Protecting Your Wealth

1. Protecting Your Wealth

2. Protecting your wealth • Auto and Homeowner’s Insurance • Health and Disability Insurance • Life Insurance

3. Auto and homeowner’s insurance • I can… • Explain the role of risk management • Outline provisions of auto insurance • Describe financial coverage provided by homeowners insurance

4. Background on Insurance • Property Insurance ensures that damages to home and auto are covered and personal assets are protected from liability • Liability- you are required to pay someone for damages that you caused • Primary function of insurance- maintain existing level of wealth • Benefit of insurance is peace of mind knowing your assets are protected

5. Managing risk • In the context of insurance, Risk- exposure to events or perils that can cause financial loss • Risk management aredecisions about whether and how to protect against risk, alternatives include: • Avoid risk • reduce risk • insurance against risk

6. Avoid risk • Avoid risk of property damage if you don’t own property • If you lease a car you are still expose to liability and financial loss if an accident • Exposed to financial loss if you require medical attention or become disabled

7. Reduce risk • Purchase a small home rather than a large home in order to reduce the maximum possible financial loss • Purchase an inexpensive car to limit possible financial loss due to property damage • Getting periodic health check ups

8. Insure against risk • If you cannot avoid or reduce risk and you do not want to be exposed to a financial loss • Premium is the cost of obtaining insurance

9. What impact does the economy have on the decision to insure against risk? • Give one, get one. • Think about this question and develop an answer. Then, turn to your partner and discuss both of your answers.

10. Role of insurance companies • Offer insurance policies that can protect you against financial loss. • Many different types of insurance • Insurance companies generate revenue from receiving payments for policies • Insurance underwriters are hired to calculate the risk of specific insurance policies, decide what policies to offer, and what premiums to charge.

12. Role of insurance agents Insurance agent recommends insurance policies for customers Captive (exclusive) agent works for one particular company • ex. State Farm insurance agents Independent agent represents many different insurance companies

13. Automobile insurance • Insures damage to an automobile and expenses associated with accidents • Protects your car and limits your potential liabilities (expenses due to an accident) • Prices vary between states • Much larger in highly populated states • Insurance policy is a contract between an insurance company and policyholder • Auto insurance policy specifies the coverage provided by the insurance company for a particular individual and vehicle • Bodily insurance liability coverage protects against liability associated with injuries caused by the policyholder

14. Basic types of auto insurance • Liability • Bodily injury liability • Property damage liability • Uninsured Motorists • Underinsured Motorists • Collision • Comprehensive

15. How much does auto insurance cost? • Factors that affect your auto insurance premium… • Value of a car • Repair record of the car • Your age • Your mileage • Your driving record • Your location • Your driver training • Your school performance

16. How can you lower your insurance • Get good grades • Choose your wheels carefully • Consider the age and condition of your vehicle • Consider letting your parents insure you on their policy • Ms. Vandiver says…Don’t text and drive 

17. Coverage limits on your policy • Policy may show 50/100/25 • That means… • $50,000 of bodily injury liability if one person is injured • $100,000 total for all bodily injury liabilities for all injured • $25,000 of property damage coverage

18. Homeowner’s insurance • Provides insurance in the event of property damage, theft, or personal liability • Protects most valuable assets but limits potential expenses associated with a home • Provides a certain amount of liability coverage, which pays for injury or death of others caused by you on your property

19. What else does home insurance cover? • The building/residence • Home furnishings • Most personal belongings • Lawn, trees, and shrubs in limited cases • Garage • Some external structures, like sheds • Fence • Swimming pool

20. What are perils? • Things or events that can damage or destroy a home or its contents, a homeowners policy may cover these perils: • Fire • Lightening • Wind • Hail • Theft • Explosion • Smoke • Glass breakage • Vandalism • Riot • Falling aircraft • DOES NOT COVER FLOOD!

