Chapter 35 Life and Health Insurance Life Insurance

Chapter 35 Life and Health Insurance

Life Insurance Protects the standard of living of the survivors Policyholder dies = ins. co. pays survivors Proceeds: the money paid to survivors Beneficiary: each person who receives part of the proceeds Policyholder names beneficiaries

There are two basic kinds of life insurance policies: 1. Permenant life Insurance (Cash Value Insurance)v Comprised of two parts: a savings, or investment, portion (i. e. Cash Value) and an insurance portion. ü ü Whole Life Universal Life 2. Term insurance – v No investment component. You're buying life coverage that lasts for a set period of time provided you pay the monthly premium

Life Insurance: Cash-Value Insurance Cash-value insurance: provides savings and death benefits ◦ Part of premium death benefits builds up cash value (savings acct) Cash value over life of policy Cancel policy, claim collected cash-value Emergency – borrow part/all of cash value, pay interest Different kinds of cash value insurance

Whole Life Insuarnce v Whole life is meant to insure someone for their whole life. v. Has a cash-value component. (builds tax deferred) v. Premium and death benefit are fixed.

Universal Life Cash value part of premium is invested v. Stocks, bonds, and mutual funds rather than savings, and doesn’t guarantee a certain rate of return like a whole life policy Increases or decreases depending on value of investments (Variable)

Life 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, no cash value Low cost

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 � Offered by employers; if you leave company, you lose coverage � Group policies are cheaper than individual policies

Costs of Life Insurance Term insurance < cash value insurance Factors that effect premium: Age, health, occupation Many have to take a physical first Older = higher cost Dangerous occupations = higher cost

Health Insurance Protects against the cost of illness/accidents Avg. cost of one hospital day stay = $5, 000 -$8000

Health Care Plans Private Health Care Plans § Group Health plans: Least expensive Co. /org. provides for employees/members Employees/members can add extra coverage at their own exp. § Individual Health plans: most expensive. Government-Sponsored Health Care Plans

Costs of Health Insurance Coinsurance Clause – requires you to pay a certain % of medical exp. s beyond deductible Copayment: fee paid each time a service is used More people covered = higher premium (i. e. dependents) Many policies won’t cover a pre-existing condition: a serious health condition diagnosed before a person obtained health ins. ◦ EX. Someone suffers from a heart condition, an insurance company might refuse to cover it

Types of Health Insurance Ø Ø Fee-For-Service or Traditional Indemnity Plans Managed Health Care Plans q. Health maintenance organizations (HMOs) q Preferred provider organizations (PPOs)

Major Medical Insurance �= catastrophe ins. � Most important coverage for a serious illness/accident � Covers: hospital care, doctor’s bills, tests, x-rays, and nursing care � Deductible � Some plans have coinsurance: % of medical exp. a policyholder must pay beyond the deductible � Insurance 75 -80%, policyholder 20 -25% � EX. $1, 000 deductible and coinsurance of 20%. Bills are $6, 000, you pay $2, 000 ($1, 000 deductible and 20 % of $5, 000)

Government Health Insurance: Medicare: major health ins. program set up by the federal gov’t (2 parts) Part A: hospital ins. (covers hospital care) ◦ Pay a deductible Part B: medical ins. (covers doctor’s fees/tests) ◦ Pay a deductible ◦ Coinsurance ◦ Monthly premium

Government Health Insurance: Medicaid Medicaid: another gov’t health care plan for certain groups of citizens Provides care for those who are unable to pay for ins. or health care Much more comprehensive than medicare

Understanding the Affordable Care Act The act provides comprehensive health ins. reforms that hold ins. companies more accountable President Obama signed the Act on Mar. 23, 2010 ◦ Lower costs ◦ More choices ◦ Enhance the quality of healthcare

Affordable Care Act � Lower Costs ◦ creation of a competitive private health ins. market ◦ Stabilizes economy ◦ Expected to reduce deficit over next ten years by $100 billion � End Ins. Co. denial & abuse of care (Americans w/ pre -existing conditions) � Will be rolled out through 2014 � Covers: ◦ ◦ Individuals Families Seniors Businesses � Reduced premiums for families & small businesses

Insurance Terminology and Concepts Premium • Deductible • Coinsurance • Co-payment • Coinsurance Cap or Stop-Loss Provision • Pre-existing Conditions • Waiting Period • Policy Limits • Policy Provisions • Coordination-of-benefits Clause •