Chapter 19 Outline Coping with Risk Why Life Insurance? Basic Elements of Life Insurance Buying Life Insurance: Who needs it and How Much? Insurance When the Risk May Not Occur Health Insurance Income Insurance

Important terms Actuaries - run statistics and study trends to determine rates Fiduciery - one of the highest trust

Two types of life insurance Permanent Temporary

Permanent Lifetime contract Pay a fixed premium Cash value

Term Insurance “Pure insurance” Limited amount of time Least expensive, however, older you are, higher the rates Does not have a cash value

Parties to an insurance policy Insured Owner Beneficiary Contingent Beneficiary Company

Life Insurance Contract & Clauses Application –Rescind –Binding coverage Face Amount/Face Value Double indemnity/Accidental Death Benefit Incontestable Clause Guaranteed Insurability Premium/Mode of Payments Lapse

Life Insurance Contract & Clauses Grace period Reinstate Waiver of Premium Conversion values –Cashing in –Borrowing –Converting to extended term insurance –Converting to paid-up insurance –Automatic premium loan

How much? Final expenses Existing debt Survivors basic and extraordinary expenses Years left of survivors Social Security benefits for survivors Inventory assets Evaluate other realistic income Evaluate current life insurance policies General rule of thumb: buy life insurance equal to 5-7 times your annual gross income

Health Insurance Hospital Surgical Physician

Health Insurance-Why rates vary Gender Smokers Where you live Type of policy Actuarial Changes Dividend Performance Overall Company Performance

Major Medical Insurance Considerations Deductible Time line for deductible How much deductible the company will pay Maximum amount the company will pay How much expense you can afford How long the benefit period runs

Provisions Maternity benefits Dependents Waiver of Premium Termination Preexisting conditions Excluded or rated risks Renewability and Cancelability Grace period, lapse, and reinstatement

Other Forms of Health Insurance Protection HMOs Workers Compensation Medicare “Dread disease” insurance

Programs to protect you against loss of income Sick-pay plans Workers’ Compensation Social Security Unemployment Insurance Waiver of Premium Clauses Credit Health Insurance

Disability Income Waiting period Total and partial disability How much protection

Homeowners Insurance Actual need Market value - actual cash value Replacement cost value - costs new Personal liability Personal liability umbrella policy Risk management

Automobile Insurance Need What vehicles would have lower premiums? What factors effect auto insurance?

Most important Liability - required by law: 20/40/15 Medical - takes care of people in your car Comprehensive - damage to own vehicle Can save $ by raising deductible No fault laws