Unit 10: Insurance - How to Protect Yourself

Activity 158.2 Calculate the Insurance

A woman who makes $62,000 per year decides to purchase a life insurance policy that will help her husband pay for their two children's college tuitions in case of her death. The children are in their early teens, so she decides to use the 7/70 method. That means her policy will be worth _____________-.

actuaries

Actuaries are statistical experts who collect and compile data about life expectancy

risk management

All efforts designed to preserve assets and earning power associated with a business.

Medical Payments

This coverage pays medical costs for injuries that occurred on your property.

driver classification

a category based on the driver's age, sex, marital status, driving record, and driving habits; used to determine automobile insurance rates

beneficiaries

a person who derives advantage from something, especially a trust, will, or life insurance policy.

dependents

a person who relies on another, especially a family member, for financial support.

return of premium

dictates the method that will be used to calculate the return premium when the policy is cancelled before the expiration date

Comprehension Check

dily injury liability protects you from financial losses in the event that you _____________- a. injure someone in a car accident b.hurt yourself while in your car c.damage someone else's property in a car wreck. and true/false q's

provision

example of the words

High health care costs are the reason that people need ____________

health insurance

Health Insurance

helps patients pay medical bills

Property Insurance

helps pay to rebuild or replace lost or damaged property

Insurance

helps protect against financial losses that are caused by unexpected events.

Life Insurance

helps survivors pay expenses after a person has died

Activity 159.2 Matching Drivers to Premiums

high/ medium / low

Life insurance

insurance paid to named beneficiaries when the insured person dies

Term life insurance

is also called temporary life insurance because you hold the policy for only a short time (1 to 30 years), not for your entire life.

Medicaid

is available only to people with limited income.Medicare is available to people 65 and older or to people who are disabled and cannot work.

split limits

is insurance shorthand and refers to a quantity of liability coverage. It is expressed in a series of numbers that represent the upper limits in thousands of dollars.

Cash value

is the amount of money you get back if you decide to give up the policy.

Coverage

is the amount of protection the insurer will provide.

Negligence

is the failure to take proper action or precautions.

Activity 160.2 What Kind of Insurance Is It?

match chart

claims

notice by the insured to the insurance company that a loss has occurred and demand for payment for the loss

beneficiary

one who benefits from something; a person who is left money or other property in a will or the like

policyholders

people who carry policies that outline the terms or qualifications of their insurance coverage

Liability Insurance

protects against lawsuits

Health Maintenance Organizations (HMOs)

provide comprehensive health care benefits to its members.

question example

you were a young doctor just starting practice after medical school, which reason for rising health care costs works in your favor?a. Doctors and certain health care professionals make higher salaries.b. More people in the United States are living longer, healthier lives.

Module 157:

Health Insurance Choices

Bodily Injury Liability:

If you cause an accident, bodily injury liability insurance protects you from paying the full legal or medical expenses of someone who is injured. Sometimes a person who has been injured in a car accident cannot work for a period of time, and bodily injury liability can help cover wages the injured person would have made. Keep in mind that bodily injury liability protects you against claims that an injured person—who was not in your vehicle—could make against you in court.

Health Care Costs in the United States

In 2010, Americans spent an estimated $2 trillion on health care. That is nearly 20% of the gross national product.2

Module Summary

In this module, you learned about why drivers need auto insurance. Auto insurance provides you with protection against full liability, or responsibility, for the medical, legal, and repair bills incurred if you cause an accident. Good auto insurance policies should provide you with the option to get bodily injury liability and property damage liability insurance, which are usually described as split limits, or a series of numbers, such as 25/50/25. In addition, you can get medical payments coverage, uninsured and underinsured motorists' protection, collision, and comprehensive physical damage coverage.

Module Summary

In this module, you learned that property insurance provides liability coverage for individuals. Liability coverage is important, so that you are not responsible legally for injuries to others on your property that might have been caused by your negligence. Property insurance also insures your possessions. If you own a house, homeowner's insurance covers the structure of your house in the event of an unexpected or catastrophic event. It will cover most of the costs of repairing or rebuilding the house and replacing the possessions inside it. Renter's insurance covers only possessions. Property insurance also covers loss of use or damage to property. Property insurance policies are designed to provide either replacement value or actual cash value of the possessions.

Activity 158.3

Insurance Terms chart

Why U.S. Health Care Costs Are High and Continually Rising

- More people in the United States are living longer, healthier lives. - Advanced but costly medical technology is now available to most doctors. - Many people have access to doctors and medical care. - Doctors and certain health care professionals earn relatively high salaries.

life expectancy

A figure indicating how long, on average, a person may be expected to live

Comprehensive Physical Damage:

As you know, accidents involving other cars are not the only source of damage to a car. Weather, fire, theft, vandalism, and falling objects, such as tree limbs or rocks, can damage windshields or the structure of the car. Comprehensive physical damage coverage means that your insurer pays the repair costs without considering whether someone was at fault. This insurance covers damage that is not caused by a collision. (Things inside the car, such as stereos, are usually not covered. You will learn how to insure personal property in Module 160.) Like collision coverage, comprehensive physical damage coverage also involves a deductible. It is clearly spelled out in the auto insurance policy.

