1. What Happens When…

13. Chapter 10 Property and Motor Vehicle Insurance
WHAT IS INSURANCE?
Insurance is protection against possible financial loss; it gives you peace of mind
An insurance company, or insurer, is a risk-sharing firm that assumes financial responsibility for losses from an insured risk
People purchase a policy. The firm assumes a risk for a fee called the premium, which the insured policyholder pays periodically
10-13

14. Insurance and Risk Management: An Introduction
TYPES OF RISKS
Risk: Uncertainty or lack of predictability, such as to loss that a person or property, covered by insurance, faces.
Peril is the cause of a possible loss, such as fire, windstorm, robbery, disease, or death.
Hazard increases the likelihood of a loss, such as driving drunk, or defective house wiring.
Risk management: Organized, planned strategy to protect your assets and family.
10-14

15. Insurance and Risk Management: An Introduction
Pure Risk
Personal risks, property risks, and liability risks are types of pure risk
Insurable, chance of loss, not gain
Accidental, unintentional
Nature and financial loss of the risk can be predicted
Speculative Risk
Chance of loss or gain, such as starting a business
Uninsurable
10-15

16. Risk Avoidance Risk Shifting Risk Assumption Risk Reduction
Risk Management
Techniques

17. Insurance and Risk Management: An Introduction (continued)
PLANNING AN INSURANCE PROGRAM
To put your risk management plan to work ask yourself…
What should be insured?
For how much?
What kind of insurance?
From whom?
10-17

18. SO MANY TYPES TO CHOOSE FROM…
Auto Insurance
Life Insurance
Health Insurance
Dental Insurance
Vision Insurance
Disability Insurance
Renter’s Insurance
Flood Insurance
Homeowners Insurance
Long-term Care Insurance
Cancer Insurance
Cell Phone Insurance
Umbrella Insurance
Wedding Disaster Insurance
Title Insurance
Mortgage Insurance
Pet Insurance
GAP Insurance
Business Insurance
Medical Insurance
Water Craft Insurance
Volcano Insurance
Travel Insurance
Professional Liability Insurance
Earthquake Insurance
Kidnap & Ransom Insurance
Alien Abduction Insurance

20. If you live in Hawaii..

21. Insurance and Risk Management: An Introduction (continued)
PLANNING AN INSURANCE PROGRAM
Four step process:
Set your insurance goals and prioritize them
Develop a plan to reach your goals
Put plan into action
Review results
10-21

22. Property and Liability Insurance
***In recent years there have been major losses due to natural disasters. Fires, hurricanes, tornadoes and floods in various areas of the United States have caused billions of dollars worth of damage.
10-22

23. Property and Liability Insurance (continued)
Potential Property Losses
Home, automobiles, furniture, clothing, and personal belongings
Physical damage
Hazards such as fire, wind, water and smoke. Destruction of property or temporary loss of use
Loss of Use
Due to robbery, burglary, vandalism, or arson
10-23

24. Property and Liability Insurance (continued)
LIABILITY PROTECTION
Liability: Legal responsibility for cost of another person’s losses or injuries
Negligence
Failure to take ordinary, reasonable care, such as failure to supervise children in a pool
Strict Liability
When a person is held responsible for intentional and unintentional acts.
Vicarious Liability
When you are held responsible for the actions of another person, such as your child throwing a ball through a neighbor’s window
10-24

25. Assignment

26. Home and Property Insurance
HOMEOWNER’S INSURANCE COVERAGES
Damage to or destruction of your house and other structures, plus trees, shrubs and plants
Additional living expenses
Personal property in or away from home
Personal property floater - high value items
Household inventory with documentation
10-26

27. Home and Property Insurance (continued)
PERSONAL LIABILITY AND RELATED COVERAGES
Medical payments coverage for minor injuries caused by you, your family members, or pets, occurring on your property or away from home
Personal liability- $100,000 or more
Umbrella policy - also called a personal catastrophe policy-supplements basic personal liability coverage
$1,000,000 or more in liability coverage
10-27

