Insurance. Chapter 14 – Insurance Basics Risk management – limiting possible financial losses to amounts you can handle Risk management – limiting possible.

InsuranceInsurance

Chapter 14 – Insurance Chapter 14 – Insurance BasicsBasics

►Risk management – limiting possible Risk management – limiting possible financial losses to amounts you can financial losses to amounts you can handlehandle

► Insurance to manage riskInsurance to manage risk►Premium – Regular payment for Premium – Regular payment for

insuranceinsurance►Diversification – Insurance company Diversification – Insurance company

diversifies to reduce riskdiversifies to reduce risk

Insurance BasicsInsurance Basics

►Policy – legal contract for insurancePolicy – legal contract for insurance►Claim – filed if you incur loss covered Claim – filed if you incur loss covered

by policyby policy►Shared risk – many pay for the few Shared risk – many pay for the few

who incur losswho incur loss►PremiumsPremiums►StatisticsStatistics


► Insurable interest – vested interest in Insurable interest – vested interest in insurable item/personinsurable item/person

►AppraisalAppraisal►Rider – special addition to an insurance Rider – special addition to an insurance

policypolicy►Life & Health insurance sold at different Life & Health insurance sold at different

costscosts Life expectancy (ave. # of years remaining)Life expectancy (ave. # of years remaining)


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

►The more you buy, the higher the costThe more you buy, the higher the cost► Insurance provides securityInsurance provides security

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

Doctors don’t practice without insuranceDoctors don’t practice without insurance Our economic system relied on sharing Our economic system relied on sharing

riskrisk

Types of InsuranceTypes of Insurance

►Property Insurance Property Insurance Cars, homes, valuable possessionCars, homes, valuable possession Market value (what it’s worth)Market value (what it’s worth) Replacement value (cost to replace, no Replacement value (cost to replace, no

matter what market value is)matter what market value is)►Liability Insurance Liability Insurance

Your actions cause losses to other peopleYour actions cause losses to other people►Personal insurancePersonal insurance

Life, HealthLife, Health

Automobile Insurance (14.2)Automobile Insurance (14.2)

►Bodily injury liabil8ity coverageBodily injury liabil8ity coverage When YOU are responsible for injuring When YOU are responsible for injuring

peoplepeople 250,000/500,000 (one person/max on 250,000/500,000 (one person/max on

all) for each accidentall) for each accident

►Property damage liability coverageProperty damage liability coverage When YOU are responsible for injuring When YOU are responsible for injuring

another person’s propertyanother person’s property Does not cover YOUR carDoes not cover YOUR car x/x/50,000 (3x/x/50,000 (3rdrd number listed) number listed)

Automobile InsuranceAutomobile Insurance

►Medical Payments CoverageMedical Payments Coverage Medical and funeral expenses for you, your Medical and funeral expenses for you, your

family, and other passengers in your car family, and other passengers in your car because of injuriesbecause of injuries

Doesn’t matter who caused accidentDoesn’t matter who caused accident►Uninsured/underinsured motorist Uninsured/underinsured motorist

coveragecoverage Medical and damage for you and your Medical and damage for you and your

passengers caused by a driver without or too passengers caused by a driver without or too little insurancelittle insurance

Does NOT cover the other driverDoes NOT cover the other driver


►Comprehensive CoverageComprehensive Coverage Damage to your car caused by other than Damage to your car caused by other than

a collisiona collision Environmental hazards, vandalism, theftEnvironmental hazards, vandalism, theft May exclude easy to steal items (phone)May exclude easy to steal items (phone)

►Collision CoverageCollision Coverage Damage to your car caused by colliding Damage to your car caused by colliding

with another car or objectwith another car or object Most expensive portion of policyMost expensive portion of policy


►Deductible – amount you pay before Deductible – amount you pay before company pays anythingcompany pays anything

►Additional coverage optionsAdditional coverage options Rental carRental car TowingTowing Items within car (stereo)Items within car (stereo) Cover gap between value and what you oweCover gap between value and what you owe Are these things worth the additional Are these things worth the additional

premium?premium?


►How much to buy?How much to buy? Least you should consider is 50/100/25Least you should consider is 50/100/25 Medical at least $50KMedical at least $50K Collision/comprehensive, depends on carCollision/comprehensive, depends on car DeductibleDeductible

►The Higher the deductible, the lower the The Higher the deductible, the lower the premiumpremium

Why are costs so high?Why are costs so high?

