Chapter 35 Life and Health Insurance

1. Chapter 35Life and Health Insurance

2. Life Insurance • Protects the standard of living of the survivors • At the policy holder’s death, the insurance company pays survivors the face value of a life insurance policy • Proceeds: the money paid to survivors • Beneficiary: each person who receives part of the proceeds • Buyer of policy names beneficiaries

3. Life Insurance: Cash-Value Insurance • Cash-value insurance: provides both savings and death benefits • Part of premium pays for death benefits • The rest builds up cash value like a savings account • Cash value increases over life of policy • Cancel policy, claim collected cash-value • Emergency – borrow part or all of cash value • Different kinds of cash value insurance

4. Cash-Value Insurance: Whole Life Insurance • A policyholder pays a premium that stays the same throughout his/her lifetime • As long as premiums are paid, policy stays the same until death of the insurer • Provides savings during the policyholder’s life and pays benefits after death

5. Cash-Value Insurance: Limited-Payment Life Insurance • Pay premiums for certain number of years • EX. 20-payment life policy, you pay premiums for 20 years • “paid up at age 65” • Since many retire at 65, they won’t have to pay premiums after paychecks stop

6. Cash-Value Insurance: Variable Life Insurance • Cash value part of premium is invested • Stocks, bonds, and mutual funds rather than savings • Rest of premium is used for death benefits • Increases or decreases depending on value of investments • EX. Part of premium is used to invest in stock and the stock double in value, the cash value will be worth double

7. Cash-Value Insurance: Endowment Insurance • Special type of cash-value • Based more on savings over death benefits • Provides coverage for specific period of time • Usually 20-30 years • Proceeds go to policyholder if he/she is still alive • If policyholder dies during endowment period, beneficiaries receive proceeds • Usually used to provide income for retirement or education • EX. Parents could buy an 18 year, $15,000 endowment when a child is born

8. Life Insurance: Term Insurance • Term Insurance:life insurance that covers a person for a specific period of time • Could be 5, 10, or 20 years • Only pays benefits if person dies within the term • If the insurer lives longer, policy has no value • Can be renewed….higher premium • “pure protection” – only pays death benefits and no cash value • Low cost

9. Term Insurance continued • How it works: • Your friend purchases a 5 year, $10,000 policy (covers him for 5 years) • If your friend dies within those first five years, his/her beneficiary will receive $10,000. • After five years his/her coverage ends • The policy can be renewed over time but with a higher premium • Term insurance is often used as a part of group life insurance • Employers & organizations = employees & members • If you leave company, you lose coverage • Group policies are cheaper than individual policies

10. Costs of Life Insurance • Term insurance costs less than cash value insurance • Several factors effect cost of your premium: • Age, health, occupation • Many people have to take a physical before taking out a policy • Older = higher cost • Dangerous occupations = higher cost

11. Health Insurance • Protects against the cost of illness and accidents • Average cost of one hospital day stay = $5,000 • Most people cannot pay • Medical costs = very high

12. Health Insurance: Major Medical Insurance • *catastrophe insurance • Most important coverage for a serious illness or accident • Covers: hospital care, doctor’s bills, tests and x-rays, and nursing care • Deductible • Some plans may have coinsurance: a percentage of medical expenses a policyholder must pay beyond the deductible • Insurance usually pays 75-80% of costs and policyholder pays 20-25% • EX. $1,000 deductible an coinsurance of 20%. Bills are $6,000, you pay $2,000 ($1,000 deductible and 20 % of $5,000)

13. Hospital Expense Insurance • Pays for hospital care for a given period of time • Covers: room and board, tests and x-rays, operating room costs, nursing care, and fees for drugs and treatments • Could have deductible • Some policies have limits for specific expenses • Some set a max per day for max number of days • Most popular type of health insurance

14. Surgical Expense Insurance • Pays part of a surgeons entire fee for operation • Max payment for particular surgical expense • Policy lists surgeries and costs allowed • Major Medical Insurance picks up where Surgical Expense does not cover • Usually bought with Hospital Expense • Higher maximums for each surgery = higher premium

15. Medical Expense Insurance • Covers the costs of a doctor’s care not involving surgery • Could cover visits to doctor’s office or doctor’s calls at hospital • Usually purchased with Hospital Expense and Surgical Expense • Insurance company could combine all three types into one basic health insurance plan

16. Group Health Insurance • Least expensive form for most people • Company or organization provides it for employees or members • Employees and members can add extra coverage at their own expense • Health maintenance organization (HMO): provides health care at its own health center for a fixed fee per month • HMO- you must go to its own clinic and choose one of their doctors • HMO plans stress preventive health care to keep medical costs down

17. Government Health Insurance: Medicare • Medicare: a major health insurance program set up by the federal government • Provides hospital insurance that covers hospital care • Provides medical insurance that covers doctor’s fees and tests • For Medicare: • Pay a deductible • Coinsurance • Monthly premium • For Hospital Insurance: • Pay deductible

18. Government Health Insurance: Medicaid • Medicaid: another government health care plan for certain groups of citizens • Provides care for those who are unable to pay for insurance or health care • Much more comprehensive coverage than medicare

19. Costs of Health Insurance • Coinsurance Clause – requires you to pay a certain percentage of medical expenses beyond the deductible • Copayment: a fee paid each time a service is used • More people covered by a policy = higher premium • Many policies won’t cover a pre-existing condition: a serious health condition diagnosed before a person obtained health insurance • EX. Someone suffers from a heart condition, an insurance company might refuse to cover it

20. Understanding the Affordable Care Act • The act provides comprehensive health insurance reforms that hold insurance companies more accountable • Lower costs • More choices • Enhance the quality of healthcare

21. Affordable Care Act • Lower Costs • New creation of a competitive private health insurance market • Stabilizes economy • Expected to reduce deficit over next ten years by $100 billion • End insurance company denial and abuse of care (Americans with pre-existing conditions) • Will continue through 2014 • Covers: • Individuals • Families • Seniors • Businesses • Reduced premiums for families and small businesses