occur - damage or loss of property, or injury to or death of a person.



According to the National Safety Council, the odds of a person dying during his or her lifetime from the situations mentioned above are:

  • Poisonous spider bite: 1 in 959,984.
  • Being confined or trapped with little oxygen: 1 in 548,562.
  • Lightning strike: 1 in 81,701.
  • Falling from a high place: 1 in 47,999.
  • Air accidents: 1 in 5,862.

Ask: How many of you are afraid of riding in a car?

You may have even heard chuckles as you asked the above question. Yet with more than 20 million car accidents occurring each year, the odds of dying in an automobile accident in one's lifetime are 1 in 85, making it much more likely to happen than the other situations!


  • Since it seems very risky to travel by car, how could someone make absolutely sure they're never involved in a car accident? (Never drive or ride in a car.)

One effective way to manage risks is to avoid them, staying away from places and situations where they might occur. For instance, if someone is afraid of drowning, they might avoid swimming and traveling in boats or ships. If someone fears dying in a plane crash, they might avoid air travel and instead take trains, buses or cars to destinations.


  • Would you be willing never to ride in a car in order to be completely safe? Why or why not?

As the above question suggests, it's nearly impossible to avoid some risks. (Becoming a hermit and refusing to leave the house wouldn't be a solution - nearly 20,000 people are killed in home accidents each year!) An unavoidable risk can be managed by reducing it, taking action to lessen the chances of it occurring.


  • How can drivers reduce their risk of being in an accident? Possible answers include:
    • Don't drive in bad weather.
    • Maintain tires, brakes, vehicle fluids, etc.
    • Obey speed limits and other motor vehicle laws.
    • Don't drive when you're tired, distracted, sick or otherwise impaired.
  • How can passengers reduce their risk of injury while riding in a motor vehicle? Possible answers include:
    • Wear a seat belt at all times.
    • Don't distract or bother the driver.
    • Help the driver watch for hazardous situations.
    • Help the driver by changing the radio station or CD, swatting a fly, getting sunglasses or change for the tollbooth, etc.

Reproducible: Rules Help Manage Risk

Laws and rules are often designed to protect people and keep them safe. Make copies of the reproducible. In the first column, the students will write school, bus or home rules. In the second column, they will write A or R, depending on whether the rule helps them avoid (A) or reduce (R) risky behavior. In the third column, they will write the risk that is avoided or reduced. Discuss the completed or partially-completed examples:

  • Walking in classrooms and hallways doesn't guarantee a person won't trip and fall, but it does make it less likely. So walking reduces their risk.
  • When students develop the habit of keeping quiet during fire drills, they may be more likely to listen for directions in an actual emergency situation. This in turn could reduce their chances of being lost or hurt.
  • Students who keep their hands, arms and other body parts inside a school bus will avoid their risk of injury, at least in this particular instance.


  • What action movies or TV shows do you enjoy?
  • Which stunts are the most exciting to watch, in your opinion?
  • Do actors and actresses perform these stunts themselves, usually? Why or why not?

While some actors and actresses like to perform their own dangerous stunts, many more do not. Studios hire professional stunt doubles, men and women who resemble the actors and actresses. Stunt doubles are paid to jump from tall buildings, scuba dive, hang from soaring airplanes, race horses, crash cars and perform other daring acts. Instead of risking the life or well-being of a highly-paid actor or actress, studios transfer, or move, the risk from the actor to his or her stunt double.

Very few people will ever have a stunt double, but millions of people do transfer risks they take in their everyday lives. How? By obtaining various types of insurance.



Part 2: What Is Insurance?

In Part 1, the students learned life is risky. People can manage risks by avoiding them; many, however, are unavoidable. Two ways to manage unavoidable risks are: 1) reducing the risk by taking various precautions; or 2) transferring the risk to another.

Insurance is a legal agreement that protects against financial loss by transferring all or part of a risk to a person or his property to an insurance company. Usually, people buy an insurance policy to cover devastating losses - the kind that could financially wipe out a person or his or her family, like:

  • The partial or total destruction of a house, car, business or other property because of fire, flood or other disaster.
  • Long-term illness, injury or death of a family member.
  • A costly lawsuit judgment. (For instance, a home or business owner could be sued if someone is severely injured on his property. If the owner were judged guilty, he could be forced to pay thousands, even millions, of dollars to the injured person.)

In exchange for this financial protection, an individual makes regular payments to the insurance company. This payment is called a premium.

