Chapter 35: Insurance

Chapter 35: Insurance

35.1 Insurance Contracts

35.1: The Insurance Contract

ON A SHEET OF PAPER write…

Make a list of 10 things you own that are worth the most amount of money or have personal value.


Insurance is a contract where one party agrees to compensate another for a specific loss

PURPOSE of insurance is to spread loss among a greater number of people.


2 sides of the contract– Insurer - the insurance company– Insured - person whose life or property is

insured

Policy - the written contract between person buying insurance (policyholder) and the person who sells it.


There is a THIRD party to this contract but does not have input but still benefits…– Beneficiary - the person named in the

policy to receive benefits paid by the insurer in the event of a loss


The Insurer can create clauses that modify the normal insurance contract. They are called riders and simply modify or add to the contract.

– Example: Someone with prior medical conditions who apply for health insurance may not have coverage over pre-existing conditions.


Premium - the $ you pay to the insurance company for coverage

Face Value - the amount of protection state in a life insurance policy (the amount that a beneficiary would receive if you died).

Cash Value - the amount of $$ you can take by either borrowing against or cashing in your life insurance policy

35.2: Life & Health Insurance

Life Insurance – Insurance contract that provides monetary

compensation for losses suffered as a result of someone’s death.

• Premium is based on health, coverage and type of policy

It is less expensive to buy life insurance when you are young because the death rate for younger people is lower and health is usually better.


There are several types of Life Insurance

Straight Life Insurance– Also called Ordinary Life Insurance and Whole Life

Insurance– Requires payment of premiums throughout the insured’s

lifetime.– Premiums stay constant throughout policy.– Beneficiary is paid face value upon insured’s death– Serves as a savings and protection account.



Universal Life Insurance– A type of Straight Life Insurance– Allows policyholder to change the terms of the policy as their

needs change– Coverage can be increased or decreased– Cash can be withdrawn against account without canceling

the policy.– Premiums vary depending on changes in policy.



Limited-Payment Life Insurance– Allows you to stop paying premiums after a stated length of

time (usually 10, 20 or 30 years).– Beneficiary will receive the amount of the policy upon the

death of the insured whether it occurs during the payment period or after



Endowment Insurance– Provides protection for a stated period of time (generally 20

to 30 years).– Face value of policy is paid to insured at end of agreed

period– If insured dies before end of period the full amount is paid

to the beneficiary at the time of death


Annuity is a guaranteed retirement income that is purchased by paying either a lump-sum premium or by making periodic payments to an insurer.– Either receive the income for fixed # of years with

beneficiary receiving what is left if you die– OR– Receive payments as long as you live, losing what is left of

annuity upon death.


Accidental Death & Dismemberment Insurance– Provides benefits only when the insured is:

• killed in an accident

• Loses the use of one or more limbs

• Loses sight in one or both eyes

• Loses one of either an eye or limb and gets 1/2 of policy that would have been paid for loss of life

– Double Indemnity - When beneficiary receives double the face value of the policy


Term Life Insurance– Protection only policy– Least expensive type of life insurance– Has no cash or loan value– Issued for particular period of time (5 or 10 years normally)– Insured is usually older and considered a greater risk


Exemptions to Life Insurance Policies

– Some states do not allow beneficiaries to receive life insurance proceeds if:

• Killed by police

• Legally executed

• If murder is beneficiary

– Insurer can cancel policy if insured makes false statements


Health Insurance

– Basic Health Insurance plans usually include the following:

• Inpatient & outpatient hospital care• Physician care• Surgery• Prescription drugs• Dental & Vision care


Health Insurance Plans

– The type of coverage people carry depends on their own situation

• Group Plan• Individual Plan• HMO (Health Maintenance Organization)• PPO (Preferred Provider Organization)• Medicare & Medicaid• Disability Insurance



– Group Health Insurance Plan• Usually obtained where you work

• Where/how many people get their health insurance

• Premiums are lower!

COBRA Consolidated Omnibus Budget Reconciliation Act is a federal act that allows people to keep their health insurance for a limited time after being laid off.



Individual Health Insurance Plans

– For people who work for a company that does not offer insurance

– For self-employed workers– More expensive because costs are not spread amongst

a group


HMOs and PPOs

HMO means Health Maintenance Organization– Encourages regular medical visits to keep costs

down

PPO means Preferred Provider Organization– Members see a primary physician (preferred

physician) who may recommend further treatment with specialists.


Government Health Care

Medicare – Health insurance for ages 65+

– Pays 80% of doctor bills

– Can buy own insurance to cover other 20%

Medicaid– Healthcare for low-income individuals & families

– Governed & admin. by state but with Federal $$


Disability Insurance

Pays you benefits when you can’t work because of a disability

Purchased from private insurer but usually paid in part or in whole by employer– Can be partial or short-term (pays for few months)– Can be long-term (pays for a year or longer)


Property Insurance

– Homeowner’s Insurance

– Renter’s Insurance

– Fire Insurance

– Coinsurance

– Ocean Marine Insurance

– Inland Marine Insurance


Property Insurance

Property Insurance is a contract in which the insurer promises to pay you a sum of money if a piece of real or personal property is destroyed.

Binders are issued as temporary insurance until a policy is signed and completed and issued

Floater Policies insure property that can’t be covered by specific insurance because it changes in value or location (ex. Bicycle, violin, laptop, jewelry)


Homeowner’s Insurance

Homeowner’s Insurance protects against most types of losses & liabilities related to your home (fire, windstorm, vandalism, burglary & injuries suffered by other people while on your property)

Renter’s Insurance protects someone who rents property against loss of personal property and liability for a visitor’s personal injury (also negligent destruction of the property!)


Fire Insurance

Fire Insurance covers loss resulting directly from an unfriendly or hostile fire– Damage caused while trying to put out a fire– Damage caused trying to remove insured goods to safety– Damage caused by soot, smoke or water from nearby fire


Coinsurance

is a provision in an insurance policy that limits your liability for a loss if the property is not insured for its full replacement value– AN 80% coinsurance clause means your house must be

covered for 80% of its replacement value to receive full reimbursement for a loss


Marine Insurance– One of the oldest kinds of insurance dating back to

Venice, Italy when ships were key to trade and travel

Ocean Marine Insurance– Covers ships at sea

Inland Marine Insurance– Covers goods that are moved by land carriers such as

trains, trucks and airplanes– Can also cover jewelry, fine art, musical instruments and

wedding presents

Documents

Chapter 35: Insurance