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

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Presentation on theme: "Insurance. Chapter 14 – Insurance Basics Risk management – limiting possible financial losses to amounts you can handle Risk management – limiting possible."— Presentation transcript:

1 Insurance

2 Chapter 14 – Insurance Basics Risk management – limiting possible financial losses to amounts you can handle Risk management – limiting possible financial losses to amounts you can handle Insurance to manage risk Insurance to manage risk Premium – Regular payment for insurance Premium – Regular payment for insurance Diversification – Insurance company diversifies to reduce risk Diversification – Insurance company diversifies to reduce risk

3 Insurance Basics Policy – legal contract for insurance Policy – legal contract for insurance Claim – filed if you incur loss covered by policy Claim – filed if you incur loss covered by policy Shared risk – many pay for the few who incur loss Shared risk – many pay for the few who incur loss Premiums Premiums Statistics Statistics

4 Insurance Basics Insurable interest – vested interest in insurable item/person Insurable interest – vested interest in insurable item/person Appraisal Appraisal Rider – special addition to an insurance policy Rider – special addition to an insurance policy Life & Health insurance sold at different costs Life & Health insurance sold at different costs Life expectancy (ave. # of years remaining) Life expectancy (ave. # of years remaining)

5 Insurance Basics Should protect from a loss that could put you in financial difficulty Should protect from a loss that could put you in financial difficulty The more you buy, the higher the cost The more you buy, the higher the cost Insurance provides security Insurance provides security Banks wont lend money to a house that isnt insured Banks wont lend money to a house that isnt insured Doctors dont practice without insurance Doctors dont practice without insurance Our economic system relied on sharing risk Our economic system relied on sharing risk

6 Types of Insurance Property Insurance Property Insurance Cars, homes, valuable possession Cars, homes, valuable possession Market value (what its worth) Market value (what its worth) Replacement value (cost to replace, no matter what market value is) Replacement value (cost to replace, no matter what market value is) Liability Insurance Liability Insurance Your actions cause losses to other people Your actions cause losses to other people Personal insurance Personal insurance Life, Health Life, Health

7 Automobile Insurance (14.2) Bodily injury liabil8ity coverage Bodily injury liabil8ity coverage When YOU are responsible for injuring people When YOU are responsible for injuring people 250,000/500,000 (one person/max on all) for each accident 250,000/500,000 (one person/max on all) for each accident Property damage liability coverage Property damage liability coverage When YOU are responsible for injuring another persons property When YOU are responsible for injuring another persons property Does not cover YOUR car Does not cover YOUR car x/x/50,000 (3 rd number listed) x/x/50,000 (3 rd number listed)

8 Automobile Insurance Medical Payments Coverage Medical Payments Coverage Medical and funeral expenses for you, your family, and other passengers in your car because of injuries Medical and funeral expenses for you, your family, and other passengers in your car because of injuries Doesnt matter who caused accident Doesnt matter who caused accident Uninsured/underinsured motorist coverage Uninsured/underinsured motorist coverage Medical and damage for you and your passengers caused by a driver without or too little insurance Medical and damage for you and your passengers caused by a driver without or too little insurance Does NOT cover the other driver Does NOT cover the other driver

9 Automobile Insurance Comprehensive Coverage Comprehensive Coverage Damage to your car caused by other than a collision Damage to your car caused by other than a collision Environmental hazards, vandalism, theft Environmental hazards, vandalism, theft May exclude easy to steal items (phone) May exclude easy to steal items (phone) Collision Coverage Collision Coverage Damage to your car caused by colliding with another car or object Damage to your car caused by colliding with another car or object Most expensive portion of policy Most expensive portion of policy

10 Automobile Insurance Deductible – amount you pay before company pays anything Deductible – amount you pay before company pays anything Additional coverage options Additional coverage options Rental car Rental car Towing Towing Items within car (stereo) Items within car (stereo) Cover gap between value and what you owe Cover gap between value and what you owe Are these things worth the additional premium? Are these things worth the additional premium?

11 Automobile Insurance How much to buy? How much to buy? Least you should consider is 50/100/25 Least you should consider is 50/100/25 Medical at least $50K Medical at least $50K Collision/comprehensive, depends on car Collision/comprehensive, depends on car Deductible Deductible The Higher the deductible, the lower the premium The Higher the deductible, the lower the premium

12 Why are costs so high? Technology – more expensive to fix Technology – more expensive to fix Medical technology, equipment and drugs – more expensive Medical technology, equipment and drugs – more expensive Lighter cars (fuel efficient cars) have more damage Lighter cars (fuel efficient cars) have more damage Americans more likely to sue Americans more likely to sue Judges awarding higher amounts Judges awarding higher amounts