►Technology – more expensive to fixTechnology – more expensive to fix►Medical technology, equipment and Medical technology, equipment and

drugs – more expensivedrugs – more expensive►Lighter cars (fuel efficient cars) have Lighter cars (fuel efficient cars) have

more damagemore damage►Americans more likely to sueAmericans more likely to sue► Judges awarding higher amountsJudges awarding higher amounts

Factors Affecting PremiumFactors Affecting Premium

►Driver classificationDriver classification Age, gender, marital statusAge, gender, marital status Based on statisticsBased on statistics

►Rating territoryRating territory Some locations more vulnerable than Some locations more vulnerable than

othersothers Claims in an areaClaims in an area

►Driving recordDriving record Points added to your recordPoints added to your record Each point raises your premium 10%Each point raises your premium 10% 2-3 points will increase 25-100%2-3 points will increase 25-100%

Factors Affecting PremiumFactors Affecting Premium

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

►Type of carType of car More expensive to repair or replaceMore expensive to repair or replace Theft to expensive sports and luxury carsTheft to expensive sports and luxury cars

►Claims historyClaims history More claims you have, the higher the More claims you have, the higher the

premiumpremium

How to Reduce Your How to Reduce Your PremiumPremium

►Be a responsible driverBe a responsible driver►Drive a moderately priced carDrive a moderately priced car

Discounts for certain safety featuresDiscounts for certain safety features

►Good gradesGood grades►Driver’s EdDriver’s Ed►Live in safe neighborhoodsLive in safe neighborhoods► Increase the size of your deductibleIncrease the size of your deductible

Home Insurance CoverageHome Insurance Coverage

►Provides personal property and liability Provides personal property and liability protection for your homeprotection for your home

►Personal Property – Damage to or loss Personal Property – Damage to or loss of your house and its contentsof your house and its contents House, garage, shedHouse, garage, shed Furniture, clothes, appliancesFurniture, clothes, appliances Items from your car that are stolen?Items from your car that are stolen? Living expenses if house in uninhabitable Living expenses if house in uninhabitable

after lossafter loss


►Exclusions – not coveredExclusions – not covered Stamp and coin collections, laptops, Stamp and coin collections, laptops,

silverware, valuable jewelry and cashsilverware, valuable jewelry and cash►Liability – Covers bodily injury or Liability – Covers bodily injury or

damage you cause to others while on damage you cause to others while on your property or in other locationsyour property or in other locations Damage you do to someone else’ Damage you do to someone else’

propertyproperty Damage you cause away from homeDamage you cause away from home Not auto coverage thoughNot auto coverage though


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

►Special risk coverage Special risk coverage Hurricanes, for exampleHurricanes, for example

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

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

How much to buy?How much to buy?

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

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

Cost of Homeowner’s Cost of Homeowner’s InsuranceInsurance

►LocationLocation►Age of houseAge of house►Distance to a fire station or hydrantDistance to a fire station or hydrant

Reduce Your PremiumReduce Your Premium

► Increase your deductibleIncrease your deductible► Upgrade your homeUpgrade your home

Plumbing, wiringPlumbing, wiring Construction (metal siding and interior supports Construction (metal siding and interior supports

rather than wood)rather than wood)► Install smoke detectorsInstall smoke detectors► Install more securityInstall more security► Special discountsSpecial discounts

NonsmokersNonsmokers Someone does s not work outside homeSomeone does s not work outside home

Providers and the Claims Providers and the Claims ProcessProcess

► Insurance is a serviceInsurance is a service► Insurance needs changeInsurance needs change►Choosing an agentChoosing an agent

Someone to help you stay current with Someone to help you stay current with coveragecoverage

Two types: Independent and employed Two types: Independent and employed with a companywith a company

Ask for referralsAsk for referrals

Asking others about agents.. Asking others about agents..

►Ability to explain policyAbility to explain policy►Quality of adviceQuality of advice►Availability in time of needAvailability in time of need►Helpfulness sin getting claims processHelpfulness sin getting claims process►Speed in getting claims paidSpeed in getting claims paid

Choosing an Insurance Choosing an Insurance CompanyCompany

►Policy is only as good as the company Policy is only as good as the company that issues itthat issues it

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

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

Filing a ClaimFiling a Claim

►Homeowner’s claimsHomeowner’s claims Home Inventory – store in safe placeHome Inventory – store in safe place Must demonstrate responsible behavior (stop any Must demonstrate responsible behavior (stop any

future loss or damage)future loss or damage) Contact agentContact agent Adjustor will assess damageAdjustor will assess damage Prove your loss with your inventoryProve your loss with your inventory Insurance company will issue you a check Insurance company will issue you a check

