Chapter 35Life and Health

Insurance

Protects the standard of living of the survivors

Policyholder dies = ins. co. pays survivors Proceeds: the money paid to survivors Beneficiary: each person who receives

part of the proceeds Policyholder names beneficiaries

Life Insurance

1. Permenant life Insurance (Cash Value Insurance)- Comprised of two parts: a savings, or investment,

portion (i.e.Cash Value) and an insurance portion. Whole Life Universal Life

2. Term insurance – No investment component. You're buying life

coverage that lasts for a set period of time provided you pay the monthly premium

There are two basic kinds of life insurance policies:

Cash-value insurance: provides savings and death benefits◦ Part of premium death benefits◦ Part of premium builds up cash value (savings

acct) Cash value over life of policy Cancel policy, claim collected cash-value Emergency – borrow part/all of cash value,

pay interest Different kinds of cash value insurance

Life Insurance: Cash-Value Insurance

Whole life is meant to insure someone for their whole life.

Has a cash-value component. (builds tax deferred)

Premium and death benefit are fixed.

Whole Life Insuarnce

Cash value part of premium is investedStocks, bonds, and mutual funds rather than

savings, and doesn’t guarantee a certain rate of return like a whole life policy

Increases or decreases depending on value of investments (Variable)

Universal Life

Term Insurance: life insurance that covers a person for a specific period of time◦ Could be 5, 10, or 20 years

Only pays benefits if person dies within the term

If the insurer lives longer, policy has no value

Can be renewed….higher premium “Pure protection” – only pays death

benefits, no cash value Low cost

Life Insurance: Term Insurance

How it works: Your friend purchases a 5 year, $10,000 policy (covers

him for 5 years) If your friend dies within those first five years, his/her

beneficiary will receive $10,000. After five years his/her coverage ends The policy can be renewed over time but with a higher

premium Term insurance is often used as a part of group life

insurance Offered by employers; if you leave company, you lose

coverage Group policies are cheaper than individual policies

Term Insurance continued

Term insurance < cash value insurance Factors that effect premium: Age, health, occupation Many have to take a physical first Older = higher cost Dangerous occupations = higher cost

Costs of Life Insurance

Protects against the cost of illness/accidents

Avg. cost of one hospital day stay = $5,000-$8000

Health Insurance

Health Care Plans

Private Health Care Plans Group Health plans: Least expensive

Co./org. provides for employees/membersEmployees/members can add extra coverage

at their own exp. Individual Health plans: most expensive.

Government-Sponsored Health Care Plans

Coinsurance Clause – requires you to pay a certain % of medical exp.s beyond deductible

Copayment: fee paid each time a service is used

More people covered = higher premium (i.e. dependents)

Many policies won’t cover a pre-existing condition: a serious health condition diagnosed before a person obtained health ins.◦ EX. Someone suffers from a heart condition, an

insurance company might refuse to cover it

Costs of Health Insurance

Fee-For-Service or Traditional Indemnity Plans

Managed Health Care PlansHealth maintenance organizations (HMOs)

Preferred provider organizations (PPOs)

Types of Health Insurance

= catastrophe ins. Most important coverage for a serious

illness/accident Covers: hospital care, doctor’s bills, tests, x-rays,

and nursing care Deductible Some plans have coinsurance: % of medical exp.

a policyholder must pay beyond the deductible Insurance 75-80%, policyholder 20-25% EX. $1,000 deductible and coinsurance of 20%.

Bills are $6,000, you pay $2,000 ($1,000 deductible and 20 % of $5,000)

Major Medical Insurance

Medicare: major health ins. program set up by the federal gov’t (2 parts)

Part A: hospital ins. (covers hospital care)◦ Pay a deductible

Part B: medical ins. (covers doctor’s fees/tests)◦ Pay a deductible◦ Coinsurance◦ Monthly premium

Government Health Insurance: Medicare

Medicaid: another gov’t health care plan for certain groups of citizens

Provides care for those who are unable to pay for ins. or health care

Much more comprehensive than medicare

Government Health Insurance: Medicaid

The act provides comprehensive health ins. reforms that hold ins. companies more accountable

President Obama signed the Act on Mar. 23, 2010◦ Lower costs◦ More choices◦ Enhance the quality of healthcare

Understanding the Affordable Care Act

Lower Costs◦ creation of a competitive private health ins. market◦ Stabilizes economy◦ Expected to reduce deficit over next ten years by $100 billion

End Ins. Co. denial & abuse of care (Americans w/ pre-existing conditions)

Will be rolled out through 2014 Covers:

◦ Individuals◦ Families◦ Seniors◦ Businesses

Reduced premiums for families & small businesses

Affordable Care Act

Insurance Terminology and Concepts

• Premium• Deductible• Coinsurance• Co-payment• Coinsurance Cap or Stop-Loss Provision• Pre-existing Conditions• Waiting Period• Policy Limits• Policy Provisions• Coordination-of-benefits Clause