Insurance and Risk Management

different ways to better understand your life insurance needs:

1- determine if you need it at all. if anyone depends, fully or partially, on your income, you need life insurance

silver plans

Cover 70% of healthcare costs, and have higher premiums with lower average deductibles, of just under $3,000 less than bronze plans

Incontestability clause

a provision in a life insurance policy that prevents the insurance company from revoking coverage because of alleged misstatements by the person insured after a specified period, usually about two years

Federal and State Healthcare Exchanges and Markets

healthcare exchanges are online marketplaces that were created under the affordable care act where you shop and buy healthcare insurance -the exchange can indicate the amount of subsidy for which you are eligible

Medicare Part B

medical insurance designed to cover doctor's bills, out patient care, some medical equipment, and some preventive services -most people pay for part b

The independent Insurance agents and brokers of america

A national association of independent insurance agents and brokers. They provide lists of reputable insurance agencies

the difference of purchasing insurance:

you are buying something you hope to never use -it's this difference that leads many people to make poor decisions when buying insurance

A disability is a double-edged sword:

your income goes down when you can no longer work, and your expenses tend to go up because of new medical expenses associated with your disability -disability insurance provides regular cash flow in the event you are unable to earn a living due to illness or injury

If you already have health insurance through your job or through a public program like Medicare, Medicaid or the Veterans Administration (VA) , you don't need to buy insurance through the exchange

-Medicare: a federal program that provides health coverage for individuals that are 65 or older or have severe disability, regardless of income -Medicaid: a combined state and federal program that provides health coverage for low income people -Veterans Administration: an agency of federal gov. that provides medical care to military veterans including the management of veteran's hospitals

you can choose to manage the pure risks you face every day through:

-avoidance (cheapest and easiest) -assumption -reduction -shifting

100/300/50

100: $100,000 max per person 300: $300,000 max payout total 50: $50,000 max payout for property damage provides adequate coverage in most cases

30/60/25

30: $30,000 max per person for bodily injury 60: $60,000 max payout total for bodily injury 25: $25,000 max payout for property damage

All of the plans are subject to out-of-pocket limits that adjust for rising cost-of-living expenses

For example, in 2015, the out-of-pocket cost limit was $6,450 for individuals and $12,900 total per family.

Sick leave

If your employer offers paid vacation or sick leave, growing your sick leave balance by not by not utilizing it unless necessary will allow you to increase your waiting period. Increasing the waiting period will save you money on your disability insurance premiums.

Medicare consists of several different parts that cover varying levels of health care services and products.

Medicare Part A is hospital insurance and is meant to over large hospital expenses such as: -overnight hospital stays -home health care -Hospice care: care given to the chronically or terminally ill patients that focuses on quality of life instead of curing the patient (your employer typically pays for Part A premiums)

Workers compenstation

a program paid by your employer that will financially assist you if you are injured while at work -paid by most employers into a workers comp fund

no-fault state

a state with laws that require a minimum level of no-fault automobile insurance

Medicare Part C and D

add coverage for prescription drugs -the prescription drugs program is run by Medicare-approved private insurance companies, and includes a few other benefits and services for an extra premium

loss of use coverage

available to cover living expenses, if you cannot live in your home while repairs are being made

medical payments coverage

insurance designed to cover medical costs resulting from an automobile accident determined to be your fault

Personal Property Insurance

covers the contents of your home -usually only for replacement cost -you want to avoid policies that only cover market value of your contents

riders and floaters

extra coverage is available by adding a rider to your policy, but at an extra cost

no-fault insurance (personal injury protection)

insurance designed to cover your and your passengers' medical costs resulting from an automobile accident regardless of who is at fault -not available in some states, required in others

the trick of buying insurance is to:

make sure you are adequately protected from financial ruin while presenting as little risk to the insurance company as possible to ensure you are charged the lowest premiums.

