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Chapter 9 Life and Health Insurance Chapter 9 Life and Health Insurance

Chapter 9 Life and Health Insurance - PowerPoint Presentation

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Chapter 9 Life and Health Insurance - PPT Presentation

Professor Payne Finance 4100 Learning Objectives Understand the importance of insurance Determine your life insurance needs and design a life insurance program Describe the major types of coverage available and the typical provisions that are included ID: 641904

health insurance life care insurance health care life term cash plan medical disability policy plans income covered coverage costs death expenses medicare

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Slide1

Chapter 9

Life and Health Insurance

Professor Payne, Finance 4100Slide2

Learning Objectives

Understand the importance of insurance.

Determine your life insurance needs and design a life insurance program.

Describe the major types of coverage available and the typical provisions that are included.

2Slide3

Learning Objectives

Design a health-care insurance program and understand what provisions are important to you.

Describe disability insurance and the choices available to you.

Explain the purpose of long-term care insurance and the provisions that might be important to you.

3Slide4

Introduction

Health insurance is an issue none of us can afford to dismiss.

Most of us avoid thinking about and planning for our deaths—most of us do not seek out a life insurance policy.

When you consider your need for insurance, need to keep in mind its purpose.4Slide5

The Importance of Insurance

An insurance policy spells out what losses are covered, what the policy costs, and who receives payment.

Health insurance provides protection against devastating medical bills.

Life insurance protects your family if you die. 5Slide6

The Importance of Insurance

Health care is expensive because:

No incentive to economize.

Medical care is extremely sophisticated.High malpractice insurance costs.6Slide7

What About Those With No Insurance?

Patient Protection and Affordable Care Act

—intended to provide health insurance to those who are currently uninsured

As medical costs rise, so does your risk of having your financial roof cave in due to health-related issues7Slide8

Do You Need Life Insurance?

Risk pooling—through insurance, sharing financial consequences of risk

Premium

ActuariesFace amount or face of policy—amount of insurance provided at deathPolicy owner or policyholderBeneficiary—designated to receive the proceedsLife insurance doesn’t make sense without a spouse/partner or dependents

8Slide9

9Slide10

How Much Life Insurance

Do You Need?

Priorities and goals

Crunch the numbers—net worth, inflation and future earningsEarnings Multiple ApproachNeeds Approach

10Slide11

Earnings Multiple Approach

Replace a stream of lost annual income

Tells you a lump-sum needed to replace that stream of annual income

Multiply present annual gross income by the appropriate earnings multiple (usually between 5 and 15)Earnings multiple depends on number of years you need the lost income and rate of return

11Slide12

12Slide13

Determine the needs of a family after the death of the breadwinner

Determine the needs of a family after the death of the breadwinner

Immediate needs at time of death

Debt elimination fundsImmediate transitional fundsDependency expensesSpousal life incomeEducational expenses for children

Retirement income

13Slide14

Major Types of Life Insurance

Term insurance—pure life insurance that pays beneficiary a specific amount of money if you die while covered

Cash-value insurance—has a life insurance and a savings plan

14Slide15

15Slide16

Term Insurance and Its Features

Pays the death benefit if insured dies during the coverage period.

Has no face value.

Primary advantage is affordability.Disadvantage is that the cost increases each time the policy is renewed.

16Slide17

17Slide18

Term Insurance and Its Features

Renewable term insurance

Decreasing term insurance

Group term insuranceCredit and mortgage group life insuranceConvertible term life insurance

18Slide19

Cash-Value Insurance

and Its Features

Provides both a death benefit and an opportunity to accumulate cash value.

