PROTECTING YOUR WEALTH

PROTECTING YOUR WEALTH Auto and Homeowner’s Insurance Health and Disability Insurance Life Insurance

AUTO AND HOMEOWNER’S INSURANCE I can… Explain the role of risk management Outline provisions of auto insurance Describe financial coverage provided by homeowners insurance

BACKGROUND ON INSURANCE Property Insurance ensures that damages to home and auto are covered and personal assets are protected from liability Liability- you are required to pay someone for damages that you caused

Primary function of insurance- maintain existing level of wealth Benefit of insurance is peace of mind knowing your assets are protected

MANAGING RISK In the context of insurance, Risk- exposure to events or perils that can cause financial loss

Risk management are decisions about whether and how to protect against risk, alternatives include: Avoid risk reduce risk insurance against risk

AVOID RISK Avoid risk of property damage if you don’t own property If you lease a car you are still expose to liability and financial loss if an accident

Exposed to financial loss if you require medical attention or become disabled

REDUCE RISK Purchase a small home rather than a large home in order to reduce the maximum possible financial loss

Purchase an inexpensive car to limit possible financial loss due to property damage

Getting periodic health check ups

INSURE AGAINST RISK If you cannot avoid or reduce risk and you do not want to be exposed to a financial loss

Premium is the cost of obtaining insurance

WHAT IMPACT DOES THE ECONOMY HAVE ON THE DECISION TO INSURE AGAINST RISK? Give one, get one. Think about this question and develop an answer. Then, turn to your partner and discuss both of your answers.

ROLE OF INSURANCE COMPANIES Offer insurance policies that can protect you against financial loss. Many different types of insurance Insurance companies generate revenue from receiving payments for policies

Insurance underwriters are hired to calculate the risk of specific insurance policies, decide what policies to offer, and what premiums to charge.

Event Financial Loss ProtectionYou have a car accident and damage your car

Car repairs Auto Insurance

You have a car accident in which another person in your car is injured

Medical bills and liability Auto Insurance

You have a car accident in which another person in the other driver’s car is injured

Medical bills and liability Auto Insurance

Your home is damaged by a fire

Home repairs Homeowner’s Insurance

Your neighbor is injured while in your home

Medical bills and liability Homeowner’s Insurance

You become ill and need medical attention

Medical bills Health Insurance

You develop an illness that requires long-term car

Medical bills Long-term care Insurance

You become disabled Loss of income Disability insuranceYou die while family members rely on your income

Loss of income Life Insurance

ROLE OF INSURANCE AGENTS Insurance agent recommends insurance policies for customersCaptive (exclusive) agent works for one particular company ex. State Farm insurance agents

Independent agent represents many different insurance companies

AUTOMOBILE INSURANCE Insures damage to an automobile and expenses associated with accidents Protects your car and limits your potential liabilities (expenses due to an accident)

Prices vary between states Much larger in highly populated states

Insurance policy is a contract between an insurance company and policyholder

Auto insurance policy specifies the coverage provided by the insurance company for a particular individual and vehicle

Bodily insurance liability coverage protects against liability associated with injuries caused by the policyholder

BASIC TYPES OF AUTO INSURANCE Liability Bodily injury liability Property damage liability

Uninsured Motorists Underinsured Motorists Collision Comprehensive

HOW MUCH DOES AUTO INSURANCE COST? Factors that affect your auto insurance premium… Value of a car Repair record of the car Your age Your mileage Your driving record Your location Your driver training Your school performance

HOW CAN YOU LOWER YOUR INSURANCE Get good grades Choose your wheels carefully Consider the age and condition of your vehicle Consider letting your parents insure you on their policy Ms. Vandiver says…Don’t text and drive

COVERAGE LIMITS ON YOUR POLICY Policy may show 50/100/25 That means… $50,000 of bodily injury liability if one person is injured $100,000 total for all bodily injury liabilities for all injured $25,000 of property damage coverage

HOMEOWNER’S INSURANCE Provides insurance in the event of property damage, theft, or personal liability

Protects most valuable assets but limits potential expenses associated with a home

Provides a certain amount of liability coverage, which pays for injury or death of others caused by you on your property

WHAT ELSE DOES HOME INSURANCE COVER? The building/residence Home furnishings Most personal belongings Lawn, trees, and shrubs in limited cases Garage Some external structures, like sheds Fence Swimming pool

WHAT ARE PERILS? Things or events that can damage or destroy a home or its contents, a homeowners policy may cover these perils: Fire Lightening Wind Hail Theft Explosion Smoke Glass breakage Vandalism Riot Falling aircraft DOES NOT COVER FLOOD!