13 Factors Affecting Premium Driver classification Driver classification Age, gender, marital status Age, gender, marital status Based on statistics Based on statistics Rating territory Rating territory Some locations more vulnerable than others Some locations more vulnerable than others Claims in an area Claims in an area Driving record Driving record Points added to your record Points added to your record Each point raises your premium 10% Each point raises your premium 10% 2-3 points will increase % 2-3 points will increase %

14 Factors Affecting Premium Assigned risk – you will have to pay very high premiums Assigned risk – you will have to pay very high premiums Type of car Type of car More expensive to repair or replace More expensive to repair or replace Theft to expensive sports and luxury cars Theft to expensive sports and luxury cars Claims history Claims history More claims you have, the higher the premium More claims you have, the higher the premium

15 How to Reduce Your Premium Be a responsible driver Be a responsible driver Drive a moderately priced car Drive a moderately priced car Discounts for certain safety features Discounts for certain safety features Good grades Good grades Drivers Ed Drivers Ed Live in safe neighborhoods Live in safe neighborhoods Increase the size of your deductible Increase the size of your deductible

16 Home Insurance Coverage Provides personal property and liability protection for your home Provides personal property and liability protection for your home Personal Property – Damage to or loss of your house and its contents Personal Property – Damage to or loss of your house and its contents House, garage, shed House, garage, shed Furniture, clothes, appliances Furniture, clothes, appliances Items from your car that are stolen? Items from your car that are stolen? Living expenses if house in uninhabitable after loss Living expenses if house in uninhabitable after loss

17 Home Insurance Coverage Exclusions – not covered Exclusions – not covered Stamp and coin collections, laptops, silverware, valuable jewelry and cash Stamp and coin collections, laptops, silverware, valuable jewelry and cash Liability – Covers bodily injury or damage you cause to others while on your property or in other locations Liability – Covers bodily injury or damage you cause to others while on your property or in other locations Damage you do to someone else property Damage you do to someone else property Damage you cause away from home Damage you cause away from home Not auto coverage though Not auto coverage though

18 Home Insurance Coverage Umbrella policy – additional liability protection beyond that included in an automobile or homeowners policy. Umbrella policy – additional liability protection beyond that included in an automobile or homeowners policy. Special risk coverage Special risk coverage Hurricanes, for example Hurricanes, for example Basic forms – 6 (number and types of perils covered) Basic forms – 6 (number and types of perils covered) Renters Insurance (same as home owner but doesnt cover structure) Renters Insurance (same as home owner but doesnt cover structure)

19 How much to buy? 80% of its replacement value (land will still remain and thats included in value) 80% of its replacement value (land will still remain and thats included in value) 80 % rule – the company isnt required to reimburse you for the total amount of a loss unless your policy covers at least 80 % of your homes actual replacement value at the time of the loss 80 % rule – the company isnt required to reimburse you for the total amount of a loss unless your policy covers at least 80 % of your homes actual replacement value at the time of the loss

20 Cost of Homeowners Insurance Location Location Age of house Age of house Distance to a fire station or hydrant Distance to a fire station or hydrant

21 Reduce Your Premium Increase your deductible Increase your deductible Upgrade your home Upgrade your home Plumbing, wiring Plumbing, wiring Construction (metal siding and interior supports rather than wood) Construction (metal siding and interior supports rather than wood) Install smoke detectors Install smoke detectors Install more security Install more security Special discounts Special discounts Nonsmokers Nonsmokers Someone does s not work outside home Someone does s not work outside home

22 Providers and the Claims Process Insurance is a service Insurance is a service Insurance needs change Insurance needs change Choosing an agent Choosing an agent Someone to help you stay current with coverage Someone to help you stay current with coverage Two types: Independent and employed with a company Two types: Independent and employed with a company Ask for referrals Ask for referrals

23 Asking others about agents.. Ability to explain policy Ability to explain policy Quality of advice Quality of advice Availability in time of need Availability in time of need Helpfulness sin getting claims process Helpfulness sin getting claims process Speed in getting claims paid Speed in getting claims paid

24 Choosing an Insurance Company Policy is only as good as the company that issues it Policy is only as good as the company that issues it Financial Health of company (Bests Insurance Reports, A.M. Best Company) Financial Health of company (Bests Insurance Reports, A.M. Best Company) Claims Service – speed & ease of claims processing (Consumer Reports) Claims Service – speed & ease of claims processing (Consumer Reports)

25 Filing a Claim Homeowners claims Homeowners claims Home Inventory – store in safe place Home Inventory – store in safe place Must demonstrate responsible behavior (stop any future loss or damage) Must demonstrate responsible behavior (stop any future loss or damage) Contact agent Contact agent Adjustor will assess damage Adjustor will assess damage Prove your loss with your inventory Prove your loss with your inventory Insurance company will issue you a check (sometime to you and contractor to ensure repairs are done) Insurance company will issue you a check (sometime to you and contractor to ensure repairs are done)

