Chapter 35Life and Health

Insurance

Protects the standard of living of the survivors

At the policy holder’s death, the insurance company pays survivors the face value of a life insurance policy

Proceeds: the money paid to survivors Beneficiary: each person who receives

part of the proceeds Buyer of policy names beneficiaries

Life Insurance

Cash-value insurance: provides both savings and death benefits◦ Part of premium pays for death benefits◦ The rest builds up cash value like a savings

account Cash value increases over life of policy Cancel policy, claim collected cash-value Emergency – borrow part or all of cash

value Different kinds of cash value insurance

Life Insurance: Cash-Value Insurance

A policyholder pays a premium that stays the same throughout his/her lifetime

As long as premiums are paid, policy stays the same until death of the insurer

Provides savings during the policyholder’s life and pays benefits after death

Cash-Value Insurance: Whole Life Insurance

Pay premiums for certain number of years◦ EX. 20-payment life policy, you pay premiums for

20 years “paid up at age 65” Since many retire at 65, they won’t have to

pay premiums after paychecks stop

Cash-Value Insurance: Limited-Payment Life Insurance

Cash value part of premium is invested◦ Stocks, bonds, and mutual funds rather than

savings Rest of premium is used for death benefits Increases or decreases depending on value

of investments◦ EX. Part of premium is used to invest in stock and

the stock double in value, the cash value will be worth double

Cash-Value Insurance: Variable Life Insurance

Special type of cash-value Based more on savings over death benefits Provides coverage for specific period of time

◦ Usually 20-30 years Proceeds go to policyholder if he/she is still

alive If policyholder dies during endowment

period, beneficiaries receive proceeds Usually used to provide income for

retirement or education◦ EX. Parents could buy an 18 year, $15,000

endowment when a child is born

Cash-Value Insurance: Endowment Insurance

Term Insurance:life insurance that covers a person for a specific period of time◦ Could be 5, 10, or 20 years

Only pays benefits if person dies within the term

If the insurer lives longer, policy has no value

Can be renewed….higher premium “pure protection” – only pays death benefits

and no cash value Low cost

Life Insurance: Term Insurance

How it works: Your friend purchases a 5 year, $10,000 policy (covers

him for 5 years) If your friend dies within those first five years, his/her

beneficiary will receive $10,000. After five years his/her coverage ends The policy can be renewed over time but with a higher

premium Term insurance is often used as a part of group life

insurance Employers & organizations = employees & members If you leave company, you lose coverage Group policies are cheaper than individual policies

Term Insurance continued

Term insurance costs less than cash value insurance

Several factors effect cost of your premium: Age, health, occupation Many people have to take a physical before

taking out a policy Older = higher cost Dangerous occupations = higher cost

Costs of Life Insurance

Protects against the cost of illness and accidents

Average cost of one hospital day stay = $5,000

Most people cannot pay Medical costs = very high

Health Insurance

*catastrophe insurance Most important coverage for a serious illness or accident Covers: hospital care, doctor’s bills, tests and x-rays, and

nursing care Deductible Some plans may have coinsurance: a percentage of

medical expenses a policyholder must pay beyond the deductible

Insurance usually pays 75-80% of costs and policyholder pays 20-25%

EX. $1,000 deductible an coinsurance of 20%. Bills are $6,000, you pay $2,000 ($1,000 deductible and 20 % of $5,000)

Health Insurance: Major Medical Insurance

Pays for hospital care for a given period of time

Covers: room and board, tests and x-rays, operating room costs, nursing care, and fees for drugs and treatments

Could have deductible Some policies have limits for specific

expenses Some set a max per day for max number of

days Most popular type of health insurance

Hospital Expense Insurance

Pays part of a surgeons entire fee for operation

Max payment for particular surgical expense

Policy lists surgeries and costs allowed Major Medical Insurance picks up where

Surgical Expense does not cover Usually bought with Hospital Expense Higher maximums for each surgery =

higher premium

Surgical Expense Insurance

Covers the costs of a doctor’s care not involving surgery

Could cover visits to doctor’s office or doctor’s calls at hospital

Usually purchased with Hospital Expense and Surgical Expense

Insurance company could combine all three types into one basic health insurance plan

Medical Expense Insurance

Least expensive form for most people Company or organization provides it for

employees or members Employees and members can add extra

coverage at their own expense Health maintenance organization

(HMO): provides health care at its own health center for a fixed fee per month

HMO- you must go to its own clinic and choose one of their doctors

HMO plans stress preventive health care to keep medical costs down

Group Health Insurance

Medicare: a major health insurance program set up by the federal government

Provides hospital insurance that covers hospital care

Provides medical insurance that covers doctor’s fees and tests

For Medicare:◦ Pay a deductible◦ Coinsurance◦ Monthly premium

For Hospital Insurance:◦ Pay deductible

Government Health Insurance: Medicare

Medicaid: another government health care plan for certain groups of citizens

Provides care for those who are unable to pay for insurance or health care

Much more comprehensive coverage than medicare

Government Health Insurance: Medicaid

Coinsurance Clause – requires you to pay a certain percentage of medical expenses beyond the deductible

Copayment: a fee paid each time a service is used

More people covered by a policy = higher premium

Many policies won’t cover a pre-existing condition: a serious health condition diagnosed before a person obtained health insurance

EX. Someone suffers from a heart condition, an insurance company might refuse to cover it

Costs of Health Insurance

The act provides comprehensive health insurance reforms that hold insurance companies more accountable

Lower costs More choices Enhance the quality of healthcare

Understanding the Affordable Care Act

Lower Costs◦ New creation of a competitive private health insurance market◦ Stabilizes economy◦ Expected to reduce deficit over next ten years by $100 billion

End insurance company denial and abuse of care (Americans with pre-existing conditions)

Will continue through 2014 Covers:

◦ Individuals◦ Families◦ Seniors◦ Businesses

Reduced premiums for families and small businesses

Affordable Care Act