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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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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
  • 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)
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
  • 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
  • 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