26 Filing Claims Automobile Claims Automobile Claims Call police and obtain report Call police and obtain report Ask for other drivers name, phone number, and insurance company. Ask for other drivers name, phone number, and insurance company. Give information to insurance agent. Give information to insurance agent. Provide details to agent Provide details to agent Adjustor assesses damage Adjustor assesses damage No Fault Insurance – pays for persons loss no matter who was at fault No Fault Insurance – pays for persons loss no matter who was at fault

27 Insurance Insurance Fraud Insurance Fraud

28 Health Insurance (15.1) Malpractice insurance – protecting themselves against a devastating loss (Average settlement exceeds $1 million) Malpractice insurance – protecting themselves against a devastating loss (Average settlement exceeds $1 million) Can cost doctors $100,000/year! Can cost doctors $100,000/year! Higher medical costs! Higher medical costs!

29 Health Insurance Hospitalization – hospital stay Hospitalization – hospital stay Surgery – all parts of surgery Surgery – all parts of surgery Outpatient services (Physicians expense insurance) – nonsurgical car in their office hospital or in your home, doctor visits x-rays, and labs Outpatient services (Physicians expense insurance) – nonsurgical car in their office hospital or in your home, doctor visits x-rays, and labs Major Medical – enormous costs from serious illness or accident (extended hospital stays, long- term physical therapy, multiple operations) Major Medical – enormous costs from serious illness or accident (extended hospital stays, long- term physical therapy, multiple operations)

30 Additional Coverage Choices Medications Medications Generic drugs Generic drugs Dental care (preventative) Dental care (preventative) Vision care Vision care Usually injuries not regular exams Usually injuries not regular exams

31 Whats Not Covered Procedures you elect to have done Procedures you elect to have done Cosmetic surgery Cosmetic surgery Visits if you dont have a problem Visits if you dont have a problem Some do not cover childbirth but will cover complications from pregnancy Some do not cover childbirth but will cover complications from pregnancy Experimental drugs and surgical procedures Experimental drugs and surgical procedures Some transplants Some transplants Duplicate benefits Duplicate benefits

32 Special Health Needs Catastrophic and specified disease insurance Catastrophic and specified disease insurance Long-term care insurance Long-term care insurance Disability Income Disability Income

33 Health Insurance Plans Fee-for Service Fee-for Service Managed care Managed care All cover medical, surgical, and hospital, many offer prescription and dental All cover medical, surgical, and hospital, many offer prescription and dental Both require premiums, usually monthly Both require premiums, usually monthly Difference: Degree of freedom you have to choose your health care providers and how the providers are paid Difference: Degree of freedom you have to choose your health care providers and how the providers are paid

34 Health Insurance Plans Fee-for Service plan Fee-for Service plan Indemnity plan Indemnity plan You pay for services as you receive them You pay for services as you receive them You or doctors office submits a claim You or doctors office submits a claim Deductible Deductible 80/20 coverage (the 20% is your coinsurance) 80/20 coverage (the 20% is your coinsurance) You may choose provider You may choose provider Fees paid on reasonable and customary charges Fees paid on reasonable and customary charges Out of pocket maximum Out of pocket maximum

35 Health Insurance Plans Managed Care Plans Managed Care Plans Prepaid plans, paid in advanced not as they are used Prepaid plans, paid in advanced not as they are used Your premium is prepayment Your premium is prepayment Less paperwork, no claim forms Less paperwork, no claim forms Negotiate fees with participating providers Negotiate fees with participating providers Pay hospitals and doctors a fixed amount per year for each patient, no matter what services they provide (capitation) Pay hospitals and doctors a fixed amount per year for each patient, no matter what services they provide (capitation)

36 Health Insurance Plans Managed Care Managed Care Approvals for nonemergency hospitalization Approvals for nonemergency hospitalization Copayments usually required Copayments usually required Three basic types of managed care: Three basic types of managed care: HMO (health Maintenance Organizations) HMO (health Maintenance Organizations) PPOs (Preferred Provider Organizations) PPOs (Preferred Provider Organizations) Pos (Point-of service plans) Pos (Point-of service plans) DIFFERENCE: AMOUNT OF FREEDOM YOU HAVE DIFFERENCE: AMOUNT OF FREEDOM YOU HAVE

37 Insurance Plans HMO HMO Choose primary care physician Choose primary care physician Must use doctors and hospitals in plan Must use doctors and hospitals in plan PPO PPO Most like fee-for service plan Most like fee-for service plan You can choose to stay in-network or go out You can choose to stay in-network or go out No primary care physician No primary care physician PO PO Combines HMO and PPO (PCP, but can go outside with referral) Combines HMO and PPO (PCP, but can go outside with referral)

