Chapter 35: Insurance
35.1 Insurance Contracts
35.1: The Insurance Contract
ON A SHEET OF PAPER write…
Make a list of 10 things you own that are
worth the most amount of money or
have personal value.
35.1: The Insurance Contract
Insurance is a contract where one party
agrees to compensate another for a
specific loss
PURPOSE of insurance is to spread
loss among a greater number of people.
35.1: The Insurance Contract
2 sides of the contract
– Insurer - the insurance company
– Insured - person whose life or property is
insured
Policy - the written contract between
person buying insurance (policyholder)
and the person who sells it.
35.1: The Insurance Contract
There is a THIRD party to this
contract but does not have input but
still benefits…
– Beneficiary - the person named in the
policy to receive benefits paid by the
insurer in the event of a loss
35.1: The Insurance Contract
The Insurer can create clauses that
modify the normal insurance contract.
They are called riders and simply
modify or add to the contract.
– Example: Someone with prior medical
conditions who apply for health insurance
may not have coverage over pre-existing
conditions.
35.1: The Insurance Contract
Premium - the $ you pay to the insurance
company for coverage
Face Value - the amount of protection state
in a life insurance policy (the amount that a
beneficiary would receive if you died).
Cash Value - the amount of $$ you can take
by either borrowing against or cashing in your
life insurance policy
35.2: Life & Health Insurance
Life Insurance
– Insurance contract that provides monetary
compensation for losses suffered as a result of
someone’s death.
• Premium is based on health, coverage and type of policy
It is less expensive to buy life insurance when
you are young because the death rate for
younger people is lower and health is usually
better.
35.2: Life & Health Insurance
There are several types of Life Insurance
Straight Life Insurance
– Also called Ordinary Life Insurance and Whole Life
Insurance
– Requires payment of premiums throughout the insured’s
lifetime.
– Premiums stay constant throughout policy.
– Beneficiary is paid face value upon insured’s death
– Serves as a savings and protection account.
35.2: Life & Health Insurance
There are several types of Life Insurance
Universal Life Insurance
– A type of Straight Life Insurance
– Allows policyholder to change the terms of the policy as their
needs change
– Coverage can be increased or decreased
– Cash can be withdrawn against account without canceling
the policy.
– Premiums vary depending on changes in policy.
35.2: Life & Health Insurance
There are several types of Life Insurance
Limited-Payment Life Insurance
– Allows you to stop paying premiums after a stated length of
time (usually 10, 20 or 30 years).
– Beneficiary will receive the amount of the policy upon the
death of the insured whether it occurs during the payment
period or after
35.2: Life & Health Insurance
There are several types of Life Insurance
Endowment Insurance
– Provides protection for a stated period of time (generally 20
to 30 years).
– Face value of policy is paid to insured at end of agreed
period
– If insured dies before end of period the full amount is paid
to the beneficiary at the time of death
35.2: Life & Health Insurance
Annuity is a guaranteed retirement income that is
purchased by paying either a lump-sum premium or
by making periodic payments to an insurer.
– Either receive the income for fixed # of years with beneficiary
receiving what is left if you die
– OR
– Receive payments as long as you live, losing what is left of
annuity upon death.
