Name: _______________________________
Date: ____________
Financial Literacy
Chapter 10: Insurance
Objectives:
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Explain how insurance protects individuals from financial risk.
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Outline the different types of private health insurance coverage.
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Describe types of government-sponsored health insurance programs.
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Explain the purpose of disability insurance.
•
Distinguish among the various types of life insurance.
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Outline the key factors to consider when buying home insurance.
•
Select auto insurance coverage to meet individual needs.
Managing Risk
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Life involves risk; some events can limit your ability to work or wipe out your assets
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Financial security depends on risk management
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Four strategies for dealing with risk
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____avoidance____
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___reduction______
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____retention____
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____transfer_____
Insurance Protection
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Type and amount of insurance needed depends on
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___risks____ being covered
–
amount available to pay for __losses__
–
financial __obligations____ of insured persons
•
Protection needs increase with each new dependent and with increased assets
•
When you buy insurance, you become a policyholder
•
You pay a premium to the insurance company on a regular basis
•
Premiums paid by you and others are invested by the insurance company
•
Premiums and earnings from investments pay insurance claims
Private Health Insurance
•
Offers protection by covering specific medical expenses created by illness, injury, and disability
•
Group plans are sponsored by employers, unions, and other organizations
•
Individual plans cost more and provide less coverage than group plans
Fee-for-Service Plans
•
Fee-for-service plans
–
pay for covered medical services after treatment is provided
–
usually allow policyholders to go to any licensed health care provider or accredited
hospital of their choice
•
Policyholders pay ___deductible___ and __coinsurance______
•
__Basic coverage____: prescriptions, hospital stays, inpatient tests, some doctor’s visits and
outpatient procedures
•
__Major medical coverage___: costs of serious illnesses and high-cost procedures and injuries
•
___Comprehensive plans
: combine basic and major medical protection in one policy
Managed Care Plans
•
Managed care plans contract with health care providers to deliver medical services to members
at reduced cost
•
Choice of service providers is limited to those who participate in the plan
•
Policyholders pay __deductibles, _coinsurance, or _co-payments____
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Three forms of managed care are
•
_____HMOs- Health maintenance organizations_________
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______PPOs -Preferred provider organization____________
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_____POS- Point of Service_____________
Health Maintenance Organizations (HMO)
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A primary care doctor is chosen from a list of participating doctors
•
Doctor provides coordination of care
•
Providers in the plan cover treatment
Preferred Provider Organizations (PPO)
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Provides more choice than an HMO
•
You receive services at lower cost by seeing participating caregivers
•
You may go outside the plan if you pay the extra cost; non-participating providers are covered at
lower rates
Point-of-Service
•
Provides more choice than an HMO
•
You receive services at lower cost by seeing participating caregivers
•
You may go outside the plan if you pay the extra cost; non-participating providers are covered at
lower rates
Health Savings Account
•
You may contribute pre-tax dollars into a health savings account (HSA), whose funds accumulate
tax-free
•
Use the HSA savings to pay for health care costs
•
Used by people enrolled in qualified High Deductible Health Plans
•
You must use all money put into that account by the end of the year.
COBRA
•
COBRA is Consolidated Omnibus Budget Reconciliation Act
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A qualified worker who leaves a job can continue coverage by his or her former employer’s
group health plan for a limited time
•
Worker must pay premium, which often is expensive
Individual Plans
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People who must purchase health insurance on their own include
–
_____the self employed________________
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______those between jobs_________________
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_______people not eligible for COBRA_________________
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Consumers can apply for an individual plan from health insurance companies or for the Patient
Protection and Affordable Care Act (PPACA), or Affordable Care Act (ACA) for short. The ACA
was signed into law to reform the health care industry by President Barack Obama on March 23,
2010 and upheld by the Supreme Court on June 28, 2012. This plan is commonly called
“Obamacare”
•
Problems with individual plans:
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___High cost of premiums
–
Applicants are often rejected due to past injuries and illnesses, chronic physical or
mental health problems
–
Many exclusions for preexisting conditions, pregnancy, dental care
Coverage for Young Adults
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After a certain age, young adults are no longer eligible for coverage under their parents’ plans
•
Some young people receive coverage through their employers group plan or by purchasing an
individual plan
•
Many health insurance plans have extended coverage under certain conditions, such as college
•
Young adults often go uninsured
•
With no insurance, a serious illness or injury can wipe out assets and create debt
Long-Term Care
•
•
Long-term care insurance covers certain costs of care
–
in a __nursing home____
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in an _assisted living facility___
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at __at home with assistance__
Older consumers are primary purchasers of this insurance
Choosing a Plan
•
Employees often have a choice of employer plans
•
Carefully review materials provided
Services
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What services are most important to you? To what extent are they covered?
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What are maximum benefits?
