Chapter 35 Life and Health Insurance

1. Chapter 35Life and Health Insurance

2. 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

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

4. Life Insurance: Cash-Value Insurance • Cash-value insurance: provides savings and death benefits • Part of premium death benefits • Part of premium 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

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

8. Universal Life • Cash value part of premium is invested • 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)

10. Life Insurance: Term 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

11. 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

12. 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

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

15. 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

16. 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

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

18. 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)

19. Government Health Insurance: Medicare • 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

20. 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

21. 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

22. 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

23. 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