Insuring Your Future Objective: Identify common provisions in life insurance contracts Explain the types of social insurance Bellwork: At your age why do you think you should be concerned about life, social, and retirement insurance?

 In Life Insurance the insurer of life agrees to pay a named beneficiary, or sometimes the insured’s estate, the amount stated in the policy.  Given the uncertainties of life this insurance is crucial to families, businesses, and responsible individuals throughout our society.

 Policies sometimes contain exceptions due to certain causes:  Some common examples include:  The crash of a private airplane  Death during military service abroad or at home  In cases where death occurs under an exception, the insurer is liable for return of the premiums paid instead of the proceeds.

 In addition to exceptions, a life insurance policy usually contains an incontestability clause.  Such a clause prohibits the insurer from refusing to perform due to misrepresentation or fraud after the policy has been in effect for a specified period of time – usually one or two years.

 However, if the misrepresentation or fraud involves the age of the insured, the policy is not voided regardless of the length of time it has been in effect.  Instead the insurer provides the face amount of insurance that the premium would have bought if the insured’s correct age had been known.

 A similar clause requires the insurer to pay, even if the insured commits suicide AFTER the one or two years from the date the policy was issued.  If the suicide occurs before the one- or two- year limit, the insurer is required to return only the premiums paid.

 By statute, most life insurance contracts must provide for a period of time, called the grace period, during which an overdue premium can be paid to keep the policy in force.  Typically, the period is one month.  If an insured fails to pay the premium before the grace period expires; the policy terminates, or lapses.

 A policyholder in good health who pays the back premiums can revive or reinstate a lapsed policy.

 In addition, to these common provisions, it is possible to write additional coverage into a life insurance policy.  Two common types of additional coverage include:  Double Indemnity Coverage  Disability Coverage

 One way is through double indemnity coverage, which requires the insurer pay twice the amount of the policy if the death of the insured is accidental.  This type of coverage usually excludes suicide, illness or disease, wartime military service, and certain airplane accidents. It is also inapplicable after a certain age, such as 65 or 70.

 The second additional coverage, disability insurance, provides for protection against the effects of total permanent disability.  At a minimum, it cancels the requirement for payment of policy premiums while the insured is totally disabled.  It often provides money to replace lost wages.

 Social insurance indemnifies person, at least partially, for the financial consequences of unemployment, disability, death, or forced retirement.  Since the late 30’s, programs under the Social Security Act have been instrumental in providing such protection.

 The primary source for social insurance in this country is the federal government’s Social Security Act.  Coverage provided under this act is frequently labeled RSDHI (for Retirement, Survivors’, Disability, and Health Insurance)  Unemployment compensation, which is designed to lessen the financial hardship of losing one’s job, is also provided under the act.  This however is controlled by the individual states

 An eligible person may elect to begin receiving social security retirement insurance checks as early as age 62.  The amount of monthly income increase the longer you wait to retire.  Regardless of when you retire the checks are meant to provide supplemental income only. To often, individuals rely solely on these checks for their retirement income. This is not the purpose of the program.

 During the working years, each individual is responsible for accumulating savings.  These savings should provide enough income that, when added to the social security retirement amount, will allow an adequate standard of living during the retirement years.  All too often, people retire only to find that they have to return to some form of employment to make ends meet.

 Survivors of a person eligible for benefits under the system may also receive benefits if:  they are a widow or widower age 60 or older (or, if disabled, age 50 or older)  a widow or widower of any age if caring for a child under age 16 or a child that is disabled  or a dependent child

 A severe, long-lasting, disability is one that prevents the eligible person from being able to do “any substantial work.”  Before any payments can be made, it must be established that the condition is physical or mental, and is expected to continue indefinitely or result in death.  The disabled person must have earned a certain number of work credits within a specific period of time.  The eligible person must not refuse reasonable medical treatments.

 The following conditions are ordinarily considered severe enough to meet the test of disability:  Loss of both arms, both legs, or a leg and an arm  Heart and lung diseases that cause pain or fatigue on slight exertion  Progressive cancer  Brain damage that results in loss or judgement or memory  Loss of vision, or inability to speak, deafness

 In the last two decades, the costs of medical care has risen exponentially, as a consequence health insurance, which indemnifies against the cost of medical care necessary to regain physical well-being after an illness, has become very important.

 Medicare provides such coverage primarily to those age 65 and older.  Private insurance companies provide similar coverage for those not protected by the Social Security Act.  Medicare consists of two basic programs.  Hospital Insurance  Medical Insurance

 Hospital Insurance helps pay for hospital expenses and the costs of follow-up treatment. To receive payments under this program, an eligible person must enter a hospital for necessary treatments.  Persons with enough work credits and who are age 65, those with permanent kidney failure, or those covered for extensive periods by the disability program if under the age 65 are eligible.

 Medical Insurance helps pay for items not covered by hospital insurance, including services of physicians and surgeons.  Also included are: ambulance charges, X-rays, radium treatments, laboratory tests, surgical dressings, casts, and home visits by nurses or therapists.  The patient pays relatively small yearly deductibles, and then medical insurance generally pays either a large percentage or all of the costs of the covered services.

 Unlike hospital insurance coverage, financed primarily from the social security tax, contracting and paying premiums for medical insurance coverage are voluntary.  Each person enrolled in the medial insurance plan pays a monthly premium.  The federal government pays an equal amount out of general revenues.