1. Life & Health Insurance

2. Insurance Protects You
Life
Illness
Life Insurance
Health Insurance
Disability Insurance

3. Life Insurance Replaces income of key wage earner
Financial planning tool
Life Insurance replaces:
Lost income
Final costs- funeral, medical bills
Outstanding debts- loans, credit cards
Unpaid long term obligations- college tuition, child care expenses, retirement, household
Estate planning costs- estate taxes, probate costs
Unfulfilled family obligations- economic and noneconomic

4. Statistics
Statistics was first developed to calculate burial costs and how much each person should pay
Price depends on probability of someone dying
Mortality tables provide probability of death in a given year
Morbidity tables show rate of disease, illness, sickness
or death among age, gender or occupation

5. How Much Life Insurance Do I Need?
Needs Approach
Amount needed depends on financial needs of family left behind minus current assets or future income to pay for those needs
Dependent social security is example of future income that may pay for future needs
Human Life Value Approach
Amount calculated by taking amount of net income lost when person dies multiplied by interest rate multiplied by # of years needed
Net income is salary minus taxes, deductions and expenses of that individual person. It is income left to support the family.
Interest rate is applied to get future value of income.

6. Life Insurance Underwriting
Underwriting determines acceptability of an individual for insurance. In life insurance anything that shortens your life span makes it risker and premiums can be more expensive.
Physical exam required- height, weight, blood pressure, cholesterol and smoking, drugs or alcohol
Family medical history
Occupation and hobbies
Age, gender

7. Types of Life Insurance
Term life- coverage for specified period of time e.g. 10 years Lower cost when younger. Insurance premiums increase as you age.
Whole life- lifetime protection, includes savings-cash value and premiums remain unchanged. Cash value can be used for:
Cash surrender value-cash taken out of policy
Reduced paid-up insurance- used to pay insurance premiums in future years
Universal life- lifetime protection, includes savings-cash value, flexible premium can be increased or decreased. Cash value can be invested and grow tax free.
Variable life- similar to whole and universal. Cash value can be invested in stocks/mutual funds and grow tax free rather than savings in stock account.

9. Estate Planning- Life Insurance Key Component
Proceeds can pay debts of insured so property ( e.g. house) can be left to heirs.
Used in business partnerships where proceeds used to “cash out” the heirs of deceased partner.
Proceeds can enrich the lives of those you left behind.

10. Disability Income Insurance
Designed to replace a portion of someone’s income- usually 60%
Key Terms:
Short term disability- out of work up to 89 days
Long-term disability- 90 days to five years and maybe lifetime
Waiting period- time period after injury before benefits are paid
Can be 7 days or 30 days or 60 or 90 or one year
Longer waiting period, lower cost of insurance

11. Sources of Disability Income Insurance
Group- provided by employer or association. Weekly or monthly benefits. Lower premiums paid by employer, sometimes employee pays for portion with before tax dollars. Benefits are taxed.
Individual- monthly benefits. Income not taxed since premiums paid with after-tax dollars.
Social Security- monthly benefits. Must qualify with SSI definition. Five month waiting period.

12. Types of Health Insurance
Individual- individuals not covered by parents or employers policies or not working. Premiums based on individuals own health risk factors.
Group- usually provided by employer. Premiums based on claim experience of group.
Government Provided- Medicare ( 65+ years or disabled) and Medicaid ( low income)

13. Reducing Health Insurance Premiums
Co-payments- small fee paid every time medical service is provided
Deductibles- dollar amount the insured must pay before the insurer pays the balance. May be in addition to co-pay
Co-insurance- insured must contribute percentage after deductible.
Example is $100 deductible for medical service in addition to $5 co-pay to see doctor. Insurance company pays 80% above deductible.

14. Basic Medical Expense Coverages
Hospital expense – daily room and board in hospital
Surgical expense- surgery including surgeon fees
Physicians visits- doctor office visits
Additional costs- outpatient surgery, x-rays, lab expenses, home health care, extended care and hospice
Major medical covers expenses above basic medical expense policy- supplemental or comprehensive

15. Medicare- 65+ or disabled
Part A- hospital insurance
Part B- medical insurance- doctor, outpatient care, home health
Part C- medical advantage
Part D- prescription drugs

16. Workers Compensation
Employees who are injured or exposed to disease during work
State mandated benefits including:
lost wages,
medical expenses
death benefits
vocational training for new job.
WC insures employee while working and health/disability insurance insures them when they are not working.

17. Long Term Care Insurance
Provides for daily care- nursing or assisted living
Medicare only covers skilled nursing care for 100 days

18. Insurance and Stages of Life Use Insurance as Financial Planning to Provide for Your Future