Permanent—pay the premiums and eventually you will get paid.3 basic types:Whole LifeUniversal LifeVariable Life

19Slide20

Whole Life Insurance

and Its Features

Death benefit when the insured dies, turns 100, or reaches the maximum stated age

Cash-value—policyholder’s savingsNonforfeiture Right—gives the policyholder the right to choose the policy’s cash value in exchange for giving up the death benefit Different premium payment patterns

20Slide21

Universal Life Insurance

and Its Features

Combines term insurance with tax-deferred savings with flexible premiums and benefits

Flexible—premiums can varyMortality charge or term insurance, cash value or savings, administrative expensesMay not end up with the anticipated amount of savings

21Slide22

22Slide23

Term Versus Cash-Value

Life Insurance

For most individuals, term insurance is the better alternative:

Low costHigh cash-value premiums can lead to less coverage than you actually needCash-value insurance has tax advantages.Growth of the cash-value is tax-deferredLife insurance is not considered part of your estate

23Slide24

Fine-Tuning Your Policy: Contract Clauses, Riders, and Settlement Options

Contract Clauses:

Beneficiary Provision

Coverage Grace PeriodLoan ClauseNonforfeiture Clause

Policy Reinstatement Clause

Change of Policy Clause

Suicide Clause

Payment Premium Clause

Incontestability Clause

24Slide25

Fine-Tuning Your Policy: Contract Clauses, Riders, and Settlement Options

Riders:

Waiver of Premium for Disability Rider

Accidental Death Benefit Rider or Multiple IndemnityGuaranteed Insurability RiderCost-of-Living Adjustment (COLA) RiderLiving Benefits Rider

25Slide26

Fine-Tuning Your Policy: Contract Clauses, Riders, and Settlement Options

Settlement or Payout Options:

Lump-Sum Settlement

Interest-Only SettlementInstallment-Payments SettlementLife Annuity SettlementStraight Life AnnuityCertain Period AnnuityRefund Annuity

Joint Life and Survivorship Annuity

26Slide27

Buying Life Insurance

Choose an efficiently run life insurance company that will be around when your policy matures.

Selecting an Agent

Most agents make living through commissionsBe aware of agent’s professional designationList of prospects from good companiesInterview the agents and get a quote

27Slide28

28Slide29

Buying Life Insurance

Comparing Costs

Traditional Net Cost (TNC) method—sums up premiums over a stated period (usually 10 to 20 years) and subtracts from this the sum of all dividends over that same period.

Interest-Adjusted Net Cost (IANC) method—incorporates the time value of money29Slide30

Buying Life Insurance

Making a Purchase: The Net or an Advisor

Shop for term life insurance on the Web

Check at least 2 Web quote services and call an independent insurance agentMore complicated to compare cash-value policies—different features and assumptionsStill get quotes on the Web for different cash-value policies

30Slide31

Health Insurance

Patient Protection and Affordable Care Act of 2010 ensures most Americans have health insurance

Employer-sponsored health care coverage

Your choices are limited to what employer offersAdditional coverage available for additional paymentsCan make changes on an annual basisHealth insurance exchange

Contain range of private plans to choose from

31Slide32

Health-Care Reform

Signed into law in 2010 by President Obama—commonly referred to as the Affordable Care Act

Provides new consumer protections

Improves quality and lowers costsIncreases access to affordable careHolds insurance companies accountable32Slide33

33Slide34

Basic Health Insurance

Most health insurance contains a combination of hospital, surgical, and physician expense insurance

Major medical expense insurance covers expenses not covered by basic health insurance

34Slide35

Dental and Eye Insurance

Used for minor and regular dental, eye examinations, glasses, and contact lenses

Don’t buy if employer doesn’t provide it

Regular expenses that can be planned35Slide36

Basic Health Care Choices

Traditional fee-for-service or indemnity plans—reimbursed for medical expenditures and choice of doctor

Managed health care or prepaid care plans—most expenses covered but limited choice of doctors, hospitals, and clinics

36Slide37

Private Health Care Plans

Fee-for-service plan or traditional indemnity plans:

Doctor or hospital bills you directly, company reimburses

Coinsurance or percentage participation provisionCo-payment or deductibleManaged health care—offered by health management organization (HMO)Receive all health care at one locationVisit fee or co-payment

37Slide38

38Slide39

Private Health Care Plans

Managed Health Care: HMOs

Individual practice association plan (IPA)

