1. 8 - 1 COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd Chapter 8 – Insuring Your Life and Health

2. 8 - 2 Chapter 8 - Insuring Your Life and Health Chapter 8 - Learning Goals LG 1-Explain the concept of risk and the basics of insurance underwriting. LG 2-Discuss the primary reasons for life insurance and identify those who need coverage. LG 3-Calculate how much life insurance you need. LG 4-Differentiate among the various types of life insurance policies and describe their advantages and disadvantages. LG 5-Choose the best life insurance policy for your needs at the lowest cost. LG 6-Become familiar with the key features of life insurance policies. LG 7-Discuss why having adequate health insurance is important, and explain the basic coverage and policy provisions of health insurance plans. LG 8-Assess the need for and features of long-term care insurance and disability insurance. Learning Goals

3. 8 - 3 Chapter 8 - Insuring Your Life and Health Internet Links and On-Line Resources Manulife Financial’s Insure Right CalculatorInsure Right Calculator Survivor Benefits under the Canada Pension PlanSurvivor Benefits Find your life expectancy at Dinkytown.netDinkytown.net Find out more about various life insurance products and policy types at the Canadian Life and Health Insurance Association website.Canadian Life and Health Insurance Association Get quotes on term life policies at Term Life Insurance Canada.Term Life Insurance Canada Get details of coverage provided through CompCorp.CompCorp Web Links

4. 8 - 4 Chapter 8 - Insuring Your Life and Health Key Chapter Terms and Definitions Risk avoidance Loss prevention Loss control Risk assumption Insurance policy Underwriting Multiple-of-earnings method Needs analysis method Canada Pension survivor’s benefits Term life insurance Straight- or level-term policy Decreasing-term policy Renewability Convertibility provision Whole life insurance Cash value Nonforfeiture right Universal life insurance Group life insurance Credit life insurance Mortgage life insurance Beneficiary Policy loan Accidental death or multiple indemnity clause Accidental death or multiple indemnity clause Disability clause Guaranteed insurability or purchase option Guaranteed insurability or purchase option Participating policy Group health insurance Workers’ compensation insurance Medical reimbursement account Deductible Participating (coinsurance) clause Internal limits Coordination of benefits provision Preexisting condition clause Long-term care Waiting (elimination) period Guaranteed renewability Optional renewability Disability insurance Terms

5. 8 - 5 Chapter 8 - Insuring Your Life and Health Definitions Risk Avoidance Avoidance of an act that would create a risk. Terms

6. 8 - 6 Chapter 8 - Insuring Your Life and Health Definitions Loss prevention Any activity that reduces the probability that a loss will occur. Terms

7. 8 - 7 Chapter 8 - Insuring Your Life and Health Definitions Loss control Any activity that lessens the severity of loss once it occurs. Terms

8. 8 - 8 Chapter 8 - Insuring Your Life and Health Definitions Risk assumption The choice to accept and bear the risk of loss. Terms

9. 8 - 9 Chapter 8 - Insuring Your Life and Health Definitions Insurance policy A contract between the insured and the insurer under which the insurer agrees to reimburse the insured for any losses suffered according to specified terms. Terms

10. 8 - 10 Chapter 8 - Insuring Your Life and Health Definitions Underwriting The process used by insurers to decide who they will insure and to determine applicable rates they will charge for premiums. Terms

11. 8 - 11 Chapter 8 - Insuring Your Life and Health Definitions Multiple-of-earnings method A method of determining the amount of life insurance coverage needed by multiplying gross annual earnings by some selected (often arbitrary) number. Terms

12. 8 - 12 Chapter 8 - Insuring Your Life and Health Definitions Needs analysis method A method of determining the amount of life insurance coverage needed by considering the person’s financial obligations and his or her available financial resources in addition to life insurance. Terms

13. 8 - 13 Chapter 8 - Insuring Your Life and Health Definitions Canada Pension survivor’s benefits Benefits included under provision of the Canada Pension Plan that are intended to provide support to families faced with the loss of their principal wage earners. Terms

14. 8 - 14 Chapter 8 - Insuring Your Life and Health Definitions Term life insurance Insurance that provides only death benefits, for a specified period, and does not provide for the accumulation of cash value. Terms

15. 8 - 15 Chapter 8 - Insuring Your Life and Health Definitions Straight- or level-term policy A term insurance policy that is written for a given number of years, with coverage remaining unchanged throughout the effective period. Terms

16. 8 - 16 Chapter 8 - Insuring Your Life and Health Definitions Decreasing - term policy A term insurance policy that maintains a level premium throughout all periods of coverage, but decreases the amount of protection. Terms

17. 8 - 17 Chapter 8 - Insuring Your Life and Health Definitions Renewability A term life policy provision that allows the insured to renew his or her policy at the end of its term without having to show evidence of insurability. Terms

18. 8 - 18 Chapter 8 - Insuring Your Life and Health Definitions Convertibility provision A term life policy provision that allows the insured to convert the policy to a comparable whole life policy. Terms

19. 8 - 19 Chapter 8 - Insuring Your Life and Health Definitions Whole life insurance Life insurance designed to offer ongoing insurance coverage over the course of an insured’s entire life; it provides stated death benefits and allows for the accumulation of cash value. Terms

20. 8 - 20 Chapter 8 - Insuring Your Life and Health Definitions Cash value The accumulated refundable value of an insurance policy; results from the investment earnings on paid-in insurance premiums. Terms

