Gitman PPT Student Ch8

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PPT for Portfolio Management

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    8 - 1COPYRIGHT 2008 by Nelson, a division of Thomson Canada Ltd

    Chapter 8Insuring Your Life andHealth

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    8 - 2Chapter 8 - Insuring Your Life and Health

    Chapter 8 - Learning Goals

    LG 1 - Explain the concept of risk and the basics of insuranceunderwriting.

    LG 2 - Discuss the primary reasons for life insurance and identifythose who need coverage.

    LG 3 - Calculate how much life insurance you need.

    LG 4 - Differentiate among the various types of life insurancepolicies and describe their advantages and disadvantages.LG 5 - Choose the best life insurance policy for your needs at the

    lowest cost.LG 6 - Become familiar with the key features of life insurance

    policies.LG 7 - Discuss why having adequate health insurance is important,

    and explain the basic coverage and policy provisions ofhealth insurance plans.

    LG 8 - Assess the need for and features of long-term careinsurance and disability insurance.

    Learning

    Goals

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    8 - 3Chapter 8 - Insuring Your Life and Health

    Internet Links and On-Line Resources

    Manulife Financials Insure Right Calculator

    Survivor Benefits under the Canada Pension Plan

    Find your life expectancy at Dinkytown.net

    Find out more about various life insurance products and

    policy types at the Canadian Life and Health Insurance

    Association website.

    Get quotes on term life policies at Term Life Insurance

    Canada.

    Get details of coverage provided through CompCorp.

    Web Links

    http://www.manulife.ca/canada/ulcalcs.nsf/lrcaclc?readformhttp://www.sdc.gc.ca/en/isp/cpp/cpptoc.shtmlhttp://www.dinkytown.net/http://www.clhia.ca/http://www.clhia.ca/http://www.termcanada.ca/http://www.termcanada.ca/http://www.compcorp.ca/http://www.compcorp.ca/http://www.termcanada.ca/http://www.termcanada.ca/http://www.clhia.ca/http://www.clhia.ca/http://www.dinkytown.net/http://www.sdc.gc.ca/en/isp/cpp/cpptoc.shtmlhttp://www.manulife.ca/canada/ulcalcs.nsf/lrcaclc?readform
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    8 - 4Chapter 8 - Insuring Your Life and Health

    Key Chapter Terms and Definitions

    Risk avoidance

    Loss prevention Loss control Risk assumption Insurance policy Underwriting Multiple-of-earnings method Needs analysis method

    Canada Pension survivors benefits Term life insurance Straight- or level-term policy Decreasing-term policy Renewability Convertibility provision Whole life insurance Cash value

    Nonforfeiture right Universal life insurance Group life insurance Credit life insurance Mortgage life insurance

    Beneficiary

    Policy loan Accidental death or multiple indemnity

    clause Disability clause Guaranteed insurability or purchase

    option Participating policy Group health insurance Workers compensation insurance Medical reimbursement account Deductible Participating (coinsurance) clause Internal limits Coordination of benefits provision Preexisting condition clause

    Long-term care Waiting (elimination) period Guaranteed renewability Optional renewability Disability insurance

    Terms

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    8 - 5Chapter 8 - Insuring Your Life and Health

    DefinitionsRisk Avoidance

    Avoidance of an act that would create a risk.

    Terms

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    8 - 6Chapter 8 - Insuring Your Life and Health

    DefinitionsLoss prevention

    Any activity that reduces the probability that a losswill occur.

    Terms

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    8 - 7Chapter 8 - Insuring Your Life and Health

    DefinitionsLoss control

    Any activity that lessens the severity of loss onceit occurs.

    Terms

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    8 - 8Chapter 8 - Insuring Your Life and Health

    DefinitionsRisk assumption

    The choice to accept and bear the risk of loss.

    Terms

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    8 - 9Chapter 8 - Insuring Your Life and Health

    DefinitionsInsurance policy

    A contract between the insured and the insurerunder which the insurer agrees to reimburse the

    insured for any losses suffered according tospecified terms.

    Terms

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    8 - 10Chapter 8 - Insuring Your Life and Health

    DefinitionsUnderwriting

    The process used by insurers to decide who theywill insure and to determine applicable rates they

    will charge for premiums.

    Terms

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    8 - 11Chapter 8 - Insuring Your Life and Health

    DefinitionsMultiple-of-earnings method

    A method of determining the amount of lifeinsurance coverage needed by multiplying gross

    annual earnings by some selected (often arbitrary)number.

    Terms

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    8 - 12Chapter 8 - Insuring Your Life and Health

    DefinitionsNeeds analysis method

    A method of determining the amount of lifeinsurance coverage needed by considering the

    persons financial obligations and his or heravailable financial resources in addition to lifeinsurance.

    Terms

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    8 - 13Chapter 8 - Insuring Your Life and Health

    DefinitionsCanada Pension survivors benefits

    Benefits included under provision of the CanadaPension Plan that are intended to provide support

    to families faced with the loss of their principalwage earners.

    Terms

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    8 - 14Chapter 8 - Insuring Your Life and Health

    DefinitionsTerm life insurance

    Insurance that provides only death benefits, for aspecified period, and does not provide for the

    accumulation of cash value.

    Terms

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    8 - 15Chapter 8 - Insuring Your Life and Health

    DefinitionsStraight- or level-term policy

    A term insurance policy that is written for a givennumber of years, with coverage remaining

    unchanged throughout the effective period.