38 Choose a Health Plan Group Health Group Health Large groups – unions, companies Large groups – unions, companies Premiums lower Premiums lower Employer-sponsored plans Employer-sponsored plans Open enrollment Open enrollment Usually just full-tie workers Usually just full-tie workers Part-timers can sometimes pay full premium but still cheaper than going on their own Part-timers can sometimes pay full premium but still cheaper than going on their own COBRA COBRA

39 Choose a Health Plan Pre-existing condition Pre-existing condition Health Insurance Portability Act (7/1/97) Your new insurance plan must cover any pre- existing conditions without a waiting period if you have been inured continuously the previous 12 months. Health Insurance Portability Act (7/1/97) Your new insurance plan must cover any pre- existing conditions without a waiting period if you have been inured continuously the previous 12 months. According to the law, the waiting period must be no more than 12 month (when switching plans but no previous coverage) According to the law, the waiting period must be no more than 12 month (when switching plans but no previous coverage)

40 Health Plans Individual Health Insurance Individual Health Insurance More flexibility More flexibility More expensive than group More expensive than group Schools may require students to have policy Schools may require students to have policy Government sponsored Government sponsored Medicare – 65 years or older or persons with disabilities Medicare – 65 years or older or persons with disabilities Medigap – supplemental to Medicare (sold by private insurance) Medigap – supplemental to Medicare (sold by private insurance) Medicaid – low incomes or disabilities Medicaid – low incomes or disabilities

41 Health Plans Government (contd) Government (contd) Workers compensation Workers compensation Generally receive 2/3 of salary Generally receive 2/3 of salary Cash benefits to workers surviving family Cash benefits to workers surviving family Work-related claims Work-related claims

42 Shop for Health Insurance Find the plan right for you Find the plan right for you See questions to ask on p. 508 See questions to ask on p. 508

43 Health Care Rights and Responsibilities Right to receive accurate, easily understood information about health plans, professionals, and facilities. Right to receive accurate, easily understood information about health plans, professionals, and facilities. Right to Choose a health care provider that is sufficient to ensure access to appropriate high-quality health care Right to Choose a health care provider that is sufficient to ensure access to appropriate high-quality health care Right to access emergency health care services Right to access emergency health care services

44 Health Care Rights and Responsibilities Right and responsibility to fully participate in all of your health care decisions Right and responsibility to fully participate in all of your health care decisions Right to considerate, respectful care from all members of the health care system and nondiscrimination in delivery of services. Right to considerate, respectful care from all members of the health care system and nondiscrimination in delivery of services. Right to communicate with health care providers in confidence an to have confidentiality of your health care information protected. Right to communicate with health care providers in confidence an to have confidentiality of your health care information protected.

45 Health Care Rights and Responsibilities Right to a fair and efficient resolution to differences with your health providers, including an appeals system Right to a fair and efficient resolution to differences with your health providers, including an appeals system Responsibilities p. 512 Responsibilities p. 512 Referrals Referrals In-plan providers In-plan providers Pre-approvals Pre-approvals Second opinions Second opinions

46 Health Care Rights and Responsibilities Appeals process Appeals process Start with the company Start with the company Contact representative Contact representative Keep written records and all correspondence Keep written records and all correspondence If still unsatisfied, talk to state insurance commissioner or state department of health If still unsatisfied, talk to state insurance commissioner or state department of health Finally, court action Finally, court action

47 Life Insurance Death benefit Death benefit Beneficiary Beneficiary

48 Types of Life Insurance Term Term Level Term Level Term Renewable Term Renewable Term Convertible Term Convertible Term Permanent Permanent Death benefit plus savings plan Death benefit plus savings plan Cash value life insurance Cash value life insurance

49 Permanent Whole life Whole life Least expensive permanent Least expensive permanent For your entire life For your entire life Fixed premium Receive dividends or apply to premium Fixed premium Receive dividends or apply to premium Borrow against cash value Borrow against cash value No flexibility to change policy No flexibility to change policy

50 Permanent Variable Life Variable Life Decide how your savings will be invested Decide how your savings will be invested Riskier Riskier Can borrow but not withdraw Can borrow but not withdraw Universal Life Universal Life More flexibility than either whole- or variable life More flexibility than either whole- or variable life Can borrow or withdraw savings Can borrow or withdraw savings Can change amount of converge and premium Can change amount of converge and premium You cannot choose how your savings are invested You cannot choose how your savings are invested

51 How much to buy? As an investment? As an investment? Funds do not earn high returns over time Funds do not earn high returns over time Your family responsibilities Your family responsibilities Your financial situation Your financial situation Your future Your future Your special needs Your special needs


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