28. Property and Liability Insurance (continued)
SPECIALIZED COVERAGE
Endorsements add coverage for things such as earthquake damage, or damage from floods
EXCLUSIONS:
Articles insured separately (jewelry & art)
Animals, birds, fish, other pets
Motorized land vehicles, (lawn mowers)
Stereos, CD/DVD players in vehicles, cell phones
Aircraft
Property of renters, or other tenants
Business Property
10-28

29. Property and Liability Insurance
RENTER’S INSURANCE
Personal property loss or damage
Additional living expenses
Personal liability
A building owner’s insurance usually won’t cover renter’s personal property
Many renters do not have insurance
10-29

30. Home Insurance Cost Factors
Look for a policy with full coverage rather than a coinsurance clause, where you have to pay for part of a loss
Which type of claim settlement method is used?
Actual cash value
cost less depreciation
Replacement value
Cost to repair or replace the damaged or lost item, without considering depreciation of the item
May limit replacement cost to 400% of actual cash value of item
Costs 10-20% more than actual cash value coverage
10-30

31. How Much Coverage do you Need?
10-31

32. Home Insurance Cost Factors
FACTORS THAT AFFECT HOME INSURANCE COSTS
Location of home
Type of structure
Coverage amount and policy type
Deductibles
10-32

33. Home Insurance Cost Factors
REDUCING HOME INSURANCE COSTS
Home insurance discounts
Alarm system, smoke detector, if you insure your car with the same company
Company differences
Compare costs and coverage at sites such as
Customer satisfaction index information is available at
10-33

34. Automobile Insurance Coverage
Insurance 101 Video
Financial responsibility law
State legislation. Nearly all states have compulsory automobile liability insurance laws
Requires drivers to prove their ability to cover the cost of damage or injury caused by them in an automobile accident
10-34

35. Ohio State Minimum Coverage
In Ohio, the required minimum limits for Bodily Injury Liability Coverage is $25,000 per person injured in any one accident and $25,000 for all persons injured in any one accident.
The required minimum limits for Property Damage Liability Coverage is $7,500 for injury to or destruction of property of others in any one accident.
Look in the book at page 333 – Ohio had one of the lowest compulsory minimum limits for automobile insurance. They just increased for the 1st time in 44years to 12,500/25,000 (Bodily Injury) & 25,000 from $7,500
In 2013 Ohio increased from 12,500/25,000 Bodily Injury and $7,500 Property

36. Automobile Liability Insurance Coverages
Property Damage
Liability
Bodily Injury Liability
10-36

38. Automobile Insurance Coverage (continued)
MOTOR VEHICLE BODILY INJURY COVERAGES
Bodily Injury Liability
Bodily injury liability covers the risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries caused by an accident for which you were responsible
Medical Payments Coverage
Medical payments covers the cost of health care for persons injured in your automobile, including yourself
10-38

39. Automobile Insurance Coverage (continued)
Uninsured Motorist’s Protection
Pays for the cost of injuries to you and your family if your vehicle is hit by a person without insurance, however, it does not cover property damages
No-Fault Insurance
System is intended to provide fast, smooth methods of paying for damages without taking the legal action frequently necessary to determine fault
10-39

40. Automobile Insurance Coverage (continued)
MOTOR VEHICLE PROPERTY DAMAGE COVERAGES
Property damage liability
covers damage to others person’s car when you are at fault. It also includes damage to such things as street signs and buildings
Collision
When your car is in an accident, collision coverage pays for damage to your automobile, regardless of who is at fault
If you are not at fault, your insurer will try and collect from the other driver’s property damage liability first
Coverage is limited to the retail value of your vehicle
10-40