21. Property damage • Cash-value policy pays you for the value of the damaged property after considering its depreciation (wear and tear) • Replacement cost policy pays you for the actual cost of replacing the damaged property

22. Additional coverage: personal property • Normally covers furniture, computers, clothing up to a specified amount • Home inventory includes detailed information about your personal property that can be used when filing a claim • Create a list of personal assets and estimate the market value of each, take pictures or video of items • Personal property floater (personal articles floater) is an extension of the homeowner’s policy that allows you to itemize your valuables, if assets are very valuable and are not fully covered by your policy

23. How much does homeowner’s insurance cost? • Factors that affect the premium of homeowner’s insurance policy: • Value of insured home • Deductible • Location • Degree of protection • Discounts

24. How can you lower the cost of homeowner’s insurance? • Improve protection • Use one insurer for all types of insurance • Bundling discounts • Stay with the same insurance company • Shop around

25. What does renter’s insurance cover? • Renters insurance is a policy that protects your possessions within a house, condo, or apartment that you are renting • Does not insure the structure itself because the insurance is for the renter only, not the property owner • Covers personal assets such as furniture, television, computer equipment, and stereo equipment

26. Ethical Dilemma • You teach Personal Finance at a local community college. The state in which you teach requires proof of liability insurance in order to renew your license plates. • During the discussion of this topic in class, several students admit that they obtain a liability policy just prior to the renewal of their license plates and then cancel it immediately thereafter. They do this because they know that the state has no system for following up on the cancellation of the liability policies once the license plates are issued. These students, who are out of work as a result of a local plant shutdown, indicate that they cannot afford to maintain the insurance, but they must have access to cars for transportation • Write a paragraph discussing whether you consider the conduct of the students to be unethical. • How does the conduct of these students potentially impact other members of the class who maintain liability insurance on their vehicles?

27. Quiz over home and auto 3/28 • Includes the slides above and the vocabulary

28. Health and disability insurance • I can… • Identify and compare the types of private health care plans • Explain the use of government health care plans • Describe long-term care insurance • Explain the benefits of disability insurance

29. Health insurance • Covers healthcare expenses incurred by policyholders for necessary medical care • Largest issuers: Blue Cross and Blue Shield • Without healthcare medical expenses can eliminate your wealth • 1 in 5 workers are uninsured • Healthcare is expensive! • Technological advancements • Increased age of the average population • Healthcare is necessary!

30. Private health insurance • Can be purchased from private insurance companies to provide coverage for healthcare expenses • Hospitalization insurance • Surgical expense insurance • Physician expense insurance • Major medical insurance

31. PRIVATE HEALTH INSURANCE Coverage • Hospitalization insurance covers the cost of many hospital facility and service fees • Room, meals, pharmaceuticals, nursing services, labs, x-rays • Surgical expense insurance covers the cost of some surgeries • Surgery, anesthetics, lab fees, x-rays • May specify maximum reimbursement per surgical procedure • Typically doesn’t cover cosmetic procedures • Physician expense insurance covers the cost of many nonsurgical physician fees • May be a deductible • Covers physician fees for healthcare, lab tests, and x-rays outside of the hospital • Major medical insurance serves as a backup to basic health insurance

32. Private health care plans • Indemnity plan- reimburses individuals for part or all of the expenses they incur from healthcare providers • Free to decide whether to seek care from a primary care physician or a specialist • Managed health care plan- individuals receive services from specific doctors or hospitals that are part of the plan • Health Maintenance Organization (HMO)- covers health care services approved by doctors • A primary care physician provides general health services and refers patients to a specialist as necessary • Preferred Provider Organization (PPO)- allows individuals to select a health care provider and covers most of the fees for services • A referral from a doctor is not necessary to see a specialist

33. Private Health Care Plans

34. Contents of health care insurance policies • Identification of insured persons • Location • Preexisting Conditions • Cancellation Options • Determinants of unreimbursed medical expenses • Rehabilitation • Mental illness • Pregnancy • Renewability option • Maintaining private health care insurance coverage • Expenses not covered by private insurance plans

35. Contents of health care insurance policies (Cont.) • Preexisting Conditions- health conditions that existed before your policy was granted • If you had a torn ligament when you applied for the policy, you may not be allowed coverage for surgery to repair the ligament • Flexible Spending Account- an account established by the employer for the employee to use pretax income to pay for medical expenses • Funds do not roll to next year • Maintaining private health care insurance coverage- federal regulations ensure continuous health care coverage despite employment status • COBRA- continue health insurance provided through an employer’s plan for 18 months after you stop working for the employer • HIPAA- can continue health insurance coverage if they have switched jobs • Ex. Work in Kansas, have torn ligament… change jobs and move to Texas. Cannot be denied the surgery for torn ligament because of preexisting condition