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Does the plan require preauthorization and utilization reviews for certain services?
Choice
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Can you choose your own providers or continue with those you already have?
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Which providers participate in the plan? Where are they located?
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What are the provisions for seeing a specialist?
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Can you change doctors if you are dissatisfied?
Cost
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What premiums must you pay?
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If there is a deductible, how much is it and which services are subject to it?
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What are costs of using non-participating providers and facilities?
•
What are the exclusions, service limitations, and restrictions?
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What portion of charges must you co-pay? What services are subject to co-pay?
•
Are co-payments higher if you receive treatment outside your plan?
Government-Sponsored Health Insurance
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Medicare covers specific health care expenses for
–
eligible citizens age _____65 and older___
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those under 65 with certain _____illnesses____and _disabilities___
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Payroll taxes fund Medicare; employers and workers pay premiums
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Medicare has four parts
A. ___Hospital Insurance______
B. ___Medical Insurance_____
C. ___Medicare Advantage___ (combines Hospital and Medical)
D. ___Prescription Drug____
Medigap Insurance
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Provided by private insurance companies
•
Available to people who have both Medicare Parts A and B
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Helps pay for health care costs not covered by Medicare
•
The broader the coverage, the higher the premium
Medicaid
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A health insurance program for eligible low-income persons and those with certain disabilities
•
A state-administered program financed by federal and state taxes
•
Services provided vary from state to state
Children’s Health Insurance Program (CHIP)
•
Government-provided health insurance coverage for children
•
Funded by taxes on tobacco products
Disability Insurance
•
Many people suffer illnesses and injuries that prevent them from working for a prolonged
period
•
Being without income can result in serious financial setbacks
•
Disability insurance pays a portion of the income a worker would receive if healthy and working
•
Two types:
•
short-term coverage that provides benefits for up to two years
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long-term coverage that provides benefits for a number of years up to life
•
Many people are covered by disability insurance paid by their employers
•
Important questions
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What benefits are promised?
•
What is the waiting period?
•
How long are benefits available?
•
Can the policy be canceled by the insurer?
Workers’ Compensation
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Employer-provided insurance for those with work-related illnesses or injuries
•
Benefits include
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payments of a portion of lost wages that continue for life if disability is permanent
–
medical care and rehabilitation
–
payments to worker’s survivors if worker’s injury or illness is fatal
Life Insurance
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Protects dependents from loss of income and other expenses after an insured person’s death
•
Especially important if you have a spouse, children, or elderly parents who depend on your
income
•
At death, the face value of the policy is paid to the beneficiary
•
There are several different types of Life Insurance Policies, each policy is different and fits the
needs of different individuals.
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__Term Life___________ (most common)
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___Whole Life__________
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___Limited Payment Policies_______
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____Variable Life______
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_____Adjustable Life_____
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__Universal Life___
•
Each person’s life insurance needs are unique
•
The amount and type of life insurance protection needed depend on
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present and future earnings
–
financial responsibilities and obligations
Amount of Protection
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Factors indicating how much insurance to get:
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Ages and financial needs of those depending on policyholder’s income
–
Amount of money needed to maintain dependents’ standard of living without
policyholder’s income
–
Other sources of income available for dependents
–
cost of funerals and _unpaid debt_
Types of Protection
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Group coverage costs less than an individual policy for the same coverage amount
•
Employers often provide life insurance as a fringe benefit; pay all or part of premiums
•
Unions and other groups sometimes provide group coverage
•
Features to consider:
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Guaranteed renewability
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Double indemnity or accidental death benefit
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Disability benefit
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Convertible provision
•
If insurance is a form of savings, earnings should match or exceed other forms of savings
and investments
Choosing a Company, Agent, and Policy
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Do some research and meet with representatives of the companies you are considering
•
Check whether the company
•
has a good reputation
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is licensed to operate in your state
•
Compare premiums charged by different companies for similar coverage
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A good agent
•
clearly explains coverage and benefits
•
can help you evaluate your coverage as your needs and finances change
•
handles claims and revisions promptly
•
Talk honestly with the agent
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Review the policy carefully
•
Inform your beneficiaries of the policy
Home Insurance
•
•
Property coverage
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insures against damage to or loss of dwelling and personal property
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may also pay additional living expenses if you need to move out
Liability coverage
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protects you if others are injured on your property
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offers protection if you or your family, pets, or property accidentally damage the
property of others
–
covers higher loss amounts with an umbrella policy
Amount of Coverage
•
Find out how much it would cost to rebuild your home if it were destroyed
–
get an appraisal
•
Increase insurance for home improvements and inflation