41. Automobile Insurance Coverage (continued)
Comprehensive Physical Damage
Covers damage to your vehicle that is not caused by a collision, such as...
Fire, theft or vandalism
Glass breakage
Hail, sand, or wind storm
Falling objects or hitting an animal
Some things in your car, like some radios and stereo equipment are not covered
10-41

42. Automobile Insurance Coverage (continued)
OTHER AUTOMOBILE INSURANCE COVERAGES
Wage loss insurance
Reimburse you for any salary or income lost due to injury in an automobile accident
Towing and Emergency Road Service
Pays for the breakdowns and mechanical assistance
10-42

43. Automobile Insurance Costs
AMOUNT OF COVERAGE
Legal concerns include having enough coverage if you were sued
$100,000/$300,000 is recommended for bodily injury liability, with an additional $1,000,000 or more umbrella liability policy recommended
Property values of vehicles have gone up
$50,000-$100,000 is usually suggested for property damage liability
10-43

44. Automobile Insurance Costs (continued)
AUTOMOBILE INSURANCE PREMIUM FACTORS
Automobile type
Year, make, model, and theft rate
Rating territory
Accident, auto theft, and vandalism rates in the area where you live
Driver classification
Age, sex, marital status, credit history, driving record, and driving habits
Assigned risk pool for people who are unable to obtain insurance
10-44

45. Automobile Insurance Costs (continued)
REDUCING AUTOMOBILE INSURANCE PREMIUMS
Compare companies -
Have larger deductibles
Premium discounts
Establish and maintain a good driving record
Non-smoker
Install security devices such as a car alarm
If you have more than one vehicle, insure them both with the same company
Drive less than 5k miles per year
High School student with at least a B average
10-45

46. Question?
Erica and Juan, both 17 years old, find it difficult to get car insurance in their own names. Many companies will not accept them as risks. Their insurance has to be a part of their parents’ policies. Both sets of parents have the same insurance company and similar makes and models of cars. They also have the same insurance coverages, and each pays an annual premium of about $600 a year. When the parents ask about adding their children to the policies, they learn that the annual cost for Erica will be $967, and the cost for Juan will be $1,400. Why do you think there is such a big difference between the premiums for Erica and Juan, and why are their premiums so much higher than their parents’?

47. Insurance representatives will tell you that insurance premiums decline considerably at age 25 for both males and females. Why do you think this is true?
Do you think it is fair that younger people pay higher premiums than people in the 25-to-74 age range? Do you think it is fair that men pay more than women for car insurance?

48. Chapter 11 Health Insurance
The US has the highest per capita medical expenditures of any industrialized country in the world
$13,375 health care costs per person in 2009
This amount is twice as much spent on health care as the average for the 24 industrialized countries in Europe and North America
Medical expenditures were 6% of the GDP in 1965, but rose to 13.6 of our GDP in 1997 and further increased to 17.3 in This is expected to continue growing to 20% in the next 6 years.
High administrative costs
11% of health care dollar vs. 1% in Canada
11-48

49. Health Care Reform Patient Protection and Affordable Care Act-3/23/10
Health Care and Education Reconciliation Act-3/30/10
The Obama Administration believe that the health care reform provided in the above Act’s will:
Reduce long-term growth of health care costs
Protect families from bankruptcy or debt due to health care costs
Guarantee choice of doctors and health plans
Invest in prevention and wellness
Improve patient safety and quality of care
Assure affordable, quality health coverage for all Americans
Maintain coverage upon losing or changing jobs.
Eliminate barriers due to pre-existing medical conditions
11-49

50. Health Care Costs (continued)
WHY DOES HEALTH CARE COST SO MUCH?
Use of sophisticated, expensive technologies
Duplication of tests and technologies
Increases in the variety and frequency of treatments
Increasing number and longevity of elderly people
Regulations that result in cost shifting rather than cost reduction
Increasing number of accidents, crimes that require emergency services
Limited competition, restrictive work rules in the health care delivery system
Labor intensiveness, rapid earnings growth for health care professionals
Innovative treatments for AIDS, cancer
Built in inflation in health care delivery system
Malpractice Insurance
Aging baby boomers
11-50

