Insurance
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Insurance. Chapter 14 – Insurance Basics. Risk management – limiting possible financial losses to amounts you can handle Insurance to manage risk Premium – Regular payment for insurance Diversification – Insurance company diversifies to reduce risk. Insurance Basics.

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Insurance

Insurance


Chapter 14 insurance basics

Chapter 14 – Insurance Basics

  • Risk management – limiting possible financial losses to amounts you can handle

  • Insurance to manage risk

  • Premium – Regular payment for insurance

  • Diversification – Insurance company diversifies to reduce risk


Insurance basics

Insurance Basics

  • Policy – legal contract for insurance

  • Claim – filed if you incur loss covered by policy

  • Shared risk – many pay for the few who incur loss

  • Premiums

  • Statistics


Insurance basics1

Insurance Basics

  • Insurable interest – vested interest in insurable item/person

  • Appraisal

  • Rider – special addition to an insurance policy

  • Life & Health insurance sold at different costs

    • Life expectancy (ave. # of years remaining)


Insurance basics2

Insurance Basics

  • Should protect from a loss that could put you in financial difficulty

  • The more you buy, the higher the cost

  • Insurance provides security

    • Banks won’t lend money to a house that isn’t insured

    • Doctors don’t practice without insurance

    • Our economic system relied on sharing risk


Types of insurance

Types of Insurance

  • Property Insurance

    • Cars, homes, valuable possession

    • Market value (what it’s worth)

    • Replacement value (cost to replace, no matter what market value is)

  • Liability Insurance

    • Your actions cause losses to other people

  • Personal insurance

    • Life, Health


Automobile insurance 14 2

Automobile Insurance (14.2)

  • Bodily injury liabil8ity coverage

    • When YOU are responsible for injuring people

    • 250,000/500,000 (one person/max on all) for each accident

  • Property damage liability coverage

    • When YOU are responsible for injuring another person’s property

    • Does not cover YOUR car

    • x/x/50,000 (3rd number listed)


Automobile insurance

Automobile Insurance

  • Medical Payments Coverage

    • Medical and funeral expenses for you, your family, and other passengers in your car because of injuries

    • Doesn’t matter who caused accident

  • Uninsured/underinsured motorist coverage

    • Medical and damage for you and your passengers caused by a driver without or too little insurance

    • Does NOT cover the other driver


Automobile insurance1

Automobile Insurance

  • Comprehensive Coverage

    • Damage to your car caused by other than a collision

    • Environmental hazards, vandalism, theft

    • May exclude easy to steal items (phone)

  • Collision Coverage

    • Damage to your car caused by colliding with another car or object

    • Most expensive portion of policy


Automobile insurance2

Automobile Insurance

  • Deductible – amount you pay before company pays anything

  • Additional coverage options

    • Rental car

    • Towing

    • Items within car (stereo)

    • Cover gap between value and what you owe

    • Are these things worth the additional premium?


Automobile insurance3

Automobile Insurance

  • How much to buy?

    • Least you should consider is 50/100/25

    • Medical at least $50K

    • Collision/comprehensive, depends on car

    • Deductible

      • The Higher the deductible, the lower the premium


Why are costs so high

Why are costs so high?

  • Technology – more expensive to fix

  • Medical technology, equipment and drugs – more expensive

  • Lighter cars (fuel efficient cars) have more damage

  • Americans more likely to sue

  • Judges awarding higher amounts


Factors affecting premium

Factors Affecting Premium

  • Driver classification

    • Age, gender, marital status

    • Based on statistics

  • Rating territory

    • Some locations more vulnerable than others

    • Claims in an area

  • Driving record

    • Points added to your record

    • Each point raises your premium 10%

    • 2-3 points will increase 25-100%


Factors affecting premium1

Factors Affecting Premium

  • Assigned risk – you will have to pay very high premiums

  • Type of car

    • More expensive to repair or replace

    • Theft to expensive sports and luxury cars

  • Claims history

    • More claims you have, the higher the premium


  • How to reduce your premium

    How to Reduce Your Premium

    • Be a responsible driver

    • Drive a moderately priced car

      • Discounts for certain safety features

    • Good grades

    • Driver’s Ed

    • Live in safe neighborhoods

    • Increase the size of your deductible


    Home insurance coverage

    Home Insurance Coverage

    • Provides personal property and liability protection for your home

    • Personal Property – Damage to or loss of your house and its contents

      • House, garage, shed

      • Furniture, clothes, appliances

      • Items from your car that are stolen?

