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Insurance Basics. Adapted from Money Talk: Women’s Financial Education Series. Objectives. increase your awareness of the financial cost of various risks in life discuss key characteristics of different types of insurance policies help formulate questions to ask insurance professionals

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insurance basics
Insurance Basics

Adapted from Money Talk: Women’s Financial Education Series

  • increase your awareness of the financial cost of various risks in life
  • discuss key characteristics of different types of insurance policies
  • help formulate questions to ask insurance professionals
  • help identify your current insurance strengths and weaknesses
life is full of risks many have financial consequences
Life is Full of Risks…Many Have Financial Consequences
  • Damage to truck in accident
  • Fire that destroys home, farm buildings and/or possessions
  • Loss of income due to disability
  • Death of an earner/key personnel
  • Loss of a homemaker’s services
  • Large medical bills for disease or injury
  • A court judgment of liability for damages
people manage risks in five ways
People Manage Risks in Five Ways:
  • Risk avoidance
  • Risk reduction
  • Risk acceptance (Unknowingly accepting risk with no plan is called do nothing and hope for the best)
  • Risk transfer (insurance)
  • Self-Insure
in the five areas of risk management
In The Five Areas of Risk Management

Human Resources





Insurance Contracts

insurance basics1
Insurance Basics
  • Protect against risks by paying premium
  • “Large Loss Principle” (size of loss matters)
  • Major “large-loss” risks:
    • Loss of income due to disability
    • Death of an earner/key personnel
    • Destruction of structures (fire, flood, etc.)
    • Liability losses due to a court judgment
    • Large medical expenses (e.g., cancer treatment)
generally unnecessary insurance
Generally Unnecessary Insurance
  • Credit insurance (life, disability, unemployment)
  • Life insurance for children
  • Cancer insurance
  • “Double Indemnity” insurance riders
  • Hospital indemnity policies
  • Flight insurance
  • Car rental collision-damage waivers
general insurance tips
General Insurance Tips
  • Check policies for “owner”, “Insured”, & “beneficiaries”
  • Insure for major losses
  • Choose a highly rated insurance company
  • Select the highest deductible you can afford
  • Pay premiums annually or semi-annually
  • Avoid duplicating coverage
  • Ask about available discounts
  • Follow “The Rule of Three”
parts of an insurance contract
Parts of an Insurance Contract
  • Declarations page
  • Insuring Agreements
  • Exclusions
  • Endorsements and Riders
policy features that limit coverage
Policy Features That Limit Coverage
  • Benefit coordination clauses
  • Deductible
  • Elimination period
  • Co-payment
  • Co-insurance
  • Policy limit
life insurance
Life Insurance
  • Protects against loss of earner’s/key personnel income
  • Provides money to replace homemaker’s services
  • Factors to consider include:
    • current assets and debts
    • earning power of surviving spouse
    • other sources of income
    • projected expenses
types of life insurance
Types of Life Insurance
  • Term Life
    • Level term
    • Decreasing term
  • Permanent Life (cash value)
    • Whole life
    • Variable life
    • Universal life
general life insurance tips
General Life Insurance Tips
  • Avoid simplistic formulas
  • Never cancel existing policy until you have new one in hand
  • Review beneficiary designations
  • Buy credit life coverage only if you cannot get life insurance elsewhere
  • Compare policies: interest-adjusted net cost
two primary types of health insurance
Two Primary Types of Health Insurance
  • Indemnity or “traditional”
    • Annual deductible
    • Co-insurance up to stop-loss limit
  • Managed care (HMOs, PPOs)
    • Read “the fine print” for details
    • Emphasizes preventative care and screenings
    • Require use of in-network medical providers
general health insurance tips
General Health Insurance Tips
  • Look for a policy that is “guaranteed renewable”or “noncancellable”
  • Inquire about post-retirement coverage
  • Note pre-existing condition clauses