Life insurance is one of the most oversold financial products.

most people buy the wrong type of insurance and buy too little or too much coverage. these policies result in large commissions for the salesperson. many methods can help you determine your life insurance needs. many involve complex computer models, spreadsheets, and websites. in the end, the amount of life insurance you need is a judgement call, but is really not all that difficult to determine.

flood insurance

separate from homeowner's insurance -water seepage from a thunderstorm can be considered a flood -relatively inexpensive and can be purchased in conjunction with a standard policy

replacement cost

the amount of money it would take to replace the loss of a covered item at current market value with a similar item -means they would give you enough money to actually replace your belongings at the full retail price

market value

the amount something could be sold for in its current condition -means the insurance company only gives you the same amount of money you would have received if you had sold your belongings on Craigslist.

if you join HMO, you must select a primary care physician (PCP)

the doctor that you chose as the first primary contact for any health issues -Your PCP is your first contact for all your healthcare needs and determines what care you receive, what specialist you see (if any), and to what hospital you would be admitted.

risk

the likelihood or probability of loss or unexpected events -the probability of a negative event happening in our lives -the failure to recognize a risk is an automatic acceptance of risk.

Renter's Insurance

a form of property insurance that covers the belongings and liability of the individual renting a dwelling. -cheap, generally costing as little as $10 per month -provides lots of protection for very little money

Deductibles

a good way to save money on disability insurance is to increase the waiting period or elimination period. -the waiting period is the amount of time after you become disabled that you have to wait until your disability insurance begins to pay. -the waiting period is a form of deductible -you can save money on your monthly premium by increasing the waiting period -from the insurance company's perspective, the longer the waiting period, the less likely you are to use the policy

3 important things to consider when buying term insurance are whether it has:

1- Guaranteed Renewability: one of the most important features. an insurance policy feature that obligates the insurer to continue coverage as long as the premiums are paid on the policy. while this "re-insurability" is guaranteed, the premiums are not. premiums can rise based on factors that increase your risk to the insurance company, such as increased age or decreasing health 2- Restrictions on payout: some life insurance policies will only pay a death benefit under certain restrictions. how you die determines if you will have coverage. 3- a level term policy : when insurance premium stays the same amount throughout the life of the coverage. it will not increase as you get older

Five Rules to Avoid Getting Scammed

1- if it sounds too good to be true, it is 2- if you did not initiate the correspondence, don't agree to pay anything 3- if you have to pay anything to claim your prize, you didn't really win 4- if you make money from new recruits, think twice before joining 5- if it comes from another country, leave it there -following these will help keep you safe and help you avoid any unscrupulous con artists and identify thieves now and in the future

several factors affect the price of your homeowner's policy:

1- property's location (most important) 2- crime rate 3-distance to fire department 4- distance to fire hydrant 5- likelihood of various natural disasters 6- overall property values in the area 7- the type and age of the structure 8- the amount of coverage 9- the size of the deductible

bronze plans

Cover 60% of the healthcare cost (you pay the remaining 40% out of your pocket); have the lowest premiums, but highest average deductibles, of just over $5,000.

the way you can protect your income for yourself and your family, or protect your spouses income, by purchasing life insurance and disability insurance

Life Insurance: protection against financial loss in the event of the death of the insured Disability Insurance: protection against disability that provides a percentage of the insured's salary for the term of the policy or until they are no longer considered disabled as outlined in the policy

a good healthcare insurance policy will cover the following health benefits within the limits of your deductibles, co-pays, and limitations:

Routine doctor's visits and care, including preventive health care such as immunizations, mammograms, and other cancer screenings Emergency Department visits and other emergency services such as visits to urgent care centers Overnight hospital visits for at least 120 days to include room and board Reasonable laboratory tests Outpatient care, including doctor and outpatient center visits Prescription drugs Rehabilitation services, such as physical therapy Care for chronic diseases, such as diabetes and other chronic pain Mental health services and substance-abuse treatment If you plan to have children, look for maternity and newborn care along with pediatric care (including dental and vision)

the society of financial services professionals:

another organization for insurance professionals. The advantage of using an agent or broker associated with one of the national organizations is that they have some additional accountability. These organizations require adherence to certain standards and will remove members who violate those standards. Many states also have a department of insurance, which you can contact to determine if your agent is licensed in that state and to confirm that no complaints have been filed against the agent.