51. Health Care Costs (continued)
WHAT IS BEING DONE ABOUT THE HIGH COSTS OF HEALTH CARE?
Careful review of fees and charges
Establish incentives for...
Preventive care
Services provided out of the hospital where medically acceptable
Involve community in balancing health care needs, health care resources
Encourage prepaid group practices
Support community health education programs so people take better care of themselves
11-51

52. Health Care Costs (continued)
WHAT CAN YOU DO TO REDUCE PERSONAL HEALTH CARE COSTS?
Consider participating in a flexible spending account.
Consider a high-deductible health plan
Ask for less expensive generic drugs
Use a mail-order or on-line pharmacy for long term drugs
Review free or low-cost coverage for uninsured children
Review state plans for prescription drug assistance
Review follow-up procedures with doctor
Investigate non-urgent procedure
Review billing statements for errors
Appeal unfair decisions by your health plan
11-52

53. Health Care Costs (continued)
WHAT CAN YOU DO TO REDUCE PERSONAL HEALTH CARE COSTS? (continued)
Stay well - focus on prevention
Eat a balanced diet, keep your weight under control
Avoid smoking, don’t drink to excess
Get enough rest, relaxation, and exercise
Drive carefully, watch out for accident and fire hazards in the home
11-53

54. Health Insurance and Financial Planning
Over 45 million Americans have no health insurance
An older student population is not covered by their family’s policy. 40% are older than age 25
Health insurance limits the financial burdens people suffer due to illness or injury
It’s part of your overall risk management plan to safeguard your family’s economic security
Disability income insurance protects your most valuable asset - your ability to earn an income
11-54

55. Health Insurance and Financial Planning (continued)
GROUP HEALTH INSURANCE
Group plans comprise more than 90% of all health insurance
Most group plans are employer sponsored; employer pays part or most of the cost
1996 Health Insurance Portability and Accountability Act provides federal portability standards, nondiscrimination in health insurance, and guaranteed renewability
If you changes jobs you need not lose your health insurance
Individual insurance is also available
11-55

56. Health Insurance and Financial Planning (continued)
COBRA requires many employers to offer employees and dependents the option to continue their group coverage for a set period of time following a divorce
The American Recovery and Reinvestment Act of 2009 (part of the government’s economic stimulus package)
Requires employers to provide health insurance to employees terminated between 9/1/08 and 12/31/09.
Employees pay 35% of the premium.
Employer subsidizes 65% of the premium for up to 9 months in exchange for a tax credit.
11-56

57. A Good Health Insurance Plan Should...
Offer basic coverage for hospital and doctor bills.
Cover at least 120 days hospital room and board.
Provide at least $1,000,000 lifetime maximum for each family member.
Pay at least 80% of out-of-hospital expenses after yearly deductible of $500-$1,000/person is met .
Impose no unreasonable exclusions.
Limit your out-of-pocket expenses to no more than $3,000 to $5,000 in a year, excluding dental, optical, and prescription costs.
11-57

58. Types of Health Insurance Coverage
TYPES OF MEDICAL COVERAGE
Hospital expense insurance
- Hospital room and board and other charges
Surgical expense insurance
- Surgeon's fee for an operation
Physician expense insurance
- Pays for physician’s care such as office visits, lab tests and X-rays. It does not include surgery.
Major medical expense insurance
Covers expenses for a serious injury or long-term illness. Has a deductible, coinsurance, and a stop-loss provision
11-58

59. Types of Health Insurance Coverage (continued)
Comprehensive major medical insurance
Low deductible offered without a separate, basic plan. Covers hospital, surgical, and other bills
Dread disease and cancer insurance policies
Focus on unrealistic fears, and only pays out for very specific conditions. Often sold by people working on commission, and poor value
11-59

