BUS 425
What is "Any OCC"?
"Any Occupation" if you get hurt and can't perform ANY occupation, then you can cash in on your policy
DINK Method
"Duel Income No Kids" 1/2 debts + Funeral Expenses must have similar salaries, reasonably secure jobs, no expected future commitments
What is "Own OCC"?
"Own Occupation" if you get hurt and can't perform YOUR job, then you can cash in on your policy (wait period, months - years)
What is Umbrella insurance?
"envelopes" all other policies for people with risky situations or lots of money/assets to protect extra coverage to help defend/cover in a lawsuit NO JETSKI'S(will loose coverage if you purchase one because they are too risky)
What are the characteristics of Universal Life Insurance?
"flexible-premium" life insurance policy holder determines when and amount of payments credited to cash-value account where it is invested (monthly charges are deducted, interest is credited)
What are the settlement options for life insurance policies?
"lump-sum" payouts Annuity (policy holder decides this)
What is a Viatical Settlement?
"selling" your life insurance policy someone "buys" your policy off of you, you get money from them now but they get the payout when you die
Non-Working Spouse Method
# of years until youngest child turns 18 x 10,000 no more than 2 kids
"Bring down losses at a tolerable cost" What does this mean in terms of exposure?
(Cost-Benefit Analysis) an insurance company can't only insure "high-risk" people, because the likely-hood of those policies being used is high and the benefits to the insurance companies low might also not have enough money to cover all the policies if they all become due
What are the characteristics of Level Term Insurance?
1, 2, 1, 20, 30... etc (years, months...) pay premium, you get insurance, don't pay, no insurance more expensive as you get older pay the same rate for the ENTIRE term period
What are the six characteristics of an insurable risk?
1. large number of exposure units 2. accidental & unintentional loss 3. determinable & measurable loss 4. no catastrophic loss 5. calculable chance of loss 6. economically feasible premium
EASY Method
70% of salary x 7 years must have similar salaries, secure jobs, no expected future commitments, no more than 2 kids
What are the benefits/costs of insurance to society?
Benefits are indemnification for loss, reduced worry and fear, source of investment funds, loss prevention, enhancement of credit, etc. Costs are the cost of doing business, fraudulent claims, inflated claims, etc.
What are some methods used for Partial Replacement for Life Insurance & how are they calculated?
DINK, EASY, Non-Working Spouse (assets MUST make up difference for these methods)
What are 4 Life Insurance policies that might be a good idea to avoid?
Flight Insurance Credit-Life Insurance (cover's credit card co.!) ADD (accidental death & dismemberment) (must loose BOTH arms, must die on impact in car wreck, etc.) Cash-Value Policies on Babies (best to just put this money in a savings account)
Who doesn't need Life Insurance?
Kids/People with no one to provide for Possible exception is young adults with older parents or special-needs siblings who would need financial help if they died
Given our current economic climate, are we seeing more micro/macro economic risk? Both?
Micro: service industries take a hit in low economies (luxury services, etc. People do these things on their own instead) Macro: poor economy people, tend to stay in school/go back to school to expand their skill sets
What is the difference between Peril & Hazard?
Peril is the cause of loss Hazard is the condition that creates or increases the frequency/severity of loss
What are the inherent issues with "opposing risks" such as premature death vs extended life?
Premature Death: leaving behind debt, leaving a family without income, etc. Extended Life: outliving your savings (money), health problems become more expensive/frequent, etc.
What are some of the different types of beneficiary designations?
Primary Secondary/Contingent
What types of insurance, private & government, are available?
Private: life, health, personal line (property against legal liability), commercial line (property against legal liability for business) Government: social (SS, medicare, unemployment, worker's comp.,), others (FDIC - Banks, etc.)
What is the difference between Pure & Speculative risk?
Pure risk means that there are only the possibilities of loss or no loss (personal & property are insurable) Speculative risk means that profit or loss is possible (uninsurable, gambling)
What are some methods used for "Full Replacement" for Life Insurance?
Ranked (1-3) 1. Capital Retention Approach (takes $100K & invests it) 2. Human Life Value Approach (over estimates income, usually over-insured) 3. Needs Approach (How much do we "need" after they die) On-Line Financial Calculators (over-insure you)
What are some techniques for Risk Management?
Risk Control Risk Financing
What is "Second to Die" Life Insurance?
