Understanding Life, Health, and Disability Insurance

1. Chapter 7 Insurance & Investments

2. 7.1 Life Insurance

3. Life Insurance Premiums • Life Insurance - a way of protecting your family from financial hardship when you pass away • Life insurance policy • Insured – Person whose life is covered • Insurer – Insurance company • Premium - $ paid to insurance company for insurance

4. Beneficiary – Person named in the policy to receive the death benefits. • Term Life Insurance – Protection for a fixed period of time – 1,5,10 years • Decreasing Term Life Insurance – Face amount of the policy decreases over time • Permanent Life Insurance – Insures you for your whole life • Your health condition and habits matter • Face of Policy x cost per 1,000 1,000

5. 1.3 from table 135,000 / 1,000 135 x 1.3 = 175.5 B. 8.92 from table 150,000 / 1,000 = 150 x 8.92 = 1338

6. Net Cost of Insurance • Some companies may return part of your premium to you as a dividend • Total Premiums – Dividends = Net Cost of Insurance C. 856 – 38.56 = D. 12.81 from table 150,000 / 1,000 150 x 12.81 = 1921.5 – 23.16 = 1898.40

7. Life Insurance Cash Values • Cash value - $ you get if you cancel the policy • You can also borrow against your policy at a lower interest rate than a bank • If don’t pay back the amount – beneficiaries receive less

8. E. 300,000 / 1,000 = 300 x 42 = 12,600 F. 150,000 / 1,000 = 150 x 80 = 12,000

9. 7.2 Health Insurance • Health insurance –Protects against financial loss of medical bills • Can be provided through work-as a benefit • Hospitalization insurance • Surgical insurance • Medical insurance

10. 57 x 0.5 = 28.5 x 12 = 342 B. 36 x 0.65 = 23.4 x 12 = 280.80

11. Health Insurance Benefits and Coinsurance • Annual Deductible Amount • Coinsurance or co-payments

12. Total Bill – Covered Amount = Uncovered Amount (Covered Amount – Deductible) x Coinsurance = Coinsurance Amount Uncovered Amount + Deductible + Coinsurance = Amount Patient Must Pay

13. C. 2,964 – 2,583 = 381 2,583 – 500 = 2,083 2,083 x 0.21 = 437.43 + 381 + 500 = 1,318.43 D. 525 – 450 = 75 450 x 0.10 = 45 + 75 = 120

14. 7.3 Disability Insurance

15. Disability Insurance Benefits • Pays you a portion of the income you lose if you cannot work due to a health condition or injury • Short-Term Disability • Long-Term Disability • Usually bought through work • Worker’s Compensation covers injury at work • FOLLOW GUIDELINES

16. 45,200 + 48,300 + 49,900 = 143,400 / 3= 47,800 x 0.65 = 31,070 / 12 = 2,589.17 B. Average – 38,075 x 0.45 17,133.75 /12 = 1,427.81 – 225 = 1,202.81

17. Buying Bonds • Bonds – Written promise to repay the $ loaned on the due date • Bondholders – people who own the bonds – may keep them until the due date or sell to other investors • Bonds usually issued with a face or par value of $1,000 • Face value – amount of $ issuer will pay the bondholder on due date

18. Market value – Selling price, can be different than face value • If can sell for more than face value – Premium – ex. 1,100 • If can sell less than face value – discount ex. 950 • Stated as a percent • 100% = 1,000 • 96% = 960 • 105% = 1,050

19. 1,000 x 1.03883 = 1,038.83 B. 500 x 0.96225=481.14 500 – 481.14 =

20. Total Investment in Bonds • Bonds are usually bought and sold (traded) through a broker • Offer advice on which bonds to buy and sell • Charge a commission

21. C. 1,000 x 0.97297 = 972.97 x 10 = 9,729.70 D. 1,000 x 1.03228 = 1,032.38 x 15 = 15,484.20 15 x 3 = 45 + 15,484.20 = 15,529.20

22. 7.2 Bond Interest

23. Investors in bonds receive interest payments as income • Bond interest is paid semiannually • 6/12 = 0.5 • Interest rate based on bond’s par value Par Value x Rate x Time = Interest

24. 1,000 x 0.09 x 0.5 = 45 x 10 = 450 B. 500 x 0.085 x 0.5 = 21.25 x 20 = 425

25. Bond Yields Current Yield =Annual Income / Bond Price C. 1000 x 1.01585 = 1,015.85 x 0.09 x 0.5 = 45.71 x 2 = 91.42 / 1015.85 = 8.9%

26. D. 1,000 x 0.94598 = 945.98 47.5 x 2 = 95/945.98 = 10%