60. Types of Health Care Coverage (continued)
Hospital indemnity
Pays a fixed amount for each day you are in a hospital. Best for people in high-risk groups
Dental expense insurance
Covers exams, cleaning, x-rays, fillings, root canals, and oral surgery
Vision care
Exams, contact lenses, and glasses
11-60

61. Types of Health Care Coverage (continued)
Long term care insurance
Virtually unknown 35 years ago
Growing faster than any other form of insurance
In 2010, estimated that 9 million men and women over 65 years old will need long term care insurance
Long term care insurance can be very expensive
National Average: 1 year in nursing home=$72,000
Premiums $1,000 to $16,000 per year
11-61

62. Types of Health Care Coverage (continued)
MAJOR PROVISIONS IN A HEALTH INSURANCE POLICY
Eligibility
Varies with age, marital status, and dependency
Assigned benefits
Insurance pays your doctor or hospital directly
Internal limits
Fixed amount per day for a hospital room
Co-payment
Cost sharing in the form of a flat dollar amount you pay, such as $15.00-$30.00 per office visit or $10.00-$25.00 per prescription
Service benefits vs. fixed $ amount
11-62

63. Patient Protection and Affordable Care Act of 2010
Process: set aside $635 Billion over the next 10 years for reform.
Key provisions of the Act are:
Offering tax credits for small businesses to make coverage more affordable
To prohibit denying coverage due to pre-existing medical conditions for children
To provide access to affordable insurance for those with pre-existing medical conditions
Prohibiting insurance companies from dropping coverage when people are sick.
Eliminating co-payments for preventive services
Requiring new health plans to allow persons up to age 26 to remain on their parent’s insurance policy
Prohibiting health insurance from placing lifetime caps on coverage
Restricting the use of annual limits
Ensuring consumers have appeal options with the plan
Providing funds to states to set up consumer assistance offices
Increasing money for community health centers
Increasing investment for increases the number of health care workers
Requiring health insurance companies to justify all premium increases
11-63

64. Disability Income Insurance
Disability is more likely than death at any age
Young, healthy people don’t think about risks related to all their future earning potential
Provides regular cash income lost as the result of an accident, illness or pregnancy
If you become disabled your income drops but your expenses go up
Carefully read a policy’s definition of disability
May only pay if you can’t work at any job
Look for a policy that pays if you are unable to work at your regular job
Aim for a benefit that when added to your other income will equal 60-70% of your gross pay
How long do benefits last? To age 65? For life?
How long is the waiting period? 30 days? 90 days?
Look for a policy that is both non-cancelable and guaranteed renewable.
11-64

65. Disability Income Insurance (continued)
SOURCES OF DISABILITY INCOME
Employer
Group disability policy may be short or long term
Social Security
Covers total disability that lasts more than twelve months
Workman’s Compensation
If you are injured at work or your injury is a result of your type of employment
Disability insurance
Benefits limited to 70-80% of your take home pay
11-65

66. Chapter 12 Life Insurance
WHAT IS LIFE INSURANCE? Life insurance - Purchase policy; insurance company promises to pay a lump sum at the time of the policy holder’s death, or sometimes while they are still alive
12-66

67. Life Insurance Pretest
People should buy life insurance primarily to pay for their funerals.
Policyholders can take loans against some life-insurance policies.
Some life-insurance policies have a savings/investment feature.
Some life-insurance policies allow the insured person to get the full amount of the policy before he or she dies.
Most experts in personal finance say that almost everyone should have life insurance.
Generally, the wage earner in a family with small children should have more life insurance than a wage earner without any children to support.
A young working parent can get the most inexpensive life-insurance coverage with a term-life instead of a cash-value policy.
When you shop for life insurance, you should consider only the cost or premium you will pay. 67

