Insurance Economics Ms. McRoy

“Aim” What type of insurance should you purchase?

Did you know… One in 10 Americans visits the emergency room each year.1 In the U.S., one car is stolen every 60 seconds.2 Agency for Healthcare Research and Quality Federal Bureau of Investigation

Risk Insurance: A transfer of the risk of loss from one entity to another in exchange for a payment. The insurer typically promises payment for specific losses resulting from risks, should they occur, in exchange for a premium from the insured.

Key Terms Insurance policy: Policyholder: Insurer: Document where the details of your insurance will be written Policyholder: The person who purchased the insurance policy Insurer: The company that pays to compensate the policyholder for losses or damages as describe in an insurance policy, as long as the premium has been paid!

Key Terms Insurance premium: Claim: Deductible: Coverage limit: The amount you pay on for the insurance policy (e.g. this can be paid monthly, semi-annually, or annually) Claim: Notification to an insurance company requesting payment for something covered in your policy Deductible: The amount of a loss that you must pay out of your pocket BEFORE the insurance company will begin paying/covering the costs of the incident covered by the insurance policy. Coverage limit: The maximum amount the insurance company will pay for if you file a claim.

Premium/Deductible Relationship The insurance premium and deductible tend to be inversely related. E.g. Policies that allow you to pay a low premium, tend to have high deductibles.

Types of Insurance Health Insurance Protects against financial loss/costs due to illness or bodily injury E.g. medical, dental, vision

Health Insurance (cont’d) Co-pay: A form of cost-sharing that requires the insured to pay a fixed dollar amount for a medical service or prescription Co-insurance: A form of cost-sharing that requires the insured to pay a set percentage of medical expenses after the deductible has been met.

Health Insurance (cont’d) Pre-existing conditions Per the Affordable Care Act of 2010 (aka ObamaCare) , an insurance company cannot turn an individual down or charge an individual more because of his/her pre-existing health or medical condition like asthma, back pain, diabetes, or cancer. In addition, once the individual has insurance, they cannot refuse to cover treatment for his/her pre-existing condition. Unfortunately, there are still many reported incidents of abuse…

Health Insurance (cont’d) Some plans do not include all the drugs prescribed for enrollees. Plans can remove medications during the plan year. Some plans are restricting access to drugs by requiring prior authorization or are setting quantity limits. The network of physicians and hospitals in some plans is so narrow as to deny patients the specialty care needed. Much of the information needed for patients to choose the most appropriate plan is not available.

Health Insurance (cont’d) Flexible Spending Account (FSA) A gov’t sponsored program that allows people to put a set amount of wages into a special account that is NOT taxed! Money can be used to pay for uncovered medical expenses (e.g. co-pays, deductible, co-insurance, and some OTC medications) Consolidated Omnibus Budget Reconciliation Act (COBRA) A law that gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances.

Types of Insurance (cont’d) Renter’s Insurance Protects the renter from loss due to fire, theft, water damage, etc to personal possessions Protects against injury to others on your property Homeowner’s Insurance Protects the homeowner from loss due to damage from fire, theft, storms, etc. Protects against injury to others on your property.

Types of Insurance (cont’d) Auto Insurance: Provides financial protection to the owner, operator, and occupants of a car in case of accidents or damages. Most, if not all, states require drivers to carry mandatory liability insurance coverage to ensure that their drivers can cover the cost of damage to other people or property in the event of an accident. 

Types of Insurance (cont’d) Factors that affect the premium you pay for auto insurance. Type of coverage selected Deductible (high deductible  lower premium and vice-versa) Driver’s age/sex Driving record (e.g. accidents and tickets) Where you live (use crime/accident rates in your area) Make/model of vehicle Claims history Payment history

Types of Insurance (cont’d) Life Insurance: Provides financial protection to dependents when the policy owner dies. Term Life Insurance: Least expensive form of life insurance at time of purchase Covers you for a set period of time, known as a “term” Requires renewal, usually at a higher rate, at the end of the term You can select the amount of coverage you want at the start of each term Pays if you pass away

Types of Insurance (cont’d) Life Insurance: Provides financial protection to dependents when the policy owner dies. Whole Life Insurance: You cannot change the amount of coverage you have after the initial selection The premium you pay stays the same The value of the policy increases over time as you build cash value that is tax-deferred The insurance company selects the investment vehicle used

Types of Insurance (cont’d) Life Insurance: Provides financial protection to dependents when the policy owner dies. Other options Universal Life (summary posted on website) Variable Life (summary posted on website)

Types of Insurance (cont’d) Disability Insurance: Provides a person income over a specified period when a person falls ill and is unable to work (e.g. STD, LTD)

How to get a good deal… Look for a company with a good reputation. Choose a reasonable coverage limit. Shop around for your insurance policies. Ask your insurance agent if there is anything you can do to lower your risk. Consider bundling your policies with the same company.

BE SURE TO KEEP RECEIPTS OR HAVE THE ITEMS APPRAISED! Hmmmm…. Take a minute and mentally inventory all of your personal property. Electronics Sports Equipment Jewelry Think about how much it would cost to replace each these items, if they were stolen. In order to get your money, the insurance company would need proof that you owned all this. How would you prove it? BE SURE TO KEEP RECEIPTS OR HAVE THE ITEMS APPRAISED!

“Aim” What type of insurance should you purchase?