(sometime to you and contractor to ensure (sometime to you and contractor to ensure repairs are done)repairs are done)

Filing ClaimsFiling Claims

►Automobile ClaimsAutomobile Claims Call police and obtain reportCall police and obtain report Ask for other driver’s name, phone Ask for other driver’s name, phone

number, and insurance company.number, and insurance company. Give information to insurance agent.Give information to insurance agent. Provide details to agentProvide details to agent Adjustor assesses damageAdjustor assesses damage

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

InsuranceInsurance

► Insurance FraudInsurance Fraud

Health Insurance (15.1)Health Insurance (15.1)

►Malpractice insurance – protecting Malpractice insurance – protecting themselves against a devastating loss themselves against a devastating loss (Average settlement exceeds $1 (Average settlement exceeds $1 million)million) Can cost doctors $100,000/year!Can cost doctors $100,000/year! Higher medical costs!Higher medical costs!

Health InsuranceHealth Insurance

►Hospitalization – hospital stayHospitalization – hospital stay► Surgery – all parts of surgerySurgery – all parts of surgery►Outpatient services (Physician’s expense Outpatient services (Physician’s expense

insurance) – nonsurgical car in their office insurance) – nonsurgical car in their office hospital or in your home, doctor visits x-hospital or in your home, doctor visits x-rays, and labsrays, and labs

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

Additional Coverage ChoicesAdditional Coverage Choices

►MedicationsMedications Generic drugsGeneric drugs

►Dental care (preventative)Dental care (preventative)►Vision careVision care

Usually injuries not regular examsUsually injuries not regular exams

What’s Not CoveredWhat’s Not Covered

►Procedures you elect to have doneProcedures you elect to have done Cosmetic surgeryCosmetic surgery Visits if you don’t have a problemVisits if you don’t have a problem

►Some do not cover childbirth but will Some do not cover childbirth but will cover complications from pregnancycover complications from pregnancy

►Experimental drugs and surgical Experimental drugs and surgical proceduresprocedures

►Some transplantsSome transplants►Duplicate benefitsDuplicate benefits

Special Health NeedsSpecial Health Needs

►Catastrophic and specified disease Catastrophic and specified disease insuranceinsurance

►Long-term care insuranceLong-term care insurance►Disability IncomeDisability Income

Health Insurance PlansHealth Insurance Plans

►Fee-for ServiceFee-for Service►Managed careManaged care►All cover medical, surgical, and hospital, All cover medical, surgical, and hospital,

many offer prescription and dentalmany offer prescription and dental►Both require premiums, usually monthlyBoth require premiums, usually monthly►Difference:Difference:

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


►Fee-for Service planFee-for Service plan Indemnity planIndemnity plan You pay for services as you receive themYou pay for services as you receive them You or doctor’s office submits a claimYou or doctor’s office submits a claim DeductibleDeductible 80/20 coverage (the 20% is your 80/20 coverage (the 20% is your

coinsurance)coinsurance) You may choose providerYou may choose provider Fees paid on reasonable and customary Fees paid on reasonable and customary

chargescharges Out of pocket maximumOut of pocket maximum


►Managed Care PlansManaged Care Plans Prepaid plans, paid in advanced not as Prepaid plans, paid in advanced not as

they are usedthey are used Your premium is prepaymentYour premium is prepayment Less paperwork, no claim formsLess paperwork, no claim forms Negotiate fees with participating providersNegotiate fees with participating providers Pay hospitals and doctors a fixed amount Pay hospitals and doctors a fixed amount

per year for each patient, no matter what per year for each patient, no matter what services they provide (capitation)services they provide (capitation)


►Managed CareManaged Care Approvals for nonemergency Approvals for nonemergency

hospitalizationhospitalization Copayments usually requiredCopayments usually required Three basic types of managed care:Three basic types of managed care:

►HMO (health Maintenance Organizations)HMO (health Maintenance Organizations)►PPO’s (Preferred Provider Organizations)PPO’s (Preferred Provider Organizations)►Po’s (Point-of service plans)Po’s (Point-of service plans)►DIFFERENCE: AMOUNT OF FREEDOM YOU HAVEDIFFERENCE: AMOUNT OF FREEDOM YOU HAVE

Insurance PlansInsurance Plans

►HMOHMO Choose primary care physicianChoose primary care physician Must use doctors and hospitals in planMust use doctors and hospitals in plan

