Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Insurance Basics
Adapted from Money Talk: Women’s Financial Education Series
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Objectives
• increase your awareness of the financial cost of various
risks in life
• discuss key characteristics of different types of insurance
policies
• help formulate questions to ask insurance professionals
• help identify your current insurance strengths and
weaknesses
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Life is Full of Risks…Many Have Financial
Consequences
• Damage to truck in accident
• Fire that destroys home, farm buildings and/or possessions
• Loss of income due to disability
• Death of an earner/key personnel
• Loss of a homemaker’s services
• Large medical bills for disease or injury
• A court judgment of liability for damages
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
People Manage Risks in Five Ways:
• Risk avoidance
• Risk reduction
• Risk acceptance (Unknowingly accepting risk
with no plan is called do nothing and hope for
the best)
• Risk transfer (insurance)
• Self-Insure
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
In The Five Areas of Risk Management
Production
Marketing
Financial
Legal
Insurance Contracts
www.extension.iastate.edu/annie
Human
Resources
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Insurance Basics
• Protect against risks by paying premium
• “Large Loss Principle” (size of loss matters)
• Major “large-loss” risks:
– Loss of income due to disability
– Death of an earner/key personnel
– Destruction of structures (fire, flood, etc.)
– Liability losses due to a court judgment
– Large medical expenses (e.g., cancer treatment)
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Generally Unnecessary Insurance
• Credit insurance (life, disability, unemployment)
• Life insurance for children
• Cancer insurance
• “Double Indemnity” insurance riders
• Hospital indemnity policies
• Flight insurance
• Car rental collision-damage waivers
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
General Insurance Tips
• Check policies for “owner”, “Insured”, & “beneficiaries”
• Insure for major losses
• Choose a highly rated insurance company
• Select the highest deductible you can afford
• Pay premiums annually or semi-annually
• Avoid duplicating coverage
• Ask about available discounts
• Follow “The Rule of Three”
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Parts of an Insurance Contract
• Declarations page
• Insuring Agreements
• Exclusions
• Endorsements and Riders
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Policy Features That Limit Coverage
• Benefit coordination clauses
• Deductible
• Elimination period
• Co-payment
• Co-insurance
• Policy limit
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Life Insurance
• Protects against loss of earner’s/key personnel income
• Provides money to replace homemaker’s services
• Factors to consider include:
– current assets and debts
– earning power of surviving spouse
– other sources of income
– projected expenses
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Types of Life Insurance
• Term Life
– Level term
– Decreasing term
• Permanent Life (cash value)
– Whole life
– Variable life
– Universal life
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
General Life Insurance Tips
• Avoid simplistic formulas
• Never cancel existing policy until you have new
one in hand
• Review beneficiary designations
• Buy credit life coverage only if you cannot get life
insurance elsewhere
• Compare policies: interest-adjusted net cost
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Two Primary Types of Health Insurance
– Indemnity or “traditional”
• Annual deductible
• Co-insurance up to stop-loss limit
– Managed care (HMOs, PPOs)
• Read “the fine print” for details
• Emphasizes preventative care and screenings
• Require use of in-network medical providers
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
General Health Insurance Tips
• Look for a policy that is “guaranteed renewable”or
“noncancellable”
• Inquire about post-retirement coverage
• Note pre-existing condition clauses
• Be cautious about switching policies
• Keep good records!
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Other Health Benefit Programs
• SHIP (State Health Insurance Program)
• COBRA
– Extends group coverage for up to 18 months
– Covers employers with 20 or more workers
– Ex-worker must pay full cost, plus 2%
• Free/low cost screenings & immunizations
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Disability Insurance
• Covers income loss from inability to work
• Maximum coverage: 60% -70% gross pay
• Particularly important for self-employed
• Key factors:
– Definition of disability
• Own Occupation
• Any Occupation
– Waiting period
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Disability Insurance Tips
• Base elimination period on
– Adequacy of emergency savings
– Accrual (if any) of employer sick leave
• Buy a noncancellable policy to age 65
• Request that an ex-spouse buy coverage to protect support
payments
• Try to get benefit of 100% of net income
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
More Disability Insurance Tips
• Look for a policy with residual benefits
• Consider a cost-of-living rider
• Avoid gender-based policies (women pay more)
• Purchase a waiver of premium rider
• Look for a “recurrent disability” clause
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Long Term Care Insurance
• “LTC” means wide range of services:
– Home health care
– Nursing home care
• Three ways to handle risk of LTC costs:
– Retain it (self-insure)
– Avoid it (no guarantees)
– Transfer it (LTC insurance)
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Who Should Buy LTC Insurance
• If premiums are no > 10% of annual income
• If you’re able to handle 20% -30% increase
• If > $75,000 of assets per person (excluding
house)
• If > $30,000 annual income per person
• Around age 60 (55-65)
• Couples concerned about well spouse
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Additional LTC Insurance Tips
• Understand how to trigger benefits (ADLs)
• Buy a “compound” inflation rider
• Consider key policy features:
– Elimination period
– Length of time benefits will be paid
– Benefit amount ($ per day)
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Auto Insurance Basics
• Factors that affect coverage
• Two parts:
– Liability coverage
• Single limit (e.g., $300,000)
• Split limit (e.g., 100/300/50)
– Physical damage (collision & comprehensive)
• Liability coverage is most important part
• State minimum liability is often inadequate
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Auto Insurance Tips
• Increase liability to at least 100/300/50: for self and
uninsured motorists
• Evaluate physical damage coverage on older cars
• Take advantage of available discounts
• Buy a less expensive car to insure
• Notify insurer if driving patterns change
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Homeowner’s Insurance Basics
• Five sections to a HO policy:
– Damages to house or other structures
– Loss of personal property
– Living expenses while home is repaired
– Personal liability
– Medical payments to others
• Different types of “HO” policies
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Three Important Tips
• Photograph or videotape home contents
– List brands and serial numbers
– Store documentation away from home
• Make sure home is insured for at least 80% of
replacement cost
– Otherwise, you’ll get partial payment for losses
• Buy a “guaranteed replacement cost” rider for
home (if available) and contents
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Other Homeowner’s Insurance Tips
• Pay the premium annually
• Check on discounts for safety devices
– Alarm system
– Smoke detectors
• Don’t select low ($250) deductibles
• Consider flood insurance
• Document damages
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Umbrella Liability Coverage
• Supplements liability limits of homeowner’s and auto
policy
• Also covers libel, slander, defamation of character,
false arrest, boat or aircraft accidents, damages on
another’s property
• $1 million policies cost $150 to $250
• Sold in $1million increments
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Umbrella Insurance Tips
• Buy required underlying coverage
• Check to see if service on non-profit boards is
covered
• Check exclusions (e.g., overseas coverage, business
coverage)
• Check discount for all property coverage with one
insurer
www.extension.iastate.edu/annie
Annie’s National Network Initiative for Educational Success (ANNIES)
at Iowa State University Extension
Questions?
Comments?
Experiences?
www.extension.iastate.edu/annie