      • Living expenses if house in uninhabitable after loss


    Home insurance coverage1

    Home Insurance Coverage

    • Exclusions – not covered

      • Stamp and coin collections, laptops, silverware, valuable jewelry and cash

    • Liability – Covers bodily injury or damage you cause to others while on your property or in other locations

      • Damage you do to someone else’ property

      • Damage you cause away from home

      • Not auto coverage though


    Home insurance coverage2

    Home Insurance Coverage

    • Umbrella policy – additional liability protection beyond that included in an automobile or homeowners policy.

    • Special risk coverage

      • Hurricanes, for example

    • Basic forms – 6 (number and types of perils covered)

    • Renter’s Insurance (same as home owner but doesn’t cover structure)


    How much to buy

    How much to buy?

    • 80% of its replacement value (land will still remain and that’s included in value)

    • 80 % rule – the company isn’t required to reimburse you for the total amount of a loss unless your policy covers at least 80 % of your home’s actual replacement value at the time of the loss


    Cost of homeowner s insurance

    Cost of Homeowner’s Insurance

    • Location

    • Age of house

    • Distance to a fire station or hydrant


    Reduce your premium

    Reduce Your Premium

    • Increase your deductible

    • Upgrade your home

      • Plumbing, wiring

      • Construction (metal siding and interior supports rather than wood)

    • Install smoke detectors

    • Install more security

    • Special discounts

      • Nonsmokers

      • Someone does s not work outside home


    Providers and the claims process

    Providers and the Claims Process

    • Insurance is a service

    • Insurance needs change

    • Choosing an agent

      • Someone to help you stay current with coverage

      • Two types: Independent and employed with a company

      • Ask for referrals


    Asking others about agents

    Asking others about agents..

    • Ability to explain policy

    • Quality of advice

    • Availability in time of need

    • Helpfulness sin getting claims process

    • Speed in getting claims paid


    Choosing an insurance company

    Choosing an Insurance Company

    • Policy is only as good as the company that issues it

    • Financial Health of company (Best’s Insurance Reports, A.M. Best Company)

    • Claims Service – speed & ease of claims processing (Consumer Reports)


    Filing a claim

    Filing a Claim

    • Homeowner’s claims

      • Home Inventory – store in safe place

      • Must demonstrate responsible behavior (stop any future loss or damage)

      • Contact agent

      • Adjustor will assess damage

      • Prove your loss with your inventory

      • Insurance company will issue you a check (sometime to you and contractor to ensure repairs are done)


    Filing claims

    Filing Claims

    • Automobile Claims

      • Call police and obtain report

      • Ask for other driver’s name, phone number, and insurance company.

      • Give information to insurance agent.

      • Provide details to agent

      • Adjustor assesses damage

    • No Fault Insurance – pays for person’s loss no matter who was at fault


    Insurance1

    Insurance

    • Insurance Fraud


    Health insurance 15 1

    Health Insurance (15.1)

    • Malpractice insurance – protecting themselves against a devastating loss (Average settlement exceeds $1 million)

      • Can cost doctors $100,000/year!

      • Higher medical costs!


    Health insurance

    Health Insurance

    • Hospitalization – hospital stay

    • Surgery – all parts of surgery

    • Outpatient services (Physician’s expense insurance) – nonsurgical car in their office hospital or in your home, doctor visits x-rays, and labs

    • Major Medical – enormous costs from serious illness or accident (extended hospital stays, long-term physical therapy, multiple operations)


    Additional coverage choices

    Additional Coverage Choices

    • Medications

      • Generic drugs

    • Dental care (preventative)

    • Vision care

      • Usually injuries not regular exams


    What s not covered

    What’s Not Covered

    • Procedures you elect to have done

      • Cosmetic surgery

      • Visits if you don’t have a problem

    • Some do not cover childbirth but will cover complications from pregnancy

    • Experimental drugs and surgical procedures

    • Some transplants

    • Duplicate benefits


    Special health needs

    Special Health Needs

    • Catastrophic and specified disease insurance

    • Long-term care insurance

    • Disability Income


    Health insurance plans

    Health Insurance Plans

    • Fee-for Service

    • Managed care

    • All cover medical, surgical, and hospital, many offer prescription and dental

    • Both require premiums, usually monthly

    • Difference:Degree of freedom you have to choose your health care providers and how the providers are paid


    Health insurance plans1

    Health Insurance Plans

    • Fee-for Service plan

      • Indemnity plan

      • You pay for services as you receive them

      • You or doctor’s office submits a claim

      • Deductible

      • 80/20 coverage (the 20% is your coinsurance)