Module 159:

Automobile Insurance

Collision:

Collision insurance covers the costs of getting your car repaired. With collision insurance, it does not matter who caused the accident. Your insurance covers the costs even if another driver caused the damage. It is up to the insurance company to try to get reimbursement from the other driver's insurer. (The other driver's property damage liability should cover it.) Collision coverage involves a deductible—an agreed-upon amount of money that you must pay out first before the insurer will pick up the rest of the cost.

Activity 159.3

File a Claim: Yes or No?

Specialized Coverage

For people who live in areas that regularly experience earthquakes or floods, specialized coverage is available. Insurers can provide endorsements, or additional coverage, for these special circumstances.

Module Summary

Insurance is a financial planning tool. It helps with risk management by protecting you against financial losses caused by unexpected bad events, such as theft, flood, fire, death, illness, or injury. Because there is no "one-size-fits-all" insurance, most people have more than one kind of policy. Often they have a combination of health, life, automobile, property, and liability insurance. Insurers collect premiums from their policyholders. After policyholders pay a deductible, insurers will pay a claim, which allows the policyholder to replace or repair the damaged item or to pay bills resulting from the incident. The first step to acquiring insurance is to evaluate one's needs and life situation. The next step is to work with a professional insurance agent to find the right policy at the right price. Policyholders must pay their premiums regularly and on time in order for their coverage to continue. There are benefits and drawbacks to having insurance. It provides peace of mind and reduces the chance of your becoming a burden to others, but it is a complicated process and a regular expense.

professional liability insurance

Insurance that covers persons engaged in various occupations against liability resulting from their rendering or failing to render professional services.

Activity 157.4

Knowing the Health Insurance Language

Activity 158.1

Life Insurance Basics ( yes / no)

Module Summary

Life insurance is a risk-management strategy. Life insurance does not protect the policyholder; instead, it protects the policyholder's family or beneficiaries from financial losses caused by the policyholder's death. The insurer pays the beneficiaries a death benefit. They may use the money to pay off debts, create college or retirement funds, or cover daily expenses. Not everyone needs life insurance. Those that do must calculate how much money their families or loved ones will need.

Loss of Use Coverage

Loss of use refers to the state of your property after an unexpected event. If the property cannot be used normally, then you experience loss of use.

Activity 160.3

Low, Medium, or High?

HMOs and PPOs are sometimes run as managed care organizations.

Managed care reduces health care costs by paying doctors a set fee per patient or per procedure and by limiting which doctors a patient can see and what procedures or treatments a patient can have.

What Is Managed Care?

Managed care refers to health care plans, like HMOs and PPOs, that try to reduce costs by setting up rules that doctors and patients must follow

homeowner's insurance

Provides payment to cover liability losses as well as damage and loss of the home structure and its contents

Other Coverages:

Many auto insurance policies offer other forms of coverage, such as towing and emergency road service. This coverage allows you to submit claims to cover the costs of towing or unexpected repairs while you are on the road. Another form of coverage is for car rentals, in case you need to rent a car while yours is in the shop. Renting a car can be expensive, so this coverage can really be a big help. In some states, you can even get wage-loss coverage in the event that you lose income due to an injury during a car accident.

Health Insurance

Many doctors and hospitals in the United States will not treat patients who do not have health insurance. The reason being is that the costs of medical care have skyrocketed. Few people can afford to pay the real costs of health care. Health insurance helps pay medical bills.

Homework Practice

Marie's older sister is going to college and moving into her own apartment. She has a new laptop computer and drives her father's old car. As a student, she automatically gets health insurance from her school. Which types of insurance does Marie's sister need?

No-fault Insurance:

No-fault insurance means that instead of spending time and effort trying to get the insurer of the at-fault driver to pay your bills, you can ask your own insurer to pay. This no-fault system saves everyone time and money and keeps lawsuits out of the courts. Now let's look at other forms of coverage that many auto insurance policies provide.

Fixed-rate Level Term (or Straight Term)

Policy allows owner to pay a locked-in premium rate for a period of 5 to 30 years.

Credit Life

Policy benefits pay off loan debts in the event of policyholder's death before loan is repaid.

Decreasing Term

Policy coverage decreases each year, but premium stays the same.

Annual Renewable Term

Policy is renewed annually, but premium increases yearly.

premiums

Premiums are usually paid in regular installments. As long as you continue to pay your premium, you have coverage, and the insurer will pay for your lost assets. If you stop paying your premium, your coverage stops, and the insurance company no longer shares your risk.

