1. ©2012, College for Financial Planning, all rights reserved. Module 9 Life and Health Insurance Foundations In Financial Planning SM Professional Education Program

2. Learning Objectives 9–1: Identify a type or use of group or individual life insurance. 9–2: Identify a feature or provision of a life insurance policy. 9–3: Calculate the amount of life insurance needed for a client’s financial situation. 9–4: Describe features of group, major medical, or comprehensive major medical insurance, including managed care plans. 9–5: Calculate expenses that may be incurred under group, major medical, or comprehensive major medical insurance coverage. 9–6: Explain features and terms of disability income insurance. 9–7: Explain features and terms of long-term care insurance. 9–8: Identify definitions or characteristics of an annuity. 5-2

3. Questions To Get Us Warmed Up 9-3

4. Coverage in the Event of Death Social Security Group Life Insurance o four types of coverage o no evidence of insurability (usually) 9-4

5. Basic Types of Individual Life Insurance Term Whole Life Universal Variable Variable Universal 9-5

6. Term Life Insurance Temporary coverage Annual renewable term Level premium term Decreasing term 9-6

7. Whole Life Insurance Permanent coverage Higher premiums than term at a given age Cash value buildup (guaranteed or variable) Tax deferral Dividends (with participating policies) Payment plans 9-7

8. Universal Life Insurance Flexibility Premium Face amount of coverage Cash value Fluctuating interest rate Danger of lapsing Potential benefit of higher cash value 9-8

9. Variable Life Insurance 9-9 Variable Universal Built on universal life template Vary premium Vary face amount Vary cash value Investment component Variable Built on whole life template Fixed premium Face amount varies Cash value varies Investment component

10. Life Insurance Features & Provisions Ten standard provisions Other common provisions Dividends o taken in cash o accumulate at interest o reduce premiums o paid-up additions o purchase one-year term (5th dividend option) 9-10

11. Amounts of Life Insurance Coverage Income-based method (human value) Estimate future average annual earnings Subtract expenses Determine number of productive years left Set discount rate Compute the present value Needs-based method Determine needs (five categories) Determine available assets Needs – assets = insurance amount 9-11

12. Health Care Plans Group coverage Lower costs Continued coverage after termination of employment (COBRA) Individual coverage Higher costs Social Security Medicare (Parts A, B, C & D) 9-12

13. Medical Expense Policies Major medical o deductible o coinsurance o stop-loss limit provision Comprehensive major medical (combined base plan and major medical): what most people think of when discussing major medical coverage 9-13

14. HMO, PPO & POS Plans Health maintenance organizations Preventive care emphasized Gatekeeper concept Preferred provider organizations May or may not use a gatekeeper Point of service plans Greater flexibility Benefits vary by the type of service chosen 9-14

15. Coverage Decisions Costs o deductible o coinsurance Coordination of benefits Level of benefits o flexibility of doctor selection o types of services needed o access to specialists 9-15

16. Disability Coverage Social Security Four requirements o under age 65 o disabled (or expected to be) for 12 months o filed an application for benefits o has necessary quarters of coverage Definition (strict) Waiting period Workers’ Compensation o Coverage without determination of fault 9-16

17. Other Types of Disability Coverage Group coverage o short term o long term o maximum monthly benefits o waiting periods Individual policies o COLA riders 9-17

18. Disability Income Terms Benefit amount Benefit period Elimination period Definition o at any occupation o modified any occupation for which the person might be qualified based on education, experience, or training o own occupation 9-18

19. Disability Coverage Amounts Insurance limitations Monthly expenses Cost of coverage Business continuation Business overhead expense 9-19

20. Long-Term Care Medicare (very limited benefit) o requires stay in approved facility o provides some home care Medicaid Individual policies o daily benefit o elimination period o benefit period o activities of daily living (ADLs) 9-20

21. Classifications of Annuities 9-21 Fixed dollarvs.Variable Single lifevs.Joint and last survivor Immediatevs.Deferred Single premiumvs.Flexible fixed premium Straight lifevs.Installment refund

22. Question 1 Which one of the following types of insurance should be used to provide insurance protection for a mortgage? a.term life insurance b.paid up life insurance c.variable life insurance d.universal life insurance 9-22

23. Question 2 In seeking needed life insurance coverage in which participants can invest in broader investment markets such as equity or fixed income, you would suggest that a client consider which type of insurance? a.term life insurance b.whole life insurance c.variable life insurance d.universal life insurance 9-23

24. Question 3 Which one of the following disability income categories would one be likely to find an insurance agent? a.blue collar b.white collar c.professional d.certified 9-24

25. Question 4 Which disability income insurance policy guarantees policy renewability, but has rates that can be changed; however, only for an entire rate class? a.cancellable b.noncancellable c.conditionally renewable d.guaranteed renewable 9-25

26. Question 5 Which one of the following is not an ADL (activity of daily living) in the standardized definition as put forth by HIPAA for policy qualification? a.eating b.hearing c.bathing d.transferring 9-26

27. Question 6 An annuity that begins payments to the annuitant within 30 days of receipt must be which one of the following? a.deferred annuity b.refund annuity c.single premium annuity d.joint and survivor annuity 9-27

28. ©2012, College for Financial Planning, all rights reserved. Module 9 End of Slides Foundations In Financial Planning SM Professional Education Program