68. Life Insurance Pretest Answers
People should buy life insurance primarily to pay for their funerals. FALSE
Policyholders can take loans against some life-insurance policies. TRUE
Some life-insurance policies have a savings/investment feature. TRUE
Some life-insurance policies allow the insured person to get the full amount of the policy before he or she dies. TRUE
Most experts in personal finance say that almost everyone should have life insurance. FALSE
Generally, the wage earner in a family with small children should have more life insurance than a wage earner without any children to support. TRUE
A young working parent can get the most inexpensive life-insurance coverage with a term-life instead of a cash-value policy. TRUE
When you shop for life insurance, you should consider only the cost or premium you will pay. FALSE 68

69. Life Insurance: An Introduction (continued)
Purpose of life insurance: Protect someone who depends on you from financial loss related to your death.
Other reasons are:
Pay off a home mortgage or other debts at the time of death
To leave as part of your estate
To save money for retirement or for income or education for children
To cover medical expenses and funeral costs
12-69

70. Life Insurance: An Introduction (continued)
THE PRINCIPLE OF LIFE INSURANCE
Mortality tables provide odds on your dying, based on your age and sex
HOW LONG WILL YOU LIVE?
Your premium is based on your life expectancy and the projections for the payouts for persons who die
12-70

71. Determining Your Life Insurance Needs
DO YOU NEED LIFE INSURANCE?
Do you have people you need to protect financially
Do you have a partner who works?
How much money do you want to leave your dependents should you die today?
When do you want to retire, and what income do you think you’ll need?
How much will you be able to pay for your insurance program?
12-71

72. Question A. Single working person with no dependents
Who is in the most need of having life insurance?
A. Single working person with no dependents
B. Student in high school who are saving for college
C. Single parent with two elementary school children
D. A family with two parents, one of whom is a wage earner, and two elementary school children 72

73. C. Single parent with two elementary school children
Answer 73

74. Determining Your Life Insurance Needs (continued)
ESTIMATING YOUR LIFE INSURANCE NEEDS
The Easy Method
You will need 70% of your salary for seven years while your family adjusts
The DINK (dual income, no kids) Method
½ debts + funeral expenses
The “Nonworking” Spouse Method
Multiply the number of years until the youngest child reaches 18 by $10,000
The “Family Need” Method
More thorough than the first three because it also considers employer provided insurance, Social Security benefits, and income and assets
12-74

75. Types of Life Insurance Companies and Policies
Stock life insurance companies are owned by the shareholders
75% are of this type.
Sell non-participating policies
If you want to pay the same premium each year, choose a non-participating policy with its guaranteed premiums
Mutual life insurance companies
25% are of this type
Owned by the policyholders
With participating policies the premiums are higher than non-participating policies
Part of the premium is refunded to the policyholders annually. This is called the policy dividend
12-75

76. Types of Life Insurance Companies and Policies (continued)
TYPES OF LIFE INSURANCE POLICIES
Term life insurance
Protection for a specified period of time
If you stop paying premiums, coverage stops
Renewability: You can renew the policy without having a physical at the end of the term
12-76

77. Types of Life Insurance Policies (continued)
Term life insurance
Multiyear level term: Most popular form of term insurance
Conversion option: Can exchange term policy for whole life policy without having a physical
Decreasing term insurance: Premium stays the same, but the amount of coverage decreases as you age – mortgage insurance
Return on Premium: Policy refunds every penny of the premiums if one outlives the defined term
12-77

78. Types of Life Insurance Policies (continued)
Whole life insurance - Also called straight life
You pay a premium as long as you live
Amount of premium depends on your age when you start the policy
Provides death benefits and accumulates a cash value
You can borrow against the cash value or draw it out at retirement
Look carefully at the rate of return your money earns
12-78

79. Types of Life Insurance Policies (continued)
Limited payment policy
Pay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age (65)
Your policy then becomes “paid up” and you remain insured for life
Variable life policy
Minimum death benefit guaranteed, but the death benefit can be greater than the minimum depending on earnings of the dollars invested in a separate stock or bond fund
12-79