Survivorship Life insures you and spouse pays out when SECOND one dies cheaper, usually to just cover funeral expenses
What is a "black-out period"?
When SS survivorship benefits stop & don't kick in again until you're 60 (when spouse dies, the SS survivorship benefits stop when the child is 16, and don't kick in again until you're 60)
Who needs disability insurance?
almost everyone (more so than life insurance)
What is the "Law of Large Numbers"?
as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience
What are the characteristics of Decreasing Term Insurance?
as time goes by, coverage goes down, but premiums remain the same reason for this is so that over time you will grow your assets to make up for the lost coverage
What is a "common disaster" clause?
car accident, husband dies, wife doesn't die immediately wife is primary beneficiary, kid is contingent to husband's life insurance policy wife dies within "time-frame", $ goes to contingent wife dies after "time-frame", $ goes to primary beneficiary (wife) estate the child in this scenario may or may not be the wife's primary beneficiary. This can cause problems about when/if they child will receive this money
What are the characteristics of Whole Life Insurance?
cash-value policy that provides LIFETIME protection "ordinary" life insurance stated amount is paid to beneficiary at death regardless of when death occurs
What circumstances would give rise to a "waiver of premium"?
disabled, temporarily unemployed, etc. (will be stated in terms & conditions)
How does a companies risk affect the employee/customer's risk?
employees might not get paid, could loose their jobs, etc. customer's warranty/coverage might be lost if business goes bankrupt
What is Personal Property Rider?
extra piece on insurance policy that covers something "special or valuable" guns, jewelry (expensive, like a wedding ring), etc. must have a homeowner's policy/renter's policy to attach (add-on) to so that premiums are affordable
What are the characteristics of Variable Life Insurance?
fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer (YOU make the investment decisions)
What is the "Accelerated Death Benefit Rider"?
for someone who is terminally-ill get's some of the money from their policy early, but there will be administrative costs
What is the elimination (waiting) period? What is it's relationship to premiums?
how long until you can start collecting from the policy lower premiums = longer waiting period (and vice-versa)
Are proceeds from a disability insurance contract taxable to the recipient?
if YOU pay the premiums, then it's not taxable if SOMEONE ELSE (employer, etc.) pays the premiums than it is taxable
What is a Suicide Clause?
if insured commits suicide within "2 years" (time will be specified in contract), than beneficiary only gets a return of the premiums paid
What advantage comes from knowing the insurer's financial condition? How do we assess this?
knowing when/if you'll get help if you need to file a claim by checking financial statements, etc.
Are proceeds from life insurance taxable?
lump sum is NOT taxable "payments" are taxable (b/c it's considered extra income) interest is TAXABLE
Who doesn't need disability insurance?
older people, those with long-term care insurance, people with lot's of money/assets
What is the difference between a participating and non-participating policy?
participating means you pay premiums and get dividends in return non-participating means no dividends
Who needs Life Insurance?
people with loved one's to provide for! (possible exception is older people with assets!)
What does indemnity (indemnify) mean?
permits individuals & families to be restored to their former financial position after a loss occurs
What is an Incontestable Clause & who does it protect?
protects beneficiaries from insurance company trying not to pay up because of "something"
Risk Financing
provide for the funding of losses after they occur (retention, insurance, etc.)
Risk Control
reduce the frequency or severity of losses (avoidance, loss-prevention, & loss reduction)
What is an adverse selection & how can it be controlled?
the tendency of persons with a higher than average chance of loss to seek insurance at standard (average) rates if not controlled by underwriters, results in higher expected losses can be controlled by careful underwriting (process of selecting & classifying applicants)
How is Risk Defined?
there is no single definition of risk historically been defined as "uncertainty, concerning the occurrence of a loss."
Is it possible to be over insured? Are there any advantages/disadvantages of being over/under insured?
under-insured (no insurance or bare minimum) over-insured ($100K for 1990 Honda Accord...etc.) 30/60/25 (NC MINIMUM Vehicle insurance) (30K one person, 60K total car, 25K damage to other car) (no carry-over of 60K)
How has risk management evolved over the last 100 years?
used to just be insurance now there's ERM (enterprise risk management) (stovepipe approach - walmart)
Why can't the amount of insurance equal the amount of expected loss for each person/company?
you can't determine how many accidents each individual is going to have