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Check policy for coverage provided for personal possessions
•
Make a complete inventory of your belongings
•
Compare the coverage limits with the total value of your possessions
•
Actual cash value is the replacement cost minus depreciation
•
Replacement value covers the cost of replacing what you lose without deducting depreciation
Cost of Home Insurance

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
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Type and amount of coverage
Size of deductible
Risk factors where you live
The insurance company
Opportunities for discounts
Renter’s Insurance
•
Covers losses due to damage or loss of personal property and possessions
•
Liability insurance covers expenses incurred by a renter if a guest is harmed
•
Floater insurance covers specific items wherever you take them
•
Endorsement is attachment to a policy that covers items taken out of the home
Auto Insurance
•
__Financial liability laws______—drivers must show proof they can pay minimum damage
amounts
•
Compulsory _auto insurance laws__—car owners must buy some bodily injury and property
damage liability insurance
Types of Auto Insurance
•
Bodily injury liability protects you when you cause an auto accident resulting in injury or death
of other parties
•
Property damage liability protects you when you cause an auto accident in which the property
of others is damaged
•
Personal injury protection covers medical expenses from an accident regardless of who is at
fault
•
Collision insurance pays for car damage due to
•
an auto accident
•
collision with another car or object
•
Comprehensive physical damage insurance pays for loss or damage due to most other causes
•
Uninsured and underinsured motorist insurance
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pays insured person for injuries caused by uninsured or hit-and-run driver
•
covers insured person when driving, riding, or walking
•
covers passengers in the insured person’s car
Auto Insurance Costs
•
Depend on driver classification:
–
_
–
_____gender__
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___marital status_____
–
___driving record____
–
____habits______
age__
Premium Discount Eligibility
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__Safe driving record____
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__Good grades______
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__Nonsmoker______
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___Antitheft devices and air bags_____
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___Age_____
•
___Two or more cars on a policy_____
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___Positive credit report____
Insured Car’s Year, Make, and Model
•
Premiums are highest for
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cars costly to repair
–
frequently stolen cars
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luxury, sports cars
–
newer cars
Deductible Amount
•
The higher the deductible, the lower the premium
•
You can save money on premium for collision and comprehensive damage coverage by
increasing the deductible amount
No-Fault Auto Insurance
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With no-fault auto insurance, each party makes a claim to his or her own insurance company
•
Insurance company pays regardless of who is at fault
–
Simplifies and speeds payments to victims
–
_lower insurance rates___ insurance rates
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___Reduces___ legal costs
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Pays for claims up to a set amount called a __threshold_____
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Liability insurance pays for damages over the threshold amount
•
In most states, people can sue for additional damages when an accident involves severe injuries,
death, or major medical bills
High-Risk Drivers
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People with poor driving records may be denied coverage
•
High-risk drivers may obtain coverage through a state-supervised assigned risk plan
•
Insurance companies must provide coverage, but premiums are very high
Vocabulary
•
__________________________________________ An estimate of the current value of
property.
•
__________________________________________Person named by the policyholder to receive
the death benefit of an insurance policy.
•
__________________________________________Coverage that protects insured persons
when they are liable for an auto accident that injured or killed others.
•
__________________________________________ A percentage the policyholder must pay for
certain services.
•
__________________________________________ A flat fee the policyholder must pay for
certain services.
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__________________________________________The amount you will be required to pay
before insurance pays for any services.
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__________________________________________ An individual who relies on someone else
for financial support.
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__________________________________________ A decrease in the value of property as a
result of age or wear and tear.
•
__________________________________________Insurance that pays the face value of the
policy to beneficiaries if the insured dies before the endowment period ends. It also pays the
face amount to the insured if he or she lives beyond the endowment period.
•
__________________________________________The services that are not covered in an
insurance plan.
•
__________________________________________A health insurance plan that pays for
covered medical services after treatment is provided.
•
__________________________________________A tax-advantaged savings account available
to people enrolled in qualified High Deductible Health Plans (HDHPs).
•
__________________________________________A person whose care requires a stay in the
hospital.
•
__________________________________________ A health care plan that contracts with
specific doctors and other health care providers, hospitals, and clinics to provide a range of
medical services and preventive care to members of the plan at reduced cost.
•
__________________________________________Coverage that eliminates the faultfinding
process in settling claims by having each policyholder make a claim after an accident.
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__________________________________________ A person who owns an insurance policy.
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__________________________________________An illness or injury a person has before
signing up for a health care plan.
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__________________________________________Amount of money paid to an insurance
company for a policy on a regular basis.
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__________________________________________Coverage that protects insured persons
when they are liable for an auto accident where the property of others is damaged.
•
__________________________________________ A measure of the likelihood that something
will be lost.
•
__________________________________________The process of measuring risk and finding
ways to minimize or manage loss.
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__________________________________________Insurance that covers the policyholder for a
specific period of time—5, 10, or 20 years or until a specified age.
•
__________________________________________ Insurance that provides the policyholder
with basic lifetime protection so long as premiums are paid