Group practice planPoint-of-service planHMOs are cost efficientService can be too quick, waits long

Lack of choice can be too restricting

39Slide40

Private Health Care Plans

Managed Health Care: PPOs

Preferred provider organization (PPO)

Cross between traditional fee-for-service plan and an HMODoctors and hospitals agree to pricing systemAllows for health at a discount

40Slide41

Private Health Care Plans

Group Versus Individual Health Insurance

Group health insurance—sold with no medical exam required to a specific group of individuals who are associated for some purpose– usually employees

Individual insurance policy—tailor-made for you, reflects age and health, after medical exam41Slide42

Essential Benefits

The Affordable Care Act requires that certain essential benefits be covered:

Ambulatory patient services

Emergency servicesHospitalizationMaternity and newborn careMental health and substance abuse disorder servicesPrescription drugsLaboratory servicesPreventative and wellness services

Pediatric services

Rehabilitative and

habilitative

services and devices

42Slide43

43Slide44

Government-Sponsored

Health Care Plans

State Plans—provide for work-related accidents and illness

Worker’s CompensationFederal Plans—Medicare, Medicaid44Slide45

Medicare

Medicare Part A—Hospital Insurance

Medicare Part B—Supplemental Medical Insurance

Medicare Part C—Medicare Advantage PlansMedicare Part D—Medicare Prescription Drug CoverageMedigap Plans

45Slide46

46Slide47

Medicaid

Government medical insurance plan for needy families—as well as aged, blind, and disabled

Joint federal and state program

Some covered by Medicaid also covered by MedicareLimited in scope

47Slide48

Controlling Health Care Costs

Flexible Spending Accounts

Allows pre-tax dollars to be used for qualified health-care and child care expenses

Health Savings Accounts (HSAs)Pay for health care expenses tax-freeCOBRA and Changing JobsContinuation of health coverage

Choosing No Coverage—or “Opting Out”

Will be penalized

48Slide49

What to Look for in a Health Insurance Plan

Who’s Covered?

Terms of Payment

Exclusions49Slide50

Choosing an Insurance Plan

Health Insurance Marketplace categorizes plans into 5 categories:

Bronze: Your plan pays 60%. You pay 40%.

Silver: Your plan pays 70%. You pay 30%.Gold: Your plan pays 80%. You pay 20%Platinum: Your plan pays 90%. You pay 10%.Catastrophic: Coverage option if you are under 30 or have very low income.

50Slide51

Disability Insurance

Health insurance that provides payments to the insured in the event that income is interrupted by illness, sickness, or accident

Anyone who relies on income from a job needs disability insurance

A 30-year-old has a 47% chance of incurring a disability that would cause 90 or more missed work daysExpensive

51Slide52

Sources of Disability Insurance

Employer

Social Security

Worker’s compensationIndividual policy52Slide53

53Slide54

Disability Features That Make Sense

Definition of Disability

Residual or Partial Payments

Benefit DurationWaiting (or Elimination) PeriodWaiver of PremiumNoncancellableRehabilitation Coverage

54Slide55

Long-Term Care Insurance

Pays nursing home expenses and home health care

Covers costs associated with long-term care for those against the financial costs of Alzheimer’s, strokes, or chronic diseases

Requires that insured cannot perform “activities of daily living” (ADLs)55Slide56

56Slide57

57Slide58

Long-Term Care Insurance

Type of Care—nursing home, adult day care, or hospice care for terminally ill

Benefit Period—can range from 1 year to lifetime

Waiting Period—0 days to 1 yearInflation Adjustment—protected from inflationWaiver of Premium—insurance stays in force while receiving benefits58Slide59

Summary

Life insurance controls the financial effect on your family when you die.

There are two types of life insurance—term and cash-value.

Basic health insurance provides combination of hospital, surgical, and physician expense insurance. 59Slide60

Summary

Major medical expense insurance covers medical costs not covered by basic health insurance.

Disability insurance provides income in the event of a disability.

Long-term care insurance covers the cost of long-term nursing home care.60Slide61

End of Chapter 9 Slides

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