  • Be cautious about switching policies
  • Keep good records!
other health benefit programs
Other Health Benefit Programs
  • SHIP (State Health Insurance Program)
    • Extends group coverage for up to 18 months
    • Covers employers with 20 or more workers
    • Ex-worker must pay full cost, plus 2%
  • Free/low cost screenings & immunizations
disability insurance
Disability Insurance
  • Covers income loss from inability to work
  • Maximum coverage: 60% -70% gross pay
  • Particularly important for self-employed
  • Key factors:
    • Definition of disability
      • Own Occupation
      • Any Occupation
    • Waiting period
disability insurance tips
Disability Insurance Tips
  • Base elimination period on
    • Adequacy of emergency savings
    • Accrual (if any) of employer sick leave
  • Buy a noncancellable policy to age 65
  • Request that an ex-spouse buy coverage to protect support payments
  • Try to get benefit of 100% of net income
more disability insurance tips
More Disability Insurance Tips
  • Look for a policy with residual benefits
  • Consider a cost-of-living rider
  • Avoid gender-based policies (women pay more)
  • Purchase a waiver of premium rider
  • Look for a “recurrent disability” clause
long term care insurance
Long Term Care Insurance
  • “LTC” means wide range of services:
    • Home health care
    • Nursing home care
  • Three ways to handle risk of LTC costs:
    • Retain it (self-insure)
    • Avoid it (no guarantees)
    • Transfer it (LTC insurance)
who should buy ltc insurance
Who Should Buy LTC Insurance
  • If premiums are no > 10% of annual income
  • If you’re able to handle 20% -30% increase
  • If > $75,000 of assets per person (excluding house)
  • If > $30,000 annual income per person
  • Around age 60 (55-65)
  • Couples concerned about well spouse
additional ltc insurance tips
Additional LTC Insurance Tips
  • Understand how to trigger benefits (ADLs)
  • Buy a “compound” inflation rider
  • Consider key policy features:
    • Elimination period
    • Length of time benefits will be paid
    • Benefit amount ($ per day)
auto insurance basics
Auto Insurance Basics
  • Factors that affect coverage
  • Two parts:
    • Liability coverage
      • Single limit (e.g., $300,000)
      • Split limit (e.g., 100/300/50)
    • Physical damage (collision & comprehensive)
  • Liability coverage is most important part
  • State minimum liability is often inadequate
auto insurance tips
Auto Insurance Tips
  • Increase liability to at least 100/300/50: for self and uninsured motorists
  • Evaluate physical damage coverage on older cars
  • Take advantage of available discounts
  • Buy a less expensive car to insure
  • Notify insurer if driving patterns change
homeowner s insurance basics
Homeowner’s Insurance Basics
  • Five sections to a HO policy:
    • Damages to house or other structures
    • Loss of personal property
    • Living expenses while home is repaired
    • Personal liability
    • Medical payments to others
  • Different types of “HO” policies
three important tips
Three Important Tips
  • Photograph or videotape home contents
    • List brands and serial numbers
    • Store documentation away from home
  • Make sure home is insured for at least 80% of replacement cost
    • Otherwise, you’ll get partial payment for losses
  • Buy a “guaranteed replacement cost” rider for home (if available) and contents
other homeowner s insurance tips
Other Homeowner’s Insurance Tips
  • Pay the premium annually
  • Check on discounts for safety devices
    • Alarm system
    • Smoke detectors
  • Don’t select low ($250) deductibles
  • Consider flood insurance
  • Document damages
umbrella liability coverage
Umbrella Liability Coverage
  • Supplements liability limits of homeowner’s and auto policy
  • Also covers libel, slander, defamation of character, false arrest, boat or aircraft accidents, damages on another’s property
  • $1 million policies cost $150 to $250
  • Sold in $1million increments
umbrella insurance tips
Umbrella Insurance Tips
  • Buy required underlying coverage
  • Check to see if service on non-profit boards is covered
  • Check exclusions (e.g., overseas coverage, business coverage)
  • Check discount for all property coverage with one insurer