Health and Life Insurance
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Life is full of risks and accidents.
Risk is uncertainty about a situation’s outcome.
Risk can be unpredictable events that lead to loss or damage. Insurance is an
arrangement between an individual (consumer) and an insurer (insurance
company) to protect the individual against risk.
 Insurance plays a large role in most individual’s financial management plans.
 The purpose of insurance is to help individuals limit their financial losses
when an accident occurs. It helps the individual to be prepared for the
unexpected.
Need to Know
 To purchase insurance, consumers purchase a policy.
 A policy is a contract between the individual and the insurer specifying the
terms of the insurance arrangements.
 A policyholder is the consumer who purchased the policy.
 The policy will state the premium and deductible amounts.
 A premium is the fee paid to the insurer to be covered under the specified
terms.
 A deductible is the amount paid out of pocket by the policy holder for the
initial portion of a loss before the insurance coverage begins.
 The amount of a premium or a deductible will vary depending on the type of
insurance and the terms of the policy.
Health Insurance
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Sources of Health Insurance
o Employer
 Employers pay part or all the cost of a group health insurance
plan as a benefit to their employees. Costs are generally lower
as risk is spread over a large group
o Private
 Individuals purchase a policy to cover health costs for
themselves or their immediate family. Greater flexibility in
types of plan, but costs are higher
o Government
 State or federal government managed insurance paid from tax
revenues. Must meet age and/or income qualifications
Managed Health Care Plans
o HMO - Health maintenance organization
 a health care group that provides health care services to
members for a set fee and a small co-pay
o HSA – Health Savings Account
You contribute pre-tax dollars to the account for expected
medical expenses for the coming year –-submit claims and
receipts for reimbursement up to amount deposited
o PPO - Preferred provider organization
 an agreement between health providers with employers or
insurers to provide services at a reduced rate to employees
o POS-Point of Service
 members use a primary physician who refers them as needed
to participating specialist or members can see nonparticipating specialist members but, members pay more for
their services
o Fee for Service
 A plan in which an insured can select his/her own doctors and
hospitals, pay costs at time of visit, and file form with
insurance company for reimbursement of covered expenses
Terms to Know
o Deductible – the amount you pay during the term (usually one year)
before the insurance pays any medical expenses
o Co-payments – Percentage of medical bills you must pay after meeting
your deductible. Usually 10, 20 or 30% of the bill
o Preauthorization – prior approval is required from the insurance
company before major medical procedures are done. (e.g. surgery,
chemotherapy)
o Exclusions – medical expenses the policy will not cover (e.g. teen
pregnancy, cosmetic surgery)
o Pre-existing Conditions---An illness or injury that a person has at the
time he/she enrolls in a health care plan
o Renewability---A patient’s right to restart coverage annually
o Maximum Benefit---A limit on the number of days one’s care will be
covered, or the highest amount that can be paid in benefits for a
specific procedure t
Types of Health Insurance
o Basic medical
 pay a large part of hospital and surgical care, may also pay part
of some other medical expenses (e.g., doctor’s visits)
o Major medical
 pays for long-term illness expenses after basic medical benefits
limits have been reached (e.g., cancer).
Other Types of Health Related Insurance Coverage
o Dental Insurance
 Pays for all or part of checkups which include examination,
cleaning, and X-rays
 Pays a portion or repairs such as fillings, crowns, and root
canals
 Offered with group rates through some employers
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o Vision Insurance
 Pays for checkups
 Covers a portion of the cost of lenses and frames
o Accident Insurance (e.g. School Insurance)
 Often available at low rates
 Covers medical bills related to injury occurring at eligible
locations and/or times (e.g. school grounds, sports events)
Types of Disability Insurance
o Disability
 Pays a portion of income lost to a worker who is unable to
return to work for an extended period of time because of
illness or injury
 Shop carefully as costs and benefits vary widely
o Workmen’s Compensation
 Employers are require to have in every state in some form
 Covers medical care, treatment, rehabilitation, and a portion of
wages from injuries that occur in the workplace
o Long Term
 Pays for care when a person with a chronic illness or injury
cannot care for themselves for an extended period of time
Government Sponsored Health Insurance
o Medicare
 Covers eligible citizens 65 or older or eligible adults who can
no longer work due to illness or disability
 Funded from payroll taxes
o Medicaid
 Health insurance for eligible low income persons
 Funded from state and federal tax revenue
o CHIP – Children’s Health Insurance Program
 Health insurance for children under 18 whose parents make
too much to qualify for medicaid, but not enough to afford
private insurance
 Federal funds are distributed by the state
Gap Insurance
o COBRA
 Consolidated Omnibus Budget Reconciliation Act
 Law that gives you the right to continue employer sponsored
group health insurance plan for a limited time after you leave
your job. You pay the premiums.
o Medigap Insurance
 Private insurance available to citizens 65 and older who have
Medicare A and B plans.
 Covers the cost of co-payments and deductibles
Things that affect the cost of life insurance
o Family health history
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o Pre-existing conditions
o The policyholder’s current health
o The policyholder’s occupation and hobbies (e.g. race car driver)
o Gender (women live longer than men and pay lower premiums)
o Age of insured (the older the insured, the more the premiums cost)
Things (risks) to consider when selecting the amount of insurance coverage:
o Present and future earnings of the policyholder
o Financial responsibilities of the policyholder
o Potential income from other sources
o Dependents, their ages and their needs
o Burial expenses
o Debts