Property Damage Liability:

Property damage liability protects you from financial losses after you damage another person's property with your car. The damaged property may be another vehicle, or it may be buildings, street signs or streetlights, a fire hydrant, or a tree. Again, the point of this liability insurance is to protect you from claims that others could make against you in court.

Personal Property

Property insurance includes the costs of replacing personal possessions that were stolen or destroyed while in the house. A floater provides extra coverage for specific high-value items, such as jewelry and fine art.

Property Damage Coverage

Property insurance pays out benefits to help rebuild or repair your house if it is damaged by fire or other catastrophic events.

Liability Coverage

Property insurance protects you against liability for medical and other expenses for people who get injured on your property. It also covers damages you might cause to others' property.

Renter's insurance

Renter's insurance covers your possessions in the event of damage (as from a fire) or loss of use (as from a theft). Renter's insurance is usually inexpensive because it only covers property, not liability.

Module 160:

Securing Your Assets and Protecting Against Lawsuits

The Conversion Option:

So now that you know what permanent life insurance policies involve, we can go back to the question of why you might want to convert a term policy to a permanent one.

Bureau of Labor Statistics

The government agency responsible for tracking prices

health insurance

The little card that you carry in your wallet lets doctors and their staff know that you are insured—that you have paid an insurance company to assume financial risks on your behalf and cover the costs of getting you better.

Whole Life Insurance:

This kind of permanent life insurance is also called straight life, ordinary life, or cash value life insurance. Whole life insurance involves a policy where the owner pays a fixed premium. At the policyholder's death, the insurer pays benefits to the beneficiary. The amount of the benefits depends on when the policy was started and how long the premiums were paid. The amount is clearly specified in the terms of the policy.

Actual cash value

This means that the policy covers what you paid for the property, minus depreciation. So if a computer you bought two years ago for $900 gets ruined in a fire or stolen, and its depreciation was $100 per year, the insurer will only pay $700. That helps, but a new computer might cost you $1,000 now. In that case, you need to consider the replacement value of your possessions. Keep in mind that actual cash value policies cost less or have lower premiums because insurers have to pay out less over time.

Replacement value

This means that when you submit a claim, the insurer will pay you the cost of replacing the damaged or lost property. In this method, the depreciation of the value of the property is not part of the equation. You get a check for what it costs today to replace or rebuild the property. This is a good idea, as consumer costs are constantly increasing. Many insurers, however, will put a limit on replacement value. In addition, they will charge higher premiums for replacement value policies.

The 7/70 Method

This method assumes that a "typical" family would need roughly 70% of the policyholder's income for a period of seven years after his or her death. So a policyholder whose gross annual income is $50,000 would need a policy that would provide $35,000 (that is $50,000 times 70%, or .70) a year for seven years, or $245,000. As a result, the policyholder would want to carry a life insurance policy worth at least $245,000.

The 50% Method

This method assumes that you are childless but married to someone who is healthy and who will be able to continue working after your death. That means you need a relatively small policy—just enough to help your spouse out for a time. This method involves figuring your half of your debt load (co-signed mortgages, co-signed credit cards, etc.) and adding it to your estimated funeral expenses.

The Single Parent Method

This method essentially insures the family member who stays at home with the kids. Married couples with children use it to calculate how much money they would need to cover the cost of childcare and homemaking in the event that one of the parents dies. In some cases, the wage-earning parent dies and the surviving parent must go back to work and also pay for childcare. In other cases, the stay-at-home parent dies, and the working parent either quits to care for the children or hires childcare. Experts recommend that the stay-at-home parent be insured for $10,000 for each year until the youngest child reaches the age of 18.

Medical Payments Coverage:

This pays the medical bills you and your passengers incur after a car accident. Your own policy's medical payments coverage will also apply to you even if you are riding in another person's car.

Activity 156.2

Types of Insurance

Module 156:

Types of Insurance

Module 158:

Types of Life Insurance

Universal Life:

Universal life policies are different from whole life insurance in a few key ways. First, the policyholder takes on most of the risk. As a result, he or she can face premium hikes that cover the insurer's costs. In addition, the interest rate on the cash value is not fixed. This can be good if interest rates go up, but bad if they fall.

Variable Life Insurance:

Variable life insurance policies allow policyholders essentially to play the stock market.

Activity 159.1

What Does the Coverage Provide? match chart

Disability Insurance

What It Covers: Also known as disability income insurance, this insurance provides income for people who cannot work because they have been injured in an accident or become seriously ill. How It Works: Disability insurance is one of those policies that you hope you never to have to use. With disability insurance, the insurer pays you benefits after you have claimed a disability, but only for a certain amount of time. Also, you must wait for an agreed-upon time period (up to six months) before the insurer will begin payments. Unlike health insurance, the terms of your policy are based on your income. When you purchase your policy, you calculate how much money you will likely need to support yourself and your family if you are disabled, which is usually about 70% of your gross pay. Who Needs It: Disability insurance is a good idea for anyone whose entire livelihood comes from working at a job. In the event that you cannot work at any job because of injury or illness, you will need the income provided by disability insurance. People who support families or elderly parents often carry disability insurance just to be on the safe side.