80. Types of Life Insurance Policies (continued)
Adjustable life policy
Whole life insurance policy, but you can change your policy as your needs change. You can change your premium payments to increase or decrease coverage.
Universal life
Gives you more direct control
Can pay premiums at any time in almost any amount. Amount of insurance can be changed more easily than a traditional policy
The increase in the cash value of the policy reflects the interest earned on short-term investments
12-80

81. Types of Life Insurance Policies (continued)
OTHER TYPES OF LIFE INSURANCE POLICIES
Group life insurance
Term insurance
Often provided by an employer
No physical is required
Endowment life Insurance
Provides coverage from the beginning of the contract to maturity and guarantees payment of a specified sum to the insured
Credit life insurance
Debts such as car loan is paid off if you die
Also protects lenders
Expensive protection
12-81

82. Important Provisions in a Life Insurance Contract
Naming your beneficiary, and contingent beneficiaries
Length of grace period for late payments
Reinstatement of a lapsed policy if it has not been turned in for cash
Nonforfeiture: Keep accrued benefits if you drop the policy
Incontestability clause: After the policy has been in force for awhile (2 years), the company can’t dispute its validity for any reason
Suicide clause during first two years
Automatic premium loans
Uses the accumulated cash value to pay the premium if you do not pay it during the grace period
Misstatement of age provision
Policy loan provision to borrow against cash value
12-82

83. Important Provisions in a Life Insurance Contract (continued)
A rider to a policy modifies the coverage by adding or excluding conditions or altering benefits
Waiver of premium disability benefit
Accidental death benefit - double indemnity
Guaranteed insurability option
Cost of living protection
Accelerated benefits, also called living benefits, pay to those who are terminally ill before they die
Second-to-die option, also called survivorship, insures two lives
12-83

84. Buying Life Insurance FROM WHOM TO BUY? SOURCES
Examine both private and public sources
Look up the company’s rating, in A. M. Best or other rating agencies
Talk to friends or colleagues
RATING INSURANCE COMPANIES
Research ratings on the web,
12-84

85. Buying Life Insurance (continued)
CHOOSING YOUR INSURANCE AGENT?
Can friends or parents make recommendations?
Does the agent have professional designations such as Chartered Life Underwriter (CLU)?
Is the agent willing to find a policy that is right for you or does he push a certain type of policy?
Do they ask about your financial plan?
Do you feel pressured?
12-85

86. Buying Life Insurance (continued)
COMPARING POLICY COSTS
Compare policy costs which are affected by:
How selective they are in whom they insure
Their cost of doing business
Return on their investments
Mortality rate among policyholders
Policy features and competition from other firms
Use interest-adjusted index to compare policies
Takes into account the time value of money
Helps you make cost comparisons among insurance companies
See sites such as
12-86

87. Buying Life Insurance (continued)
OBTAINING A POLICY
Apply
Provide medical history
Usually no physical for a group policy
Read every word of the contract
After you buy it, you have ten days to change your mind
Give your beneficiaries and lawyer a photocopy
12-87

88. Buying Life Insurance (continued)
CHOOSING SETTLEMENT OPTIONS
Lump-sum payment is most common
Limited installment payment
In equal installments for a specific number of years after your death
Life income option
Payments to the beneficiary for life
Proceeds left with the company
Pays interest to the beneficiary
SWITCHING POLICIES
Switch if benefits exceed costs of getting another physical, and paying policy set-up costs
The older you are the higher the premium will be
Are you still insurable?
Can you get all the provisions you want?
12-88

89. Financial Planning with Annuities
Annuity: Financial contract written by an insurance company that provides you with a regular income
People buy annuities to supplement retirement income and to shelter income from taxes. Annuities are tax-deferred investment plans.
The Health Care and Education Reconciliation Act of 2010 imposes a 3.8% income tax on high income individuals starting in The tax will be applied on interest, dividends, and capital gains.
Those who expect to live longer than average benefit most from annuities
12-89