Homeowner's Insurance

covers your personal property, provides liability protection, and pays for other expenses -covers the structure of the house

Social Security

gov. program providing assistance to those that cannot work, such as the elderly or disabled. a portion of your paycheck is deducted now, to pay you social security later when needed -covers only a total disability that lasts more than one year -the clock starts the date you were deemed disabled not from the time the injury or illness first occurred

HMO and PMO Network Providers

health insurance plans incorporate networks of providers to reduce costs include: -doctors -hospitals -laboratories -imaging centers -outpatient centers -pharmacies -other healthcare providers that sign a contract with the insurance company and agree to provide their service to the insurance plan member for a specific price

two primary types of networks

health maintenance organizations: An organization that provides health coverage with providers under contract, and has other restrictions for access, which may result in lower costs to the insured -Typically HMOs have the most restrictions on the kind of health care you receive and very limited out-of-network coverage, but have lower out-of-pocket costs for their members preferred providers organizations: A health insurance coverage option that gives the insured the freedom to choose their health care provider either in-network or out-of-network. The 'in-network' providers may be less expensive as they have agreed upon pricing with the PPO -PPOs are more lenient on who you can and cannot see out-of-network. For example, most PPOs offer full coverage for emergency visits out-of-network. However, you pay higher premiums and higher co-pays for the greater flexibility on who you see and what services you receive. both HMOs and PPOs typically reduce costs by: -sharing infrastructure, such as billing departments or information technology costs -focusing on preventative care

a car is considered totaled:

if repairs are 80% of the replacement cost -some 51%

Liability Insurance (Umbrella Insurance)

liability insurance designed to cover costs beyond the liability limits provided by other insurance policies, such as automobile, renters, or homeowners insurance -protects you from claims and lawsuits that go beyond the liability protection provided by your other insurance policies. It protects your assets and your future income. -kicks in when the liability on your other policies is used -provides coverage for claims that may be excluded by other liability policies, such as false arrest, libel, slander, and liability coverage on rental units you own

Casualty Insurance

a broad category coverage of insurance against loss of property, damage or other liability. -usually combined with property insurance, but the type of coverage that you receive differs significantly -insures against monetary loss resulting from liability associated with an event

the affordable care act (obamacare)

-was the most significant overhaul of the US healthcare system in over 45 years -intent was to increase the quality of healthcare, reduce its cost, and provide new patient protections Most significant changes: -a mandate that, if we do not have health insurance with an employer, we must purchase it or pay a tax -subsidies to help lower monthly premiums -state healthcare exchanges or marketplaces for individuals to buy health insurance -children under 26 may stay on their parent's plan

Typically, when you are early in your career, you need both short-term disability coverage and long-term disability coverage:

-Short-term disability coverage: an insurance that will financially assist you if you have a disability or injury that prevents you from working for a short amount of time. the amount of days is determined by the insurance company -Long-term disability coverage: an insurance that will financially assist you if you have a disability or injury that prevents you from working for a longer time period, usually 3 months or more -Because you have not had time to accumulate sick leave or establish a large emergency fund early in your career, you need protection from a short-term disability. Short-term disability coverage provides you with replacement income for 3-6 months should you not be able to work. Later in your career, when you have accumulated sick leave and have an emergency fund, you may forgo short-term disability insurance. Long-term disability insurance is a good idea for all stages of your career. Long-term disability insurance provides a regular benefit, usually 50% to 60% of your salary, for as long as you need it—even through retirement and up to death.

medical insurance and coverage plans

-Your objective when choosing a good medical insurance plan is to balance the plan's benefits with its cost and with access to the doctors and health care providers you wish to see.

to me eligible for medicaid, you must be:

-age 65 or older -a minor under the age of 19 -pregnant -suffering with a long-term disability -parent or legal guardian caring for child

Automobile Insurance

-almost every state requires drivers to carry some minimum level of automobile insurance -yet the minimum required amounts do not protect you and the people you care about from financial ruin -the problem is compounded by the complexity of automobile insurance terms, rules, and regulations. -common minimum insurance required by many states is 30/60/25

identity theft insurance

-companies readily offer million-dollar policies for relatively small $100 or $200 annual premiums -almost no one ever collects a million -according to consumer reports, when someone is actually a victim of identity theft, the average loss is between $2,195 and $4,607 -the limitations of these policies can make them almost worthless -secondary to any other insurance you have -might be required to collect under your renter's insurance first -any lost wages are typically limited to a max of $1,500

other structures that are covered under a separate clause in the policy include:

