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Chapter 35 Life and Health Insurance. Life 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 - PowerPoint PPT Presentation
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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
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