19 - 1Copyright 2008, The National Underwriter Company Overview of Health-Related Insurance  What is it?  Insurance contracts transfer risk from one party to another  The insurance company agrees to indemnify the insured, against certain type of losses  Health insurance, disability insurance and long term care insurance  Insurance company agrees to cover the insured person against the risk of financial loss due to illness, sickness or injury and certain other conditions Chapter 19 Risk Management For Financial Planners

19 - 2Copyright 2008, The National Underwriter Company Overview of Health-Related Insurance  What is it? (cont’d)  Three main areas of financial planning  Protection  Health insurance – protection against potentially devastating doctors ills in the case of sever injury or protracted illness  Disability insurance – protection against loss of income due to disability  Long term care – protects against the high cost of daily care that ca be needed for decades Chapter 19 Risk Management For Financial Planners

19 - 3Copyright 2008, The National Underwriter Company  When is the use of this tool indicated?  Methods to handling risk  Avoidance  If risk is one that is possible to avoid  Not possible to avoid risks of injury, illness or disability  Retention  Self insuring  Risk with acceptable cost  Insurance (transfer)  For illness, injury or disability  Transfer the risk to the insurance company in exchange for premiums Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance

19 - 4Copyright 2008, The National Underwriter Company  When is the use of this tool indicated? (cont’d)  Analyze existing coverage's  Can coverage be obtained through employer or spouse employer  Group coverage  Affordable  Option for those with poor health  Limited benefits and features  Generally not portable  Look at cost and provisions of coverage  Different for each individual depending on age, family circumstances, income levels and employment conditions Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance

19 - 5Copyright 2008, The National Underwriter Company  Business uses  Primary use is as employee benefit  Funded primarily with group life, health, and disability policies Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance

19 - 6Copyright 2008, The National Underwriter Company  Advantages  Policyholder can trade a known cost (premium) for protection against the possibility of a potentially large cost  Quantifiable cost can be useful in financial planning as well as in planning for business  Disability benefit will make it easier for the disabled individual to support his/her family and meet basic living expenses  Long term care insurance provides for the high expenses of received assisted care in many forms and provides spouse with options as to how that care will be provided Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance

19 - 7Copyright 2008, The National Underwriter Company  Disadvantages  Premium costs associated with the coverages can be significant  Individual may never make use of the coverage provided  Especially true with disability and long term care coverages  Existence of coverage may lead the policy holder to believe that any loss or potential loss will be covered  Policies are often written with many exclusions Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance

19 - 8Copyright 2008, The National Underwriter Company  Tax implications  Health, disability and long term care coverage may be afforded significant income tax advantages  Societies best interest to diminish use of government sponsored benefits that can be provided through the private insurance mechanism Chapter 19 Risk Management For Financial Planners Overview of Health-Related Insurance