►PPOPPO Most like fee-for service planMost like fee-for service plan You can choose to stay in-network or go You can choose to stay in-network or go

outout No primary care physicianNo primary care physician

►POPO Combines HMO and PPO (PCP, but can go Combines HMO and PPO (PCP, but can go

outside with referral)outside with referral)

Choose a Health Plan Choose a Health Plan

►Group HealthGroup Health Large groups – unions, companiesLarge groups – unions, companies Premiums lowerPremiums lower Employer-sponsored plansEmployer-sponsored plans

►Open enrollmentOpen enrollment►Usually just full-tie workersUsually just full-tie workers►Part-timers can sometimes pay full premium Part-timers can sometimes pay full premium

but still cheaper than going on their ownbut still cheaper than going on their own

COBRACOBRA

Choose a Health PlanChoose a Health Plan

►Pre-existing conditionPre-existing condition Health Insurance Portability Act (7/1/97)Health Insurance Portability Act (7/1/97)

Your new insurance plan must cover any Your new insurance plan must cover any pre-existing conditions without a waiting pre-existing conditions without a waiting period if you have been inured period if you have been inured continuously the previous 12 months.continuously the previous 12 months.

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

Health PlansHealth Plans

► Individual Health InsuranceIndividual Health Insurance More flexibilityMore flexibility More expensive than groupMore expensive than group Schools may require students to have policySchools may require students to have policy

►Government sponsoredGovernment sponsored Medicare – 65 years or older or persons with Medicare – 65 years or older or persons with

disabilitiesdisabilities Medigap – supplemental to Medicare (sold by Medigap – supplemental to Medicare (sold by

private insurance)private insurance) Medicaid – low incomes or disabilitiesMedicaid – low incomes or disabilities

Health PlansHealth Plans

►Government (cont’d)Government (cont’d) Workers’ compensationWorkers’ compensation

►Generally receive 2/3 of salaryGenerally receive 2/3 of salary►Cash benefits to worker’s surviving familyCash benefits to worker’s surviving family►Work-related claimsWork-related claims

Shop for Health InsuranceShop for Health Insurance

►Find the plan right for youFind the plan right for you►See questions to ask on p. 508See questions to ask on p. 508

Health Care Rights and Health Care Rights and ResponsibilitiesResponsibilities

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

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

►Right to access emergency health care Right to access emergency health care servicesservices


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

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

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


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

►Responsibilities p. 512Responsibilities p. 512►ReferralsReferrals► In-plan providersIn-plan providers►Pre-approvalsPre-approvals►Second opinionsSecond opinions


►Appeals processAppeals process Start with the companyStart with the company Contact representativeContact representative Keep written records and all Keep written records and all

correspondencecorrespondence If still unsatisfied, talk to state insurance If still unsatisfied, talk to state insurance

commissioner or state department of commissioner or state department of healthhealth

Finally, court actionFinally, court action

Life InsuranceLife Insurance

►Death benefitDeath benefit►BeneficiaryBeneficiary

Types of Life InsuranceTypes of Life Insurance

►TermTerm Level TermLevel Term Renewable TermRenewable Term Convertible TermConvertible Term

►Permanent Permanent Death benefit plus savings planDeath benefit plus savings plan Cash value life insuranceCash value life insurance

PermanentPermanent

►Whole lifeWhole life Least expensive permanent Least expensive permanent For your entire lifeFor your entire life Fixed premium Receive dividends or apply Fixed premium Receive dividends or apply

to premiumto premium Borrow against cash valueBorrow against cash value No flexibility to change policyNo flexibility to change policy

PermanentPermanent

► Variable LifeVariable Life Decide how your savings will be investedDecide how your savings will be invested RiskierRiskier Can borrow but not withdrawCan borrow but not withdraw

► Universal LifeUniversal Life More flexibility than either whole- or variable lifeMore flexibility than either whole- or variable life Can borrow or withdraw savingsCan borrow or withdraw savings Can change amount of converge and premiumCan change amount of converge and premium You cannot choose how your savings are You cannot choose how your savings are

investedinvested

How much to buy?How much to buy?

►As an investment?As an investment? Funds do not earn high returns over timeFunds do not earn high returns over time

►Your family responsibilitiesYour family responsibilities►Your financial situationYour financial situation►Your futureYour future►Your special needsYour special needs

Insurance. Chapter 14 – Insurance Basics Risk management – limiting possible financial losses to amounts you can handle Risk management – limiting possible.

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