36. Government health care plans • Medicare • Provides health insurance to individuals who are 65 years or older and qualify for Social Security benefits or who are disabled • Provides payments to health care providers in the case of illness • Part A- hospital insurance and is used to cover expenses associated with inpatient care • Part B- Optional medical insurance (covers outpatient care, physical therapy, some home health services) • Part C- Combination of Parts A and B • Part D- provides coverage for prescription drugs

37. Government health care plans • Medicare • Medigap Insurance- provided by private insurance companies to cover medical expenses that are not covered by Medicare • Health Savings Account- an account that shelters income from taxes and that can be used to pay health care expenses • Medicaid • Provides health insurance for individuals with low incomes and those in need of public assistance • Provide health care to the aged, blind, disabled, and needy families with dependent children • Must meet federal guidelines

38. Long term care insurance • Insurance that covers expenses associated with long-term health conditions that cause individuals to need help with everyday tasks • More than half of all individuals in the U.S. will need long-term care at some period during their life • The cost of having an aide provide basic care at home can exceed $1000 per week • For individuals who enter a nursing home, the cost is about $55,000 per year on average • Medicare does not cover the cost of long term care • Medicaid might cover some of these expenses, but coverage is limited

39. factors that affect long-term care insurance premiums • Premium will depend on: types of services, amount of coverage, period to receive benefits • Age • Health Condition

40. Additional types of health care plans • Dental insurance covers part or all the fees imposed for dental serices • Annual checkups, orthodontics, and oral surgery • Vision insurance covers part or all of the fees imposed for optician and optometrist services • Annual checkups, glasses, contact lenses, and surgery

41. Disability income insurance • Insurance that provides income to policyholders in the event that they become disabled. • “Own Occupation” definition • If you are unable to do the duties required of your occupation • “Any Occupation” definition • If you cannot do the duties of any job that fits your education and experience

42. Sources of disability income insurance • Individual disability insurance • Employer disability insurance • Insurance from Social Security • Insurance from Worker’s Compensation

43. Disability insurance provisions • Amount of coverage • Probationary period • Waiting period • Length of time for Disability Benefits • Non-cancelable provision • Renewable provision

44. Health care in the news • Find an article on the internet that discusses Obama Care. Identify: • What is Obama Care? • What are the advantages of Obama Care? • What are the disadvantages of Obama Care? • After reading the article, write a paragraph explaining how YOU feel about Obama Care.

45. Life insurance • I can… • Describe the types of life insurance that are available • Identify the factors that influence insurance needs • Review the factors that affect life insurance premiums • Examine the decision of whether to purchase life insurance • Explain settlement options available to a beneficiary

46. Life insurance • Provides a payment to a specified beneficiary when the policyholder dies • Ex. If Bob has a $100,000 policy, then if he passes away his wife Sue will receive $100,000 (non-taxable) • Critical to protect a family's financial situation • Covers burial or medical expenses not covered by health insurance • If no one else relies on your income life insurance may not be necessary

47. Types of life insurance • Term Life Insurance • Decreasing Term • Mortgage Life Term • Group Term • Permanent Life (Whole Life) • Limited Payment Policy • Universal Life Insurance-combination of term life and savings plan; provides insurance over a specified period of time and accumulates a savings plan • Variable life insurance

48. How do you know how much you need? • Income method- a method that determines how much life insurance is needed based on the policyholder’s annual income • Budget method- determines how much life insurance is needed based on household’s expected future expenses • Annual Living Expenses • Special Future Expenses • Debt • Job Marketability of Spouse • Value of Existing Savings

49. Contents of a life insurance policy • Beneficiary • Can name multiple beneficiaries • Can change any time you wish • Living benefits • Receive a portion of benefits prior to death under special circumstances • Nonforfeiture Clause • Allows you to receive the savings you accumulated if you terminate your whole life policy • Renewability option • Allows you to renew the term once the current term expires • Premium for the next term is higher since you are older • Conversion option • Allows you to convert your term insurance policy into a whole life policy

50. Settlement option • Alternative way to receive life insurance benefits • Lump sum settlement • Installment payment settlement • Interest payment settlement