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Insurance

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Insurance

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  1. Insurance

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

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

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

  5. Insurance Basics • Should protect from a loss that could put you in financial difficulty • The more you buy, the higher the cost • Insurance provides security • Banks won’t lend money to a house that isn’t insured • Doctors don’t practice without insurance • Our economic system relied on sharing risk

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

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

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

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

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

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

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

  13. Factors Affecting Premium • Driver classification • Age, gender, marital status • Based on statistics • Rating territory • Some locations more vulnerable than others • Claims in an area • Driving record • Points added to your record • Each point raises your premium 10% • 2-3 points will increase 25-100%

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

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

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

  17. Home Insurance Coverage • Exclusions – not covered • 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 • Damage you do to someone else’ property • Damage you cause away from home • Not auto coverage though

  18. Home Insurance Coverage • Umbrella policy – additional liability protection beyond that included in an automobile or homeowners policy. • Special risk coverage • Hurricanes, for example • Basic forms – 6 (number and types of perils covered) • Renter’s Insurance (same as home owner but doesn’t cover structure)

  19. How much to buy? • 80% of its replacement value (land will still remain and that’s included in value) • 80 % rule – the company isn’t required to reimburse you for the total amount of a loss unless your policy covers at least 80 % of your home’s actual replacement value at the time of the loss

  20. Cost of Homeowner’s Insurance • Location • Age of house • Distance to a fire station or hydrant

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

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

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

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

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

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

  27. Insurance • Insurance Fraud

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

  29. Health Insurance • Hospitalization – hospital stay • Surgery – all parts of surgery • Outpatient services (Physician’s 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)

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

  31. What’s Not Covered • Procedures you elect to have done • Cosmetic surgery • Visits if you don’t have a problem • Some do not cover childbirth but will cover complications from pregnancy • Experimental drugs and surgical procedures • Some transplants • Duplicate benefits

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

  33. Health Insurance Plans • Fee-for Service • Managed care • All cover medical, surgical, and hospital, many offer prescription and dental • Both require premiums, usually monthly • 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 • Indemnity plan • You pay for services as you receive them • You or doctor’s office submits a claim • Deductible • 80/20 coverage (the 20% is your coinsurance) • You may choose provider • Fees paid on reasonable and customary charges • Out of pocket maximum

  35. Health Insurance Plans • Managed Care Plans • Prepaid plans, paid in advanced not as they are used • Your premium is prepayment • Less paperwork, no claim forms • Negotiate fees with participating providers • 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 • Approvals for nonemergency hospitalization • Copayments usually required • Three basic types of managed care: • HMO (health Maintenance Organizations) • PPO’s (Preferred Provider Organizations) • Po’s (Point-of service plans) • DIFFERENCE: AMOUNT OF FREEDOM YOU HAVE

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

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

  39. Choose a Health Plan • 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. • 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 • More flexibility • More expensive than group • Schools may require students to have policy • Government sponsored • Medicare – 65 years or older or persons with disabilities • Medigap – supplemental to Medicare (sold by private insurance) • Medicaid – low incomes or disabilities

  41. Health Plans • Government (cont’d) • Workers’ compensation • Generally receive 2/3 of salary • Cash benefits to worker’s surviving family • Work-related claims

  42. Shop for Health Insurance • Find the plan right for you • 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 Choose a health care provider that is sufficient to ensure access to appropriate high-quality health care • 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 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.

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

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

  47. Life Insurance • Death benefit • Beneficiary

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

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

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