21. 8 - 21 Chapter 8 - Insuring Your Life and Health Definitions Nonforfeiture right A life insurance feature that gives the whole life policyholder, on policy cancellation, the portion of those assets that had been set aside to provide payment for the future death claim. Terms

22. 8 - 22 Chapter 8 - Insuring Your Life and Health Definitions Universal life insurance A form of permanent cash value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest at competitive money market rates. Terms

23. 8 - 23 Chapter 8 - Insuring Your Life and Health Definitions Group life insurance A type of life insurance that provides a master policy for a group and each eligible member of the group receives a certificate of insurance. Terms

24. 8 - 24 Chapter 8 - Insuring Your Life and Health Definitions Credit life insurance A type of life insurance sold in conjunction with installment loans; usually a term policy of less than five years, with a face value that corresponds to the outstanding balance on a loan. Terms

25. 8 - 25 Chapter 8 - Insuring Your Life and Health Definitions Mortgage life insurance A term policy designed to pay off the mortgage balance in the event of the borrower’s death. Terms

26. 8 - 26 Chapter 8 - Insuring Your Life and Health Definitions Beneficiary A person who receives the death benefits of a life insurance policy on the insured’s death. Terms

27. 8 - 27 Chapter 8 - Insuring Your Life and Health Definitions Policy loan An advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder. Terms

28. 8 - 28 Chapter 8 - Insuring Your Life and Health Definitions Accidental death or multiple indemnity clause A clause in a life insurance policy that typically doubles or triples the policy’s face amount in the event the insured dies in an accident. Terms

29. 8 - 29 Chapter 8 - Insuring Your Life and Health Definitions Disability clause A clause in a life insurance contract containing a waiver-of-premium benefit alone or coupled with disability income. Terms

30. 8 - 30 Chapter 8 - Insuring Your Life and Health Definitions Guaranteed insurability or purchase option An option in a life insurance contract giving the policyholder the right to purchase additional coverage at stipulated intervals without providing evidence of insurability. Terms

31. 8 - 31 Chapter 8 - Insuring Your Life and Health Definitions Participating policy A life insurance policy that pays policy dividends that reflect the difference between the premiums that are charged and the amount of premium necessary to fund the actual mortality experience of the company. Terms

32. 8 - 32 Chapter 8 - Insuring Your Life and Health Definitions Group health insurance A type of health insurance consisting of contracts written between a group (for example, employer, union, or other organization) and a private insurance company. Terms

33. 8 - 33 Chapter 8 - Insuring Your Life and Health Definitions Workers’ compensation insurance A type of insurance required by provincial and territorial governments and paid for by employers that compensates workers for job-related illness or injury. Terms

34. 8 - 34 Chapter 8 - Insuring Your Life and Health Definitions Medical reimbursement account An account into which employers place contributions that employees can use to pay for medical expenses. Usually combined with a high- deductible health insurance policy. Terms

35. 8 - 35 Chapter 8 - Insuring Your Life and Health Definitions Deductible The initial amount NOT covered by an insurance policy and therefore the responsibility of the insured; it is usually determined on a calendar- year or on a per-illness or per-occurrence basis. Terms

36. 8 - 36 Chapter 8 - Insuring Your Life and Health Definitions Participation (coinsurance) clause A provision in many health insurance policies stipulating that the insurer will pay some portion of the amount of the covered cost in excess of the deductible. Terms

37. 8 - 37 Chapter 8 - Insuring Your Life and Health Definitions Internal limits A feature commonly found in health insurance policies that places a constraint on the amounts that will be paid for certain specified expenses – even if the overall policy limits are not exceeded by the claim. Terms

38. 8 - 38 Chapter 8 - Insuring Your Life and Health Definitions Coordination of benefits provision A provision often included in health insurance policies to prevent the insured from collecting more than 100 percent of covered charges; it requires that benefit payments be coordinated in the event the insured is eligible for benefits under more than one policy. Terms

39. 8 - 39 Chapter 8 - Insuring Your Life and Health Definitions Preexisting condition clause A clause included in most individual health insurance policies that permits permanent or temporary exclusion of coverage for any physical or mental problems the insured had at the time the policy was purchased; this clause, if included at all, is much less restrictive in group policies. Terms

40. 8 - 40 Chapter 8 - Insuring Your Life and Health Definitions Long-term care The delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty. Terms

41. 8 - 41 Chapter 8 - Insuring Your Life and Health Definitions Waiting (elimination) period The period, after the insured meets the policy’s eligibility requirements, during which he or she must pay long-term care expenses; after the waiting period expires, the insured will begin to receive benefits for the duration of the policy as long as its eligibility requirements continue to be met. Terms

42. 8 - 42 Chapter 8 - Insuring Your Life and Health Definitions Guaranteed renewability Policy provisions ensuring continued insurance coverage for the insured’s life-time as long as he or she continues to pay the premiums. The insurer may raise the premiums in the future, however, if the claims experience for the insured’s peer group of policyholders is unfavourable. Terms

43. 8 - 43 Chapter 8 - Insuring Your Life and Health Definitions Optional renewability Contractual clause allowing the insured to continue insurance only at the option of the insurer. Terms

44. 8 - 44 Chapter 8 - Insuring Your Life and Health Definitions Disability insurance Insurance that provides a weekly or monthly payment to replace income when the insured is unable to work as a result of a covered illness, injury, or disease. Terms

45. 8 - 45 THE END!