Chapter 35: Insurance

1. Chapter 35: Insurance 35.1 Insurance Contracts

2. 35.1: The Insurance Contract • ON A SHEET OF PAPER write… Make a list of 10 things you own that are worth the most amount of money or have personal value.

3. 35.1: The Insurance Contract • Insurance is a contract where one party agrees to compensate another for a specific loss • PURPOSE of insurance is to spread loss among a greater number of people.

4. 35.1: The Insurance Contract • 2 sides of the contract • Insurer - the insurance company • Insured - person whose life or property is insured • Policy - the written contract between person buying insurance (policyholder) and the person who sells it.

5. 35.1: The Insurance Contract • There is a THIRD party to this contract but does not have input but still benefits… • Beneficiary - the person named in the policy to receive benefits paid by the insurer in the event of a loss

6. 35.1: The Insurance Contract • The Insurer can create clauses that modify the normal insurance contract. They are called riders and simply modify or add to the contract. • Example: Someone with prior medical conditions who apply for health insurance may not have coverage over pre-existing conditions.

7. 35.1: The Insurance Contract • Premium - the $ you pay to the insurance company for coverage • Face Value - the amount of protection state in a life insurance policy (the amount that a beneficiary would receive if you died). • Cash Value - the amount of $$ you can take by either borrowing against or cashing in your life insurance policy

8. 35.2: Life & Health Insurance • Life Insurance • Insurance contract that provides monetary compensation for losses suffered as a result of someone’s death. • Premium is based on health, coverage and type of policy • It is less expensive to buy life insurance when you are young because the death rate for younger people is lower and health is usually better.

9. 35.2: Life & Health Insurance • There are several types of Life Insurance • Straight Life Insurance • Also called Ordinary Life Insurance and Whole Life Insurance • Requires payment of premiums throughout the insured’s lifetime. • Premiums stay constant throughout policy. • Beneficiary is paid face value upon insured’s death • Serves as a savings and protection account.

10. 35.2: Life & Health Insurance • There are several types of Life Insurance • Universal Life Insurance • A type of Straight Life Insurance • Allows policyholder to change the terms of the policy as their needs change • Coverage can be increased or decreased • Cash can be withdrawn against account without canceling the policy. • Premiums vary depending on changes in policy.

11. 35.2: Life & Health Insurance • There are several types of Life Insurance • Limited-Payment Life Insurance • Allows you to stop paying premiums after a stated length of time (usually 10, 20 or 30 years). • Beneficiary will receive the amount of the policy upon the death of the insured whether it occurs during the payment period or after

12. 35.2: Life & Health Insurance • There are several types of Life Insurance • Endowment Insurance • Provides protection for a stated period of time (generally 20 to 30 years). • Face value of policy is paid to insured at end of agreed period • If insured dies before end of period the full amount is paid to the beneficiary at the time of death

13. 35.2: Life & Health Insurance • Annuity is a guaranteed retirement income that is purchased by paying either a lump-sum premium or by making periodic payments to an insurer. • Either receive the income for fixed # of years with beneficiary receiving what is left if you die • OR • Receive payments as long as you live, losing what is left of annuity upon death.

14. 35.2: Life & Health Insurance • Accidental Death & Dismemberment Insurance • Provides benefits only when the insured is: • killed in an accident • Loses the use of one or more limbs • Loses sight in one or both eyes • Loses one of either an eye or limb and gets 1/2 of policy that would have been paid for loss of life • Double Indemnity - When beneficiary receives double the face value of the policy

15. 35.2: Life & Health Insurance • Term Life Insurance • Protection only policy • Least expensive type of life insurance • Has no cash or loan value • Issued for particular period of time (5 or 10 years normally) • Insured is usually older and considered a greater risk

16. 35.2: Life & Health Insurance • Exemptions to Life Insurance Policies • Some states do not allow beneficiaries to receive life insurance proceeds if: • Killed by police • Legally executed • If murder is beneficiary • Insurer can cancel policy if insured makes false statements

17. 35.2: Life & Health Insurance • Health Insurance • Basic Health Insurance plans usually include the following: • Inpatient & outpatient hospital care • Physician care • Surgery • Prescription drugs • Dental & Vision care

18. 35.2: Life & Health Insurance • Health Insurance Plans • The type of coverage people carry depends on their own situation • Group Plan • Individual Plan • HMO (Health Maintenance Organization) • PPO (Preferred Provider Organization) • Medicare & Medicaid • Disability Insurance

19. 35.2: Life & Health Insurance • Health Insurance Plans • Group Health Insurance Plan • Usually obtained where you work • Where/how many people get their health insurance • Premiums are lower! • COBRA Consolidated Omnibus Budget Reconciliation Act is a federal act that allows people to keep their health insurance for a limited time after being laid off.

20. 35.2: Life & Health Insurance • Health Insurance Plans • Individual Health Insurance Plans • For people who work for a company that does not offer insurance • For self-employed workers • More expensive because costs are not spread amongst a group

21. 35.2: Life & Health Insurance • HMOs and PPOs • HMO means Health Maintenance Organization • Encourages regular medical visits to keep costs down • PPO means Preferred Provider Organization • Members see a primary physician (preferred physician) who may recommend further treatment with specialists.

22. 35.2: Life & Health Insurance • Government Health Care • Medicare • Health insurance for ages 65+ • Pays 80% of doctor bills • Can buy own insurance to cover other 20% • Medicaid • Healthcare for low-income individuals & families • Governed & admin. by state but with Federal $$

23. 35.2: Life & Health Insurance • Disability Insurance • Pays you benefits when you can’t work because of a disability • Purchased from private insurer but usually paid in part or in whole by employer • Can be partial or short-term (pays for few months) • Can be long-term (pays for a year or longer)

24. 35.2: Life & Health Insurance • Property Insurance • Homeowner’s Insurance • Renter’s Insurance • Fire Insurance • Coinsurance • Ocean Marine Insurance • Inland Marine Insurance

25. 35.2: Life & Health Insurance • Property Insurance • Property Insuranceis a contract in which the insurer promises to pay you a sum of money if a piece of real or personal property is destroyed. • Bindersare issued as temporary insurance until a policy is signed and completed and issued • Floater Policiesinsure property that can’t be covered by specific insurance because it changes in value or location (ex. Bicycle, violin, laptop, jewelry)

26. 35.2: Life & Health Insurance • Homeowner’s Insurance • Homeowner’s Insuranceprotects against most types of losses & liabilities related to your home (fire, windstorm, vandalism, burglary & injuries suffered by other people while on your property) • Renter’s Insuranceprotects someone who rents property against loss of personal property and liability for a visitor’s personal injury (also negligent destruction of the property!)

27. 35.2: Life & Health Insurance • Fire Insurance • Fire Insurancecovers loss resulting directly from an unfriendly or hostile fire • Damage caused while trying to put out a fire • Damage caused trying to remove insured goods to safety • Damage caused by soot, smoke or water from nearby fire

28. 35.2: Life & Health Insurance • Coinsurance • is a provision in an insurance policy that limits your liability for a loss if the property is not insured for its full replacement value • AN 80% coinsurance clause means your house must be covered for 80% of its replacement value to receive full reimbursement for a loss

29. 35.2: Life & Health Insurance • Marine Insurance • One of the oldest kinds of insurance dating back to Venice, Italy when ships were key to trade and travel • Ocean Marine Insurance • Covers ships at sea • Inland Marine Insurance • Covers goods that are moved by land carriers such as trains, trucks and airplanes • Can also cover jewelry, fine art, musical instruments and wedding presents