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Protects the standard of living of the survivors
At the policy holder’s death, the insurance
company pays survivors the face value of a life
insurance policy
Proceeds: the money paid to survivors
Beneficiary: each person who receives part of the
proceeds
Buyer of policy names beneficiaries
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Cash-value insurance: provides both savings
and death benefits
◦ Part of premium pays for death benefits
◦ The rest builds up cash value like a savings account
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Cash value increases over life of policy
Cancel policy, claim collected cash-value
Emergency – borrow part or all of cash value
Different kinds of cash value insurance
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A policyholder pays a premium that stays the
same throughout his/her lifetime
As long as premiums are paid, policy stays the
same until death of the insurer
Provides savings during the policyholder’s life and
pays benefits after death
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Pay premiums for certain number of years
◦ EX. 20-payment life policy, you pay premiums for 20
years
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“paid up at age 65”
Since many retire at 65, they won’t have to pay
premiums after paychecks stop
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Cash value part of premium is invested
◦ Stocks, bonds, and mutual funds rather than savings
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Rest of premium is used for death benefits
Increases or decreases depending on value of
investments
◦ EX. Part of premium is used to invest in stock and the
stock double in value, the cash value will be worth double
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Special type of cash-value
Based more on savings over death benefits
Provides coverage for specific period of time
◦ Usually 20-30 years
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Proceeds go to policyholder if he/she is still alive
If policyholder dies during endowment period,
beneficiaries receive proceeds
Usually used to provide income for retirement or
education
◦ EX. Parents could buy an 18 year, $15,000 endowment
when a child is born
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Term Insurance:life insurance that covers a
person for a specific period of time
◦ Could be 5, 10, or 20 years
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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 and
no cash value
Low cost
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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
Employers & organizations = employees & members
If you leave company, you lose coverage
Group policies are cheaper than individual policies
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Term insurance costs less than cash value
insurance
Several factors effect cost of your premium:
Age, health, occupation
Many people have to take a physical before taking
out a policy
Older = higher cost
Dangerous occupations = higher cost
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Protects against the cost of illness and accidents
Average cost of one hospital day stay = $5,000
Most people cannot pay
Medical costs = very high
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*catastrophe insurance
Most important coverage for a serious illness or accident
Covers: hospital care, doctor’s bills, tests and x-rays, and
nursing care
Deductible
Some plans may have coinsurance: a percentage of
medical expenses a policyholder must pay beyond the
deductible
Insurance usually pays 75-80% of costs and policyholder
pays 20-25%
EX. $1,000 deductible an coinsurance of 20%. Bills are
$6,000, you pay $2,000 ($1,000 deductible and 20 % of
$5,000)
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Pays for hospital care for a given period of time
Covers: room and board, tests and x-rays,
operating room costs, nursing care, and fees for
drugs and treatments
Could have deductible
Some policies have limits for specific expenses
Some set a max per day for max number of days
Most popular type of health insurance
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Pays part of a surgeons entire fee for operation
Max payment for particular surgical expense
Policy lists surgeries and costs allowed
Major Medical Insurance picks up where Surgical
Expense does not cover
Usually bought with Hospital Expense
Higher maximums for each surgery = higher
premium
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Covers the costs of a doctor’s care not involving
surgery
Could cover visits to doctor’s office or doctor’s
calls at hospital
Usually purchased with Hospital Expense and
Surgical Expense
Insurance company could combine all three types
into one basic health insurance plan
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Least expensive form for most people
Company or organization provides it for
employees or members
Employees and members can add extra coverage
at their own expense
Health maintenance organization (HMO):
provides health care at its own health center for a
fixed fee per month
HMO- you must go to its own clinic and choose
one of their doctors
HMO plans stress preventive health care to keep
medical costs down
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Medicare: a major health insurance program set
up by the federal government
Provides hospital insurance that covers hospital
care
Provides medical insurance that covers doctor’s
fees and tests
For Medicare:
◦ Pay a deductible
◦ Coinsurance
◦ Monthly premium
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For Hospital Insurance:
◦ Pay deductible
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Medicaid: another government health care plan
for certain groups of citizens
Provides care for those who are unable to pay for
insurance or health care
Much more comprehensive coverage than
medicare
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Coinsurance Clause – requires you to pay a
certain percentage of medical expenses beyond
the deductible
Copayment: a fee paid each time a service is
used
More people covered by a policy = higher
premium
Many policies won’t cover a pre-existing
condition: a serious health condition diagnosed
before a person obtained health insurance
EX. Someone suffers from a heart condition, an
insurance company might refuse to cover it
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The act provides comprehensive health insurance
reforms that hold insurance companies more
accountable
Lower costs
More choices
Enhance the quality of healthcare
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Lower Costs
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End insurance company denial and abuse of care
(Americans with pre-existing conditions)
Will continue through 2014
Covers:
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◦ New creation of a competitive private health insurance market
◦ Stabilizes economy
◦ Expected to reduce deficit over next ten years by $100 billion
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Individuals
Families
Seniors
Businesses
Reduced premiums for families and small businesses