Chapter Nineteen The American Economy Personal Finances ~~~~~ Insurance Against Hardship

What is Insurance? life is full of risks and uncertainties illness or accident losing one's job fire or flood could damage one's house not being able to earn a living because of age or illness insurance arrangements that protect people, at least in part, against the economic impact of risks and uncertainties system of paying a small amount to avoid the risk of a large loss premium small amount a person pays for insurance protection may be paid yearly or at regular times throughout the year policy the contract that describes the type and amount of insurance protection

private insurance voluntary insurance individuals and companies pay to cover unexpected losses many different kinds of private insurance companies write policies covering almost every possible kind of economic and physical risk how does insurance work? a large insurance company has millions of policyholders who pay their premiums regularly part of this money goes into a reserve fund state laws specify how much reserve fund a company must maintain the amount depends on the kind of insurance the company issues and the number of policyholders when someone makes an accident claim, payment in the amount specified by his or her policy is made from the reserve fund there usually are only a few thousand payments out of the reserve fund each year insurance companies invest the premiums they collect dividends, interest, and other investments income pay the expenses of these companies and earn profits for their shareholders Private Insurance

Types of Private Insurance Life Insurance provide the policyholder's family with money if the policyholder dies the family is protected from financial hardship beneficiary person named in the policy to receive the money when the policyholder dies two kinds term life covers only a specified period of time relatively inexpensive often chosen by couples who have young children or very high bills allows the surviving spouse to care for the children and pay off large debts whole-life covers the policyholder throughout his or her life more expensive Disability Income Insurance cover if they are injured in an accident or suffer an illness provides payments to replace lost wages when a person cannot work due to total or partial disability in case of death, the beneficiary receives the amount of the policy

Health insurance covers medical or hospital expenses major-medical and hospitalization pays medical costs resulting from a serious illness or injury premiums are higher than disability premiums because people are more likely to become ill than they are to become disabled pays part of hospital bills other plans pay doctor, dentist, and other medical expenses premiums are often shared by policyholders and their employers Property and Liability Insurance protect personal property and protect against liability claims homeowners' and renters insurance protects people's homes and personal property from events such as fires, hurricanes, vandalism, and theft provides coverage if a visitor is accidentally injured while visiting a person's home or apartment automobile insurance covers financial losses due to automobile accidents coverage if car is stolen, vandalized, or damaged in an accident or by an act of nature such as a tornado Types of Private Insurance

Social Insurance Great Depression of the 1930s caused many Americans much hardship and suffering many businesses and factories closed millions of men and women lost their jobs banks failed, and thousands of people lost their life savings New Deal President Franklin D. Roosevelts response to Great Depression recommended Congress pass a series of laws – 3 Rs brought immediate assistance to needy people prevent future recessions protect against severe economic risks and hardships social insurance government programs to protect individuals from future hardship almost everyone can receive benefits from such laws Social Security Act of 1935 set up a system of social insurance called Social Security three major parts 1.old-age, survivors, and disability insurance 2.unemployment insurance 3.workers' compensation

Social Insurance Old-Age, Survivors, and Disability Insurance people pay a percentage of their salaries each month while they work to receive cash benefits later when they need them most during the years when workers earn money, they and their employers make contributions to a fund (FICA) after workers retire, or if they become disabled and their earnings stop, they receive payments from the fund as long as they live if workers die before reaching retirement age, their families receive "survivors'" payments a payment is made for each child under 18 and for the widow/widower paying for Social Security contributions are paid equally by workers and by employers actually a payroll tax, because they are compulsory, or required self-employed people pay the entire contribution themselves receiving Social Security benefits received by retired or disabled workers are based on their average earnings over a long period of time recipients receive monthly checks was never intended to provide the total income of retirees

Social Insurance Unemployment Compensation plan to help workers who lose their jobs due to circumstances beyond their control to receive benefits unemployed workers must register with a state employment office must report periodically to the office to see if it can help them find jobs if the job search is unsuccessful, unemployed workers receive weekly benefits based on their average earnings over a certain period of time most states provide benefits for up to 26 weeks program is financed by employers federal law requires all businesses to pay a special tax state governments pay benefits out of the federal money collected Workers Compensation helps people who have job-related injuries or illnesses resulting from working conditions pays the medical expenses of the workers helps replace any lost income pays death benefits to the survivors of workers killed on the job

Social Insurance health insurance programs added in 1965 Medicare helps U.S. citizens who are 65 and older or disabled pay for hospital care and for some nursing home care includes a voluntary medical insurance plan to help older citizens pay their medical bills Prescription medication coverage added in 2003 Medicaid provides money to help states pay the medical costs of people with low incomes