Basic Health Insurance

What It Covers: Basic health insurance covers some medical expenses—hospital care, surgery, and physicians' care including annual physicals, up to a certain point. What Is Not Covered: For major health emergencies, such as a long-term illness or serious injury, additional coverage is needed. Eye care and dental visits are not typically covered by basic health insurance. Who Needs It: Pretty much everybody needs basic health insurance. It helps cover the costs of regular doctor visits and routine tests as well as some surgery and short hospital stays.

Dental and Vision Care Insurance

What It Covers: Dental and vision care insurance policies are generally sold separately from basic insurance and major medical expense insurance. Dental insurance covers typical dental procedures, such as annual exams, cleanings, x-rays, fillings, oral surgery, and orthodontics. Vision care insurance covers examinations, eyeglasses, contact lenses, and eye surgery. What Is Not Covered: Visits to your "regular" doctor or major surgical and hospital expenses are not covered. Who Needs It: People who regularly visit the dentist or eye doctor need these insurance policies. Dental and vision care insurance policies are about maintaining good health. By covering regular checkups, these policies help people take care of their teeth and eyes. Regular checkups in turn help prevent other health problems later. People who have vision problems definitely benefit from having vision care insurance. Dental insurance is a good thing to have even if you are young and brush and floss your teeth every day.

Major Medical Expense Insurance

What It Covers: Major medical insurance covers hospital expenses and costs that are not covered by basic health insurance. This insurance covers major hospital expenses and costs above a certain deductible, the amount of money you have to pay out of pocket before the company insuring you pays any expenses. Some basic health insurance covers the cost of major medical deductibles. Major medical insurance may require the policyholder to pay up to a certain amount, often up to $6,000. What Is Not Covered: Visits to the doctor, prescriptions, and routine tests are not covered. Dental and vision care are also not covered. Who Needs It: Also called "catastrophic" care, major medical insurance is for people who can handle the costs of day-to-day health care—annual checkups, prescriptions, and so on, but want to be covered in the event of a major medical problem. Young people, self-employed workers, and senior citizens often purchase major medical insurance instead of, or in addition to, basic health insurance because they want to protect themselves from excessive costs of a major illness or a serious injury.

Uninsured or Underinsured Motorists Protection:

What happens if an uninsured or an underinsured driver injures you in a car accident? You cannot ask that driver's insurance to pay your bills. Instead, with this coverage, you can ask your own insurer to pay. Keep in mind that this protection only covers injuries, not property damage.

Risk management

a strategy for protecting against risk of loss. Insurance helps you manage risk by sharing it with an insurance company, or insurer.

deductible

an agreed-upon amount of money that you must pay out first before the insurer will pick up the rest of the cost.

Government insurance plans, such as Medicare and Medicaid

are available to those who are eligible. Medicaid is offered to people with limited incomes. Medicare is designed to serve people 65 and older, or who are disabled.

Policies

are carefully worded and highly detailed legal contracts that outline the terms of the insurance coverage.

Preferred Provider Organizations (PPOs)

are networks created by the doctors and hospitals.

Blue Cross and Blue Shield

are statewide insurance companies in the Commonwealth of Virginia.

assigned risk pool

consists of people who are unable to obtain automobile insurance due to poor driving or accident records and must obtain coverage at high rates through a state program that requires insurance companies to accept some of them.

Permanent life insurance

covers a person's entire life, and when that person dies, the insurer pays out the death benefits to the beneficiary. We will look at three kinds of permanent life insurance—whole life, universal life, and variable life.

Automobile Insurance

covers bills after a car accident

Read the Fine Print: Health Insurance Policies and Provisions

details

Comprehension Check

q's like: e main reason that people today need health insurance is _______.a. a lack of good doctors b. the fact that people are living longer c. the rising costs of health care d. health insurance is cheap

Homework Practice

q's with examples

Private insurance companies

sell health insurance policies to individuals.

rating territory

the place of residence used to determine a person's automobile insurance premium

Risk

the possibility of danger or the chance of loss.

umbrella policy

umbrella policy goes well beyond personal liability coverage provided by a property insurance policy. Most umbrella policies cover you against personal injury claims as well as attempts to damage your reputation through slander or libel (untrue statements about your character expressed in public or in print, respectively). Many umbrella policies cover an individual for liability up to $1 million or more. People who have many valuable assets or a high public profile are more likely to be sued. As a result, they benefit from an umbrella policy.