-detached garages -storage sheds -fences -driveways -sidewalks -patios -retaining walls

Risks we face

-disability -illness -death -financial -property -liability -identity theft

People use insurance to help protect themselves and the people they care about from financial loss due to:

-disability -illness -property loss -legal liability

Personal Property

-furniture -clothing -electronics -computer etc renter's insurance pays to replace all these items in the event of fire, theft, or other causes of loss.

your best policy is a comprehensive term life insurance policy

-it pays out regardless of how you die, and your family can use the proceeds to pay off all your debt and/or to replace lost income

Credit Score affect on Insurance

-low credit score increases premiums -insurance companies use our credit score to determine the amount of the insurance premium that they charge us

identity theft insurance

-many companies offer some form of credit or online monitoring service or identity theft insurance -fees are $300 per year or more -many companies in this industry prey upon a customer's fear or misunderstanding -use free trial offers and fear as sales tools to get you to sign up for their services -you may get a one-month free subscription to their credit monitoring service, but you must provide your credit card information first -make cancellation difficult

amount of coverage

-many policies are written for the purchase price of the house, but the house is on a piece of land that cannot be destroyed -while the lender will require that you insure for the amount of the mortgage, you should never pay to insure the value of the land itself -you want enough coverage to pay for the costs, in an extreme disaster, to remove what is left of your home, rebuild it, and replace your belongings, but nothing more

In some states, adults with dependent children and eligible immigrants qualify. Medicaid covers:

-most doctors visits -most hospital stays -some long-term care -some preventive care -prenatal and maternity care -some prescription drugs -few other services

health insurance

-part of your overall risk management plan to safeguard you and your family's financial security -since the enactment of the Affordable Care Act in 2010, good health insurance plans are more comprehensive and in many cases more affordable than plans a few years ago

tax free benefits

-pretax dollars: the amount of money one has earned before deducting marginal taxes this option means you dont pay tax on the amount fo the premium, which sounds like a good deal the tradeoff is that any benefits are taxable if you pay the premium in after-tax dollars (you pay the inome tax on the premium amount), you collect the benefits tax-free for most people. the positives of receiving tax-free benefits far outweigh the positives of paying with pretax dollars -after-tax dollars: the net amount of money remaining after deducting marginal taxes

Speculative Risk

a category of risk taken by conscious choice where losses or gains are possible.

the key features of a good disability insurance policy include:

1- "Your Job Coverage": "your" job means can you do your job. "a" job means if you can work any other job, you would not receive coverage. 2- Non-cancellable: a life or disability insurance policy that the issuing company cannot cancel, increase the premiums or reduce the benefits for as long as the insured pays the premiums. 3- Guaranteed Renewable: a guarantee that you can renew an insurance policy at the end of its term regardless of your circumstances as long as the premiums are paid. However, the premiums may increase at each renewal.

Disability Insurance

You can purchase disability insurance on your own or sometimes through your employer. Typically, a good policy pays 60% to 80% of your take-home pay. Policies can be written for short-term or long-term disabilities. Most policies do not replace 100% of your income, because the insurance company wants to make sure you have some incentive to get better and get back to work if at all possible. Some policies do have a clause that pays 100% of your income if you are deemed to have a catastrophic injury with no chance of a full recovery.

Buying Insurance online

Almost all insurance companies have robust websites that provide good information and let customers buy insurance directly online. Online shopping makes it easy to compare quotes from different companies, and the premiums are typically lower than when buying from an agent. However, agents can help you understand what can be very complex legal language, and can make sure you do not experience any surprises that were buried in the "fine print" when it comes time to make a claim. For the savvy consumer, buying insurance online will yield a good policy at the best price. Using an agent might help give you more insight into your policy options and more personal customer service.