PROPERTY DAMAGE Cash-value policy pays you for the value of the damaged property after considering its depreciation (wear and tear)

Replacement cost policy pays you for the actual cost of replacing the damaged property

ADDITIONAL COVERAGE: PERSONAL PROPERTY Normally covers furniture, computers, clothing up to a specified amount

Home inventory includes detailed information about your personal property that can be used when filing a claim Create a list of personal assets and estimate the market value of each, take pictures or video of items

Personal property floater (personal articles floater) is an extension of the homeowner’s policy that allows you to itemize your valuables, if assets are very valuable and are not fully covered by your policy

HOW MUCH DOES HOMEOWNER’S INSURANCE COST? Factors that affect the premium of homeowner’s insurance policy: Value of insured home Deductible Location Degree of protection Discounts

HOW CAN YOU LOWER THE COST OF HOMEOWNER’S INSURANCE? Improve protection Use one insurer for all types of insurance Bundling discounts

Stay with the same insurance company Shop around

WHAT DOES RENTER’S INSURANCE COVER? Renters insurance is a policy that protects your possessions within a house, condo, or apartment that you are renting

Does not insure the structure itself because the insurance is for the renter only, not the property owner

Covers personal assets such as furniture, television, computer equipment, and stereo equipment

ETHICAL DILEMMA You teach Personal Finance at a local community college. The state in which you teach requires proof of liability insurance in order to renew your license plates. During the discussion of this topic in class, several students admit that they obtain a liability policy just prior to the renewal of their license plates and then cancel it immediately thereafter. They do this because they know that the state has no system for following up on the cancellation of the liability policies once the license plates are issued. These students, who are out of work as a result of a local plant shutdown, indicate that they cannot afford to maintain the insurance, but they must have access to cars for transportation oWrite a paragraph discussing whether you consider the conduct of the students to be unethical. oHow does the conduct of these students potentially impact other members of the class who maintain liability insurance on their vehicles?

QUIZ OVER HOME AND AUTO 3/28 Includes the slides above and the vocabulary

HEALTH AND DISABILITY INSURANCE I can… Identify and compare the types of private health care plans Explain the use of government health care plans Describe long-term care insurance Explain the benefits of disability insurance

HEALTH INSURANCE Covers healthcare expenses incurred by policyholders for necessary medical care

Largest issuers: Blue Cross and Blue Shield Without healthcare medical expenses can eliminate your wealth 1 in 5 workers are uninsured Healthcare is expensive! Technological advancements Increased age of the average population

Healthcare is necessary!

PRIVATE HEALTH INSURANCE Can be purchased from private insurance companies to provide coverage for healthcare expenses Hospitalization insurance Surgical expense insurance Physician expense insurance Major medical insurance

PRIVATE HEALTH INSURANCE COVERAGE Hospitalization insurance covers the cost of many hospital facility and service fees Room, meals, pharmaceuticals, nursing services, labs, x-rays

Surgical expense insurance covers the cost of some surgeries Surgery, anesthetics, lab fees, x-rays May specify maximum reimbursement per surgical procedure

Typically doesn’t cover cosmetic procedures

Physician expense insurance covers the cost of many nonsurgical physician fees May be a deductible Covers physician fees for healthcare, lab tests, and x-rays outside of the hospital

Major medical insurance serves as a backup to basic health insurance

PRIVATE HEALTH CARE PLANS Indemnity plan- reimburses individuals for part or all of the expenses they incur from healthcare providers Free to decide whether to seek care from a primary care physician or a specialist

Managed health care plan- individuals receive services from specific doctors or hospitals that are part of the plan

Health Maintenance Organization (HMO)- covers health care services approved by doctors A primary care physician provides general health services and refers patients to a specialist as necessary

Preferred Provider Organization (PPO)- allows individuals to select a health care provider and covers most of the fees for services A referral from a doctor is not necessary to see a specialist

PRIVATE HEALTH CARE PLANSType of Private Health Plan

Premium Selection of Physician

Indemnity Plan High Flexibility to select physician or specialist

Managed Care: HMO’s Relatively low Primary care physician refers patients to specialist

Managed Care: PPO’s Low, but usually higher than HMO’s

There is a greater number of physicians to choose from in PPO’s than HMO’s

CONTENTS OF HEALTH CARE INSURANCE POLICIES Identification of insured persons Location Preexisting Conditions Cancellation Options Determinants of unreimbursed medical expenses

Rehabilitation

Mental illness Pregnancy Renewability option Maintaining private health care insurance coverage

Expenses not covered by private insurance plans

CONTENTS OF HEALTH CARE INSURANCE POLICIES (CONT.) Preexisting Conditions- health conditions that existed before your policy was granted If you had a torn ligament when you applied for the policy, you may not be allowed coverage for surgery to repair the ligament

Flexible Spending Account- an account established by the employer for the employee to use pretax income to pay for medical expenses Funds do not roll to next year

Maintaining private health care insurance coverage- federal regulations ensure continuous health care coverage despite employment status COBRA- continue health insurance provided through an employer’s plan for 18 months after you stop working for the employer