The insurance company decides how much of an insurance risk a person will be based on an insurance application. The application usually includes questions about the person's:

  • Age.
  • Health.
  • Family medical history.
  • Profession.
  • Criminal and driving history.
  • Personal habits (like whether a person exercises or smokes).
  • Hobbies.
  • Future travel plans.
Life Insurance
Some risks can be avoided, but no one can completely avoid one risk: death. Death is an uncomfortable topic, but it's very important for adults to consider the impact their deaths could have on the people closest to them.
Life insurance can help cushion the impact of facing one's own death or the death of a family member by:
  • Covering expensive final expenses (funeral and burial costs).
  • Providing money for the remaining family members' living expenses.
  • Funding the education of the insured person's students.
There are two basic types of life insurance:
  • Term insurance protects only for a certain period of time.
  • Permanent insurance provides a death benefit and builds up cash value over time.
The insured person selects someone to receive the death benefits of his or her insurance policy. This beneficiary is specifically mentioned in the insurance contract and can only be changed by the policyowner (the person who owns the insurance) in writing. 




How much life insurance should a person have?​

The answer depends on the person's income, family and job responsibilities and how much he, family members and others stand to lose should anything happen to him. Everyone should have some life insurance to provide for final expenses. Life insurance needs can depend on life events, like:

  • Marriage. A married couple depends on each other in many ways, including financially. Life insurance helps the couple make sure that if one of them dies, the other person can pay the bills.
  • Children. The cost of raising a child to age 18 - not including a college education - is well over $100,000. Life insurance can help parents make sure their children can have the type of upbringing and education they think best if one or both of the parents should die.
  • New home. A new home is probably the most expensive purchase a couple will ever make. If anything should happen to one of them, insurance can provide family members with the money needed to keep up the payments on their home.
  • New job or business. A new job or successful new business can mean more income and increased spending ... a bigger home, a new car. Life insurance can protect the jobholder or business owner's loved ones from going into debt should anything happen to him or her. 


Other Types of Insurance

Homeowners' or renters' insurance covers the cost of the house itself, personal belongings and emergency living expenses. It also provides financial protection should the homeowner be sued.

Auto insurance financially protects a driver and his or her car, other drivers and their cars, and property.

Medical insurance covers doctor visits, hospital stays, eyeglasses, prescription drugs, x-rays and other medical expenses.

Each of these types of insurance features a deductible. This is an amount of money a policyowner must pay out of his or her own pocket before the insurance company will pay. For example, if the deductible is $500 and the total damage to a vehicle is $1,000, the policyowner and the auto insurance company will each pay $500. The advantage of having a higher deductible is that it lowers the cost of the insurance.

No matter the type of insurance, it's very important to:

  • Carefully read all legal documents, including insurance policies. Many insurance companies offer a "free look" period of time, when the policy can be cancelled without a penalty.
  • Regularly review the type and amount of insurance one has, since insurance needs change over time.
  • Consult a financial advisor - someone who can help decide what type and how much insurance is needed. Studies show 90 percent of those with insurance have the wrong kind and amount!

Besides avoiding, reducing and transferring risk, a person can manage risk by retaining risk. This means accepting the risk and the possibility of financial loss. Instead of buying insurance, he or she might begin saving money in a bank account to pay for future expenses and losses.

The plan could work out if the person is extremely fortunate. But savings aren't usually enough to cover truly devastating losses. What could happen in a worst-case scenario?

  • Family members might be forced to sell the family home and possessions in order to pay bills.
  • A college student might have to drop out of school and find a full-time job instead.
  • A stay-at-home mom might have to find a job and make day care arrangements for her children in order to pay bills coming due.

Reproducible: Insurance Match-ups

Make copies of the reproducible. The answers are provided here.


Part 3: What Is Estate Planning?

Life insurance is one way people can provide for those they most care about. Estate planning is another. An estate consists of one's money, personal possessions and property. When people plan their estates, they decide who or what will receive these things after they die. Students don't usually have much money or property. As they assume adult responsibilities, have families, and buy cars, houses and other expensive items, however, their need for estate planning will grow.

Estate planning should include the writing of a will. A will is a legal document stating how an individual wants his or her estate to be divided after death. Any adult of sound mind can write a will. The will must be signed by witnesses who declare the will was actually written by that person and is a statement of his or her final wishes. An executor is named in the will to complete and file the important papers and to carry out the wishes of the individual. Obviously, the executor must be a very trustworthy, responsible person!


  • Who would you name as executor of your will? Why?

If someone dies without a will - and more than half of all adults do - his or her estate will be divided according to state law. In this case, parents, siblings, close friends and others may never receive the money or possessions their loved one had planned to give them.

It's always a good idea to have important papers and documents in order and in one place so loved ones know where to find them. Creating an inventory - a complete list - of one's important or valuable personal possessions can also be helpful. An inventory is also a useful record for insurance purposes, in the event of theft or fire, flood, etc. Photographs or a video can provide further proof of loss.


  • Why is it helpful to be organized?
  • What problems are caused by being disorganized?
  • What steps can people take to become more organized?


Reproducible: Personal Property Inventory

The reproducible may be copied and sent home with each child to provide practice in identifying and documenting valuables. They may use ordinary loose-leaf paper if additional space is needed.

Special note: Those who receive an inheritance - money and/or property - from an estate may have to pay inheritance taxes. Life insurance beneficiaries pay no taxes on the proceeds.