1. Insurance Fundamentals for Policymakers

2. Four assignments: Insurance Principles Insurance Coverages: Property and Casualty Insurance Coverages: Life and Health Insurance Regulation and Legislation Insurance Fundamentals for Policymakers

3. Types of Life Insurance Introduction to Annuities Health Insurance Plans Insurance Coverages: Life and Health Topics

4. Life and health insurance help protect individuals’ and families’ assets in the event of death, illness, or accident. Some life insurance contracts also provide a means of savings. Types of Life Insurance

5.  Term life  Whole life  Universal life  Variable life  Variable universal life  Specialty products Types of Life Insurance

6.  Probability of death for 20-35 year-old:  In U.S.:  X out of 1,000  $100,000 of LI coverage:  F * S .001 * $100,000 = $____  $1 per $1000 of face amount  Price for pure protection Life Numbers…

7. Term Life Insurance Pricing mortality curve (~term) $ or p(l) x time100

8. Term Versus Permanent Pricing x time100 $ or p(l) overpayment under payment

9. Coverage for specified period No cash value Policy value paid to beneficiary on insured’s death Premium escalates with age Renewable May be convertible to whole life Term Life Insurance

10. Lifetime protection Accrued cash value Unchanged premiums Loans on cash value Whole Life Insurance

11. Separate protection, savings, and expense components Earns higher of minimum interest rate or market interest rate Flexibility—premiums, access to cash value, and additional insureds Risks—policy lapse, growth variability Universal Life Insurance

12. Choice of investment accounts Level premiums Variable investment performance Tax-free investment account changes Variable Life Insurance

13. Value based on insurer’s account performance Choice of accounts Significant expense loadings and mortality cost charges Variable Universal Life

14. Current assumption whole life Second-to-die (survivorship) First-to-die (joint) Other Types of Life Insurance

15. Life Insurance Type Features

16. Death Benefit –Not taxable to beneficiary –No limit as to face amount –True for all types of life insurance contracts Taxation of Life Insurance Products

17. Cash Value Life Insurance [CVLI] –Product has two components –Protection and savings or cash value –Cash value accumulates over time – credited with interest ‘Inside buildup’ Taxation of Life Insurance Products

18. No federal income tax for a policyholder with respect to any earnings on CVLI True if the life insurance contract meets the definition of a life insurance contract under Section 7702 – must have the appropriate balance between death protection and cash value Taxation of Life Insurance Products

19. Policy Loans Borrow cash value – interest charged Interest is not deductible if policy is Single Premium Whole Life or Endowment Contracts Taxation of Life Insurance Products

20. Annuities are designed to transfer to an insurer the contract owner’s risk of outliving his or her income. Introduction to Annuities

21.  We’ve worked and saved $1 million  The Risk: We might live a (really) long time and outlive our assets  In most countries:  65-year-old men and women can expect to live to 81 and 85  1/3 women and 1/5 men born today will live beyond 90 The Risk

22. How Long Will Retirement Assets Last?

23.  Think of as opposite of LI  Life insurance addresses the risk of dying too soon—mortality risk  Annuities address the risk of living “too long”— longevity risk Life Insurance vs. Annuities

24.  The insurer  The contract owner  The person insured under the annuity (annuitant) The beneficiary is typically not a party to the contract. Parties to Annuity Contracts

25. Tax-efficient retirement savings—Accumulated cash value is tax deferred. Income that cannot be outlived Guaranteed death benefit Purpose of Annuities

26. Guarantees vary by annuity:  Straight life annuity  Life annuity with period certain  Refund annuity Payment Guarantees

27. Various types of group and individual healthcare plans are available in the private, nongovernmental market. Health Insurance Plans

28.  Based on fee for service, or indemnity  For individuals or groups Traditional Health Insurance Plans

29. Separately regulated Basic and major medical expense coverage Managed-care plans Direct payment to providers Blue Cross and Blue Shield Plans

30. Negotiated provider fees Reduced consumer costs Limited consumer flexibility Coverage of standard services Managed-Care Plans

31. Covers only network-provided services Fixed, prepaid fee Copayments for routine visits Primary physician preapproval of specialist HMO preapproval of some treatments and services Oversight of tests and treatments Managed-Care Plan—HMO

32. Choice of providers Lower medical costs and deductibles No primary physician required Costlier than HMOs Managed-Care Plan—PPO

33. Lower premium Insurers’ access fee for use of network Fee schedules for medical service levels Exclusive-network-use requirement, except for emergencies Managed-Care Plan—EPO

34. Coverage for use of out-of-network specialists Members receive some POS coverage for using out-of- network providers but must handle paperwork Managed-Care Plan—POS

35. Medicare Advantage managed-care options – HMOs – Provider-sponsored organizations – PPOs – Medical savings accounts – Private fee-for-service plans – Special-needs plans Medicare

36. Lower premiums, higher deductibles No deductibles for preventive care Use of HSA or HRA to help pay deductibles Informational decision-making tools Consumer-Directed Health Plans

37. Insurers cannot decline to insure children with preexisting medical conditions Adult children (to age 26) can be covered under parent’s plan No lifetime dollar limits on essential benefits, phase-out of annual limits Insurers must spend set percentage of premium on direct care or quality improvement The Affordable Care Act

38.  Life insurance can provide financial security for survivors of an insured who dies  Annuities can protect holders against outliving their income  Health insurance plans cover routine and major medical costs Summary