Pure Risk

a category of risk where no profits are possible, but only total loss, partial loss, or break-even (no change) are the only possible outcomes

Policy Riders

An insurance policy rider is an extra provision of the policy that provides extra protection of some sort for extra cost. Standard insurance policies are full of boilerplate language and limitations. Riders let you modify or customize the policy for your specific needs. For example, many homeowner's policies limit any payout benefit for jewelry to $500. If you have a significant amount of jewelry, you can purchase a rider to your homeowner's policy to increase the coverage of your jewelry. Of course, the more jewelry coverage you want, the more premium you will pay. -Boilerplate Language: Standard language in a contract, form, or other legal document that is routine or common to many similar contracts. It is often preprinted and used to standardize common legal language.

the primary way to shift risk is to purchase insurance

a financial product where the insured transfers an agreed upon risk of loss to another party for payment

Rule 2: buy the broadest coverage available

Buy coverage that protects you no matter what the circumstances. Insurance policies that have multiple restrictions and few opportunities to redeem the policy, or that only cover very specific circumstances, should be avoided in most cases. Why buy flight insurance? It's better to have a life insurance policy that covers nearly any possible event. The amount of money you spend for the limited coverage results in very little coverage per dollar spent. Thousands more deaths result from drunk drivers than from plane crashes. While an accidental death policy sounds like broad coverage, since we can die "accidentally" in a thousand ways, it only pays if the death results from an accident. Any other type of death (such as from any number of illnesses) is not covered. Buy an insurance policy that pays your beneficiaries no matter the circumstances of your death.

gold plans

Cover 80% of healthcare costs; have higher premiums than silver plans, and average deductibles of a little under $1,300

platinum plans

Cover 90% of healthcare costs; have the highest premiums and the lowest average deductibles, of just under $400

Rule 1: insure only the big stuff

Extended Warranty: A vehicle service contract that extends the warranty past the standard manufacturer's warranty date. The extended warranty can offer the same, less, or more coverage than what is offered by the original manufacturer. Repair Plans: A contract with the retailer for an additional fee to repair the purchased item when the repair fall outside of the manufacturer's or extended warranty coverage. -these are nothing more than insurance policies -And they are extremely lucrative for retailers. Policies for individual items, such as an iPod or a refrigerator, are expensive compared with what you are actually insuring. They result in huge profits for retailers, as very few people use them. Statistics show that if there is going to be a problem with a major purchase, it usually happens during the manufacturer's warranty period. Extended warranties easily result in adding 10% or more to the purchase price. In addition, many extended warranties require a deductible or co-pay. Imagine that. You have a deductible to replace that $30 toaster. If you can pay for the loss without much heartburn, then forgo extended warranties.

Rule 4: choose the right agent

Insurance is complicated and complex. It takes work to understand all the jargon and nuances of all the types of insurance protection available. Many people are simply more comfortable turning to a local agent for help. That's okay. An agent can provide a valuable service in helping you understand the different policies and then you decide which policy is best for you. However, it's wise to understand how insurance agents work. You can choose an agent that represents only one insurance company or you can choose an agent who represents multiple insurance companies. Typically, an agent working for one company will have in-depth knowledge of all that company's products. They can help you pick apart an insurance contract. An independent insurance agent can shop around for you. An independent agent may find it is cheaper to get your renter's or homeowner's insurance from one company, your car insurance from another, and your life insurance from yet another. Ultimately, the most important thing to understand is how insurance agents are compensated. Most agents are salespeople. Their livelihood depends on a sales commission. It is in their best interest to sell you an insurance policy, and the more expensive the policy, the bigger the commission. This incentive leads some agents to sell you more coverage than you need, or policies that are not a good fit for you. Even independent agents can steer you toward companies that offer them larger commissions. When it comes to speaking with an agent, the very first question should be "How are you compensated?" You want to determine where the agent's interests lie. An agent who earns a salary instead of a commission may be more inclined to give objective advice, because their paycheck does not depend on whether they sell a policy to you. You may not be aware of sales contests, bonuses, or other incentives the insurance company provides its agents. All of these factors influence an agent as to what policy they recommend that you buy. These incentives motivate retail salespeople to convince you to buy extended warranties. Even though they get paid by the hour, in many instances, they receive an extra incentive or commission on top of their regular pay for every extended warranty policy they sell.