      • You may choose provider

      • Fees paid on reasonable and customary charges

      • Out of pocket maximum


    Health insurance plans2

    Health Insurance Plans

    • Managed Care Plans

      • Prepaid plans, paid in advanced not as they are used

      • Your premium is prepayment

      • Less paperwork, no claim forms

      • Negotiate fees with participating providers

      • Pay hospitals and doctors a fixed amount per year for each patient, no matter what services they provide (capitation)


    Health insurance plans3

    Health Insurance Plans

    • Managed Care

      • Approvals for nonemergency hospitalization

      • Copayments usually required

      • Three basic types of managed care:

        • HMO (health Maintenance Organizations)

        • PPO’s (Preferred Provider Organizations)

        • Po’s (Point-of service plans)

        • DIFFERENCE: AMOUNT OF FREEDOM YOU HAVE


    Insurance plans

    Insurance Plans

    • HMO

      • Choose primary care physician

      • Must use doctors and hospitals in plan

    • PPO

      • Most like fee-for service plan

      • You can choose to stay in-network or go out

      • No primary care physician

    • PO

      • Combines HMO and PPO (PCP, but can go outside with referral)


    Choose a health plan

    Choose a Health Plan

    • Group Health

      • Large groups – unions, companies

      • Premiums lower

      • Employer-sponsored plans

        • Open enrollment

        • Usually just full-tie workers

        • Part-timers can sometimes pay full premium but still cheaper than going on their own

      • COBRA


    Choose a health plan1

    Choose a Health Plan

    • Pre-existing condition

      • Health Insurance Portability Act (7/1/97)Your new insurance plan must cover any pre-existing conditions without a waiting period if you have been inured continuously the previous 12 months.

      • According to the law, the waiting period must be no more than 12 month (when switching plans but no previous coverage)


    Health plans

    Health Plans

    • Individual Health Insurance

      • More flexibility

      • More expensive than group

      • Schools may require students to have policy

    • Government sponsored

      • Medicare – 65 years or older or persons with disabilities

      • Medigap – supplemental to Medicare (sold by private insurance)

      • Medicaid – low incomes or disabilities


    Health plans1

    Health Plans

    • Government (cont’d)

      • Workers’ compensation

        • Generally receive 2/3 of salary

        • Cash benefits to worker’s surviving family

        • Work-related claims


    Shop for health insurance

    Shop for Health Insurance

    • Find the plan right for you

    • See questions to ask on p. 508


    Health care rights and responsibilities

    Health Care Rights and Responsibilities

    • Right to receive accurate, easily understood information about health plans, professionals, and facilities.

    • Right to Choose a health care provider that is sufficient to ensure access to appropriate high-quality health care

    • Right to access emergency health care services


    Health care rights and responsibilities1

    Health Care Rights and Responsibilities

    • Right and responsibility to fully participate in all of your health care decisions

    • Right to considerate, respectful care from all members of the health care system and nondiscrimination in delivery of services.

    • Right to communicate with health care providers in confidence an to have confidentiality of your health care information protected.


    Health care rights and responsibilities2

    Health Care Rights and Responsibilities

    • Right to a fair and efficient resolution to differences with your health providers, including an appeals system

    • Responsibilities p. 512

    • Referrals

    • In-plan providers

    • Pre-approvals

    • Second opinions


    Health care rights and responsibilities3

    Health Care Rights and Responsibilities

    • Appeals process

      • Start with the company

      • Contact representative

      • Keep written records and all correspondence

      • If still unsatisfied, talk to state insurance commissioner or state department of health

      • Finally, court action


    Life insurance

    Life Insurance

    • Death benefit

    • Beneficiary


    Types of life insurance

    Types of Life Insurance

    • Term

      • Level Term

      • Renewable Term

      • Convertible Term

    • Permanent

      • Death benefit plus savings plan

      • Cash value life insurance


    Permanent

    Permanent

    • Whole life

      • Least expensive permanent

      • For your entire life

      • Fixed premium Receive dividends or apply to premium

      • Borrow against cash value

      • No flexibility to change policy


    Permanent1

    Permanent

    • Variable Life

      • Decide how your savings will be invested

      • Riskier

      • Can borrow but not withdraw

    • Universal Life

      • More flexibility than either whole- or variable life

      • Can borrow or withdraw savings

      • Can change amount of converge and premium

      • You cannot choose how your savings are invested


    How much to buy1

    How much to buy?

    • As an investment?

      • Funds do not earn high returns over time

    • Your family responsibilities

    • Your financial situation

    • Your future

    • Your special needs


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