HIPAA- can continue health insurance coverage if they have switched jobs Ex. Work in Kansas, have torn ligament…

change jobs and move to Texas. Cannot be denied the surgery for torn ligament because of preexisting condition

GOVERNMENT HEALTH CARE PLANS Medicare Provides health insurance to individuals who are 65 years or older and qualify for Social Security benefits or who are disabled

Provides payments to health care providers in the case of illness

Part A- hospital insurance and is used to cover expenses associated with inpatient care

Part B- Optional medical insurance (covers outpatient care, physical therapy, some home health services)

Part C- Combination of Parts A and B

Part D- provides coverage for prescription drugs

GOVERNMENT HEALTH CARE PLANS Medicare Medigap Insurance- provided by private insurance companies to cover medical expenses that are not covered by Medicare

Health Savings Account- an account that shelters income from taxes and that can be used to pay health care expenses

Medicaid Provides health insurance for individuals with low incomes and those in need of public assistance

Provide health care to the aged, blind, disabled, and needy families with dependent children

Must meet federal guidelines

LONG TERM CARE INSURANCE Insurance that covers expenses associated with long-term health conditions that cause individuals to need help with everyday tasks

More than half of all individuals in the U.S. will need long-term care at some period during their life

The cost of having an aide provide basic care at home can exceed $1000 per week

For individuals who enter a nursing home, the cost is about $55,000 per year on average

Medicare does not cover the cost of long term care Medicaid might cover some of these expenses, but coverage is limited

FACTORS THAT AFFECT LONG-TERM CARE INSURANCE PREMIUMS Premium will depend on: types of services, amount of coverage, period to receive benefits

Age Health Condition

ADDITIONAL TYPES OF HEALTH CARE PLANS Dental insurance covers part or all the fees imposed for dental serices Annual checkups, orthodontics, and oral surgery

Vision insurance covers part or all of the fees imposed for optician and optometrist services Annual checkups, glasses, contact lenses, and surgery

DISABILITY INCOME INSURANCE Insurance that provides income to policyholders in the event that they become disabled.

“Own Occupation” definition If you are unable to do the duties required of your occupation

“Any Occupation” definition If you cannot do the duties of any job that fits your education and experience

SOURCES OF DISABILITY INCOME INSURANCE Individual disability insurance Employer disability insurance Insurance from Social Security Insurance from Worker’s Compensation

DISABILITY INSURANCE PROVISIONS Amount of coverage Probationary period Waiting period Length of time for Disability Benefits Non-cancelable provision Renewable provision

HEALTH CARE IN THE NEWS Find an article on the internet that discusses Obama Care. Identify: What is Obama Care? What are the advantages of Obama Care? What are the disadvantages of Obama Care? After reading the article, write a paragraph explaining how YOU feel about Obama Care.

LIFE INSURANCE I can… Describe the types of life insurance that are available Identify the factors that influence insurance needs Review the factors that affect life insurance premiums Examine the decision of whether to purchase life insurance Explain settlement options available to a beneficiary

LIFE INSURANCE Provides a payment to a specified beneficiary when the policyholder dies Ex. If Bob has a $100,000 policy, then if he passes away his wife Sue will receive $100,000 (non-taxable)

Critical to protect a family's financial situation Covers burial or medical expenses not covered by health insurance

If no one else relies on your income life insurance may not be necessary

TYPES OF LIFE INSURANCE Term Life Insurance Decreasing Term Mortgage Life Term Group Term

Permanent Life (Whole Life) Limited Payment Policy

Universal Life Insurance-combination of term life and savings plan; provides insurance over a specified period of time and accumulates a savings plan Variable life insurance

HOW DO YOU KNOW HOW MUCH YOU NEED? Income method- a method that determines how much life insurance is needed based on the policyholder’s annual income

Budget method- determines how much life insurance is needed based on household’s expected future expenses Annual Living Expenses Special Future Expenses Debt Job Marketability of Spouse Value of Existing Savings

CONTENTS OF A LIFE INSURANCE POLICY Beneficiary Can name multiple beneficiaries Can change any time you wish

Living benefits Receive a portion of benefits prior to death under special circumstances

Nonforfeiture Clause Allows you to receive the savings you accumulated if you terminate your whole life policy

Renewability option Allows you to renew the term once the current term expires Premium for the next term is higher since you are older

Conversion option Allows you to convert your term insurance policy into a whole life policy

Settlement option Alternative way to receive life insurance benefits Lump sum settlement Installment payment settlement Interest payment settlement

DECISION TO PURCHASE INSURANCE Bart is a college student. Since his plan is to get a job immediately after graduation, he determines that he will need about $250,000 in life insurance to provide for his future wife and children. Bart has obtained a quote over the internet that would require him to pay $200 annually in life insurance premiums. As a college student, this is a significant expense for Bart, and he would likely have to borrow money to pay for the insurance premiums. Advise Bart on the timing of his life insurance purchase.