35.2: Life & Health Insurance
Accidental Death & Dismemberment Insurance
– Provides benefits only when the insured is:
•
•
•
•
killed in an accident
Loses the use of one or more limbs
Loses sight in one or both eyes
Loses one of either an eye or limb and gets 1/2 of policy that
would have been paid for loss of life
– Double Indemnity - When beneficiary receives double the
face value of the policy
35.2: Life & Health Insurance
Term Life Insurance
–
–
–
–
–
Protection only policy
Least expensive type of life insurance
Has no cash or loan value
Issued for particular period of time (5 or 10 years normally)
Insured is usually older and considered a greater risk
35.2: Life & Health Insurance
Exemptions to Life Insurance Policies
– Some states do not allow beneficiaries to receive life
insurance proceeds if:
• Killed by police
• Legally executed
• If murder is beneficiary
– Insurer can cancel policy if insured makes false statements
35.2: Life & Health Insurance
Health Insurance
– Basic Health Insurance plans usually include the
following:
•
•
•
•
•
Inpatient & outpatient hospital care
Physician care
Surgery
Prescription drugs
Dental & Vision care
35.2: Life & Health Insurance
Health Insurance Plans
– The type of coverage people carry depends on
their own situation
•
•
•
•
•
•
Group Plan
Individual Plan
HMO (Health Maintenance Organization)
PPO (Preferred Provider Organization)
Medicare & Medicaid
Disability Insurance
35.2: Life & Health Insurance
Health Insurance Plans
– Group Health Insurance Plan
• Usually obtained where you work
• Where/how many people get their health insurance
• Premiums are lower!
COBRA Consolidated Omnibus Budget
Reconciliation Act is a federal act that allows
people to keep their health insurance for a limited
time after being laid off.
35.2: Life & Health Insurance
Health Insurance Plans
Individual Health Insurance Plans
– For people who work for a company that does not offer
insurance
– For self-employed workers
– More expensive because costs are not spread amongst
a group
35.2: Life & Health Insurance
HMOs and PPOs
HMO means Health Maintenance Organization
– Encourages regular medical visits to keep costs
down
PPO means Preferred Provider Organization
– Members see a primary physician (preferred
physician) who may recommend further treatment
with specialists.
35.2: Life & Health Insurance
Government Health Care
Medicare
– Health insurance for ages 65+
– Pays 80% of doctor bills
– Can buy own insurance to cover other 20%
Medicaid
– Healthcare for low-income individuals & families
– Governed & admin. by state but with Federal $$
35.2: Life & Health Insurance
Disability Insurance
Pays you benefits when you can’t work
because of a disability
Purchased from private insurer but usually paid
in part or in whole by employer
– Can be partial or short-term (pays for few months)
– Can be long-term (pays for a year or longer)
35.2: Life & Health Insurance
Property Insurance
–
–
–
–
–
–
Homeowner’s Insurance
Renter’s Insurance
Fire Insurance
Coinsurance
Ocean Marine Insurance
Inland Marine Insurance
35.2: Life & Health Insurance
Property Insurance
Property Insurance is a contract in which the insurer
promises to pay you a sum of money if a piece of real or
personal property is destroyed.
Binders are issued as temporary insurance until a policy is
signed and completed and issued
Floater Policies insure property that can’t be covered
by specific insurance because it changes in value or
location (ex. Bicycle, violin, laptop, jewelry)
35.2: Life & Health Insurance
Homeowner’s Insurance
Homeowner’s Insurance protects against most types
of losses & liabilities related to your home (fire,
windstorm, vandalism, burglary & injuries suffered by
other people while on your property)
Renter’s Insurance protects someone who rents property
against loss of personal property and liability for a visitor’s
personal injury (also negligent destruction of the property!)
35.2: Life & Health Insurance
Fire Insurance
Fire Insurance covers loss resulting directly from an
unfriendly or hostile fire
– Damage caused while trying to put out a fire
– Damage caused trying to remove insured goods to safety
– Damage caused by soot, smoke or water from nearby fire
35.2: Life & Health Insurance
Coinsurance
is a provision in an insurance policy that limits
your liability for a loss if the property is not
insured for its full replacement value
– AN 80% coinsurance clause means your house must be
covered for 80% of its replacement value to receive full
reimbursement for a loss
35.2: Life & Health Insurance
Marine Insurance
– One of the oldest kinds of insurance dating back to
Venice, Italy when ships were key to trade and travel
Ocean Marine Insurance
– Covers ships at sea
Inland Marine Insurance
– Covers goods that are moved by land carriers such as trains,
trucks and airplanes
– Can also cover jewelry, fine art, musical instruments and
wedding presents