Rule 3: Shop around

You are the customer. That makes you the boss, so shop around. You are doing the insurance company a favor by buying their insurance product, not the other way around. Pricing differs significantly among insurance companies for the same policy. If you don't like what a particular insurance company can provide for the cost, then go to another. It's always a good idea to shop around before you make a large purchase. That's especially the case with insurance. Insurance can be a very large purchase over time. Your car insurance may cost just $100 per month, but that's $1,200 per year. That's $6,000 if you have the car for five years. If you can save just $10 in monthly premium, you've saved $600 over the life of the car.

Term life insurance

a life insurance policy that only pays the benefits if the insured dies during the term of the policy -simply provides death benefit protection (coverage that when a person dies, the beneficiary is paid the coverage amount by the insurance company -stops at the end of a term (such as 10 or 20 years) or when you stop making payments -no cash value or "savings account" is attached to your term policy -once you stop paying for the insurance, it has no value

Risk Management

a long-range, organized, systematic, planned strategy to protect your assets, your family, and yourself.

Cash value life insurance

a policy that builds a value that can be returned to the insured upon surrendering or canceling the policy -combines a death benefit with a savings vehicle of some type -function like a savings accounts and build cash value -part of your premium goes to paying for the death benefit and part goes to a savings account -should be avoided -most personal finance experts (not life insurance salespeople) recommend only term life insurance -goes by many names ("whole life" or "universal life") -premiums are considerably higher -up to eight times more expensive than term insurance for the same death benefit -paid in post-tax dollars, making it a rather expensive way to save for retirement -may be a great marketing ploy that keeps policyholders paying high insurance premiums, but it does very little to hep you achieve your financial goals

credit report freeze

a protection you may use to help avoid identity theft. by paying a small fee you can request the three major credit reporting agencies to freeze, or lock, your credit report. this prevents most companies and organizations from running a check on your credit score. if they cannot check your score, they can not issue any new credit lines, such as new credit cards or loans, in your name. may be lifted temporarily, when needed. -you must contact each of the big three credit reporting agencies (Equifax, Experian, and TransUnion) online or over the phone separately to have all three credit reports frozen or thawed. each charges $2-$12 each time -freeze doesnt block access to your credit reports by any company with which you already do business -certain gov. agencies and a few other entities are exempt from credit report freezes -doesn't prevent creditors from reporting negative information, such as late payment, on your credit report

rider

an add-on provision to an insurance policy that increases coverage beyond standard items or amounts

deductible

an amount of money the insured is responsible to pay before the insurance company must pay for a claim. -keep your costs low by increasing your deductible to the point that you can afford it without financial hardship -a $250 deductible is much more expensive than a $2,500 deductible

Scam (sham)

an endeavor purposefully design to defraud or swindle an unsuspecting individual or group of some resource. Usually by using fake or fraudulent claims or document.

Property Insurance

an insurance product that covers the financial loss on a structure and/or its contents -protection for the things you own

identity theft

the illegal act of stealing someone's identity by using their name, social security number, address and/or financial accounts.

Insurer

the individual or organization that underwrites and agrees to pay for the covered financial loss of the insured -a risk-sharing firm that assumes financial responsibility for losses from the insured in exchange for a fee

Purpose of insurance

to help avoid or offset any major financial loss as a result of some unfortunate event. -for the monthly or annual premiums we pay to an insurance company, we shift the risk of financial loss or hardship to the insurance company

Medicare and Medicaid

two different long-established government healthcare insurance programs that provide assistance to older and low-income individuals and families. Medicare is a federal government program that provides health coverage if you are 65 or older or have a severe disability. Medicare is available to everyone, no matter their income. Medicaid is a joint state and federal program that provides health coverage to low-income individuals and families. You can be eligible for both. For example, if you are 65 years old or older and meet the maximum income limitation, Medicare and Medicaid work together to provide you with very good health coverage.

personal floater policy

typically covers a specific item that is easily movable from loss or theft. -unlike a rider, floater policies also cover you from loss of the item from your own negligence -higher premium than a rider

pay attention to the dwelling coverage portion of the policy

typically covers: -house -attached structures -fixtures such as built-in appliances, plumbing, heating, permanently installed air conditioning systems, and electrical wiring

Managing Risk

your objective for managing risk is to minimize the undesirable consequences from the causes of possible loss: -fires -robberies -windstorms -diseases while the causes of pure risk may not be completely avoidable, such as a windstorm, you can avoid those events that increase the likelihood of a loss occurring