    Terms

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    8 - 16Chapter 8 - Insuring Your Life and Health

    DefinitionsDecreasing - term policy

    A term insurance policy that maintains a levelpremium throughout all periods of coverage, but

    decreases the amount of protection.

    Terms

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    8 - 17Chapter 8 - Insuring Your Life and Health

    DefinitionsRenewability

    A term life policy provision that allows the insuredto renew his or her policy at the end of its term

    without having to show evidence of insurability.

    Terms

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    8 - 18Chapter 8 - Insuring Your Life and Health

    DefinitionsConvertibility provision

    A term life policy provision that allows the insuredto convert the policy to a comparable whole life

    policy.

    Terms

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    8 - 19Chapter 8 - Insuring Your Life and Health

    DefinitionsWhole life insurance

    Life insurance designed to offer ongoing insurancecoverage over the course of an insureds entire

    life; it provides stated death benefits and allowsfor the accumulation of cash value.

    Terms

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    8 - 20Chapter 8 - Insuring Your Life and Health

    DefinitionsCash value

    The accumulated refundable value of an insurancepolicy; results from the investment earnings on

    paid-in insurance premiums.

    Terms

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    8 - 21Chapter 8 - Insuring Your Life and Health

    DefinitionsNonforfeiture right

    A life insurance feature that gives the whole lifepolicyholder, on policy cancellation, the portion of

    those assets that had been set aside to providepayment for the future death claim.

    Terms

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    8 - 22Chapter 8 - Insuring Your Life and Health

    DefinitionsUniversal life insurance

    A form of permanent cash value insurance thatcombines term insurance (death benefits) with a

    tax-sheltered savings/investment account thatpays interest at competitive money market rates.

    Terms

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    8 - 23Chapter 8 - Insuring Your Life and Health

    DefinitionsGroup life insurance

    A type of life insurance that provides a masterpolicy for a group and each eligible member of the

    group receives a certificate of insurance.

    Terms

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    8 - 24Chapter 8 - Insuring Your Life and Health

    DefinitionsCredit life insurance

    A type of life insurance sold in conjunction withinstallment loans; usually a term policy of less

    than five years, with a face value that correspondsto the outstanding balance on a loan.

    Terms

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    8 - 25Chapter 8 - Insuring Your Life and Health

    DefinitionsMortgage life insurance

    A term policy designed to pay off the mortgagebalance in the event of the borrowers death.

    Terms

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    8 - 26Chapter 8 - Insuring Your Life and Health

    DefinitionsBeneficiary

    A person who receives the death benefits of a lifeinsurance policy on the insureds death.

    Terms

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    8 - 27Chapter 8 - Insuring Your Life and Health

    DefinitionsPolicy loan

    An advance, secured by the cash value of a wholelife insurance policy, made by an insurer to the

    policyholder.

    Terms

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    8 - 28Chapter 8 - Insuring Your Life and Health

    DefinitionsAccidental death or multiple indemnity clause

    A clause in a life insurance policy that typicallydoubles or triples the policys face amount in the

    event the insured dies in an accident.

    Terms

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    8 - 29Chapter 8 - Insuring Your Life and Health

    DefinitionsDisability clause

    A clause in a life insurance contract containing awaiver-of-premium benefit alone or coupled with

    disability income.

    Terms

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    8 - 30Chapter 8 - Insuring Your Life and Health

    DefinitionsGuaranteed insurability or purchase option

    An option in a life insurance contract giving thepolicyholder the right to purchase additional

    coverage at stipulated intervals without providingevidence of insurability.

    Terms

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    8 - 31Chapter 8 - Insuring Your Life and Health

    DefinitionsParticipating policy

    A life insurance policy that pays policy dividendsthat reflect the difference between the premiums

    that are charged and the amount of premiumnecessary to fund the actual mortality experienceof the company.

    Terms

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    8 - 32Chapter 8 - Insuring Your Life and Health

    DefinitionsGroup health insurance

    A type of health insurance consisting of contractswritten between a group (for example, employer,

    union, or other organization) and a privateinsurance company.

    Terms

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    8 - 33Chapter 8 - Insuring Your Life and Health

    DefinitionsWorkers compensation insurance

    A type of insurance required by provincial andterritorial governments and paid for by employers

    that compensates workers for job-related illness orinjury.

    Terms

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    8 - 34Chapter 8 - Insuring Your Life and Health

    DefinitionsMedical reimbursement account

    An account into which employers placecontributions that employees can use to pay for

    medical expenses. Usually combined with a high-deductible health insurance policy.

    Terms

    f

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    8 - 35Chapter 8 - Insuring Your Life and Health

    DefinitionsDeductible

    The initial amount NOTcovered by an insurancepolicy and therefore the responsibility of the

    insured; it is usually determined on a calendar-year or on a per-illness or per-occurrence basis.

    Terms

    f

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    8 - 36Chapter 8 - Insuring Your Life and Health

    DefinitionsParticipation (coinsurance) clause

    A provision in many health insurance policiesstipulating that the insurer will pay some portion

    of the amount of the covered cost in excess of thedeductible.

    Terms

    D fi i i

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    8 - 37Chapter 8 - Insuring Your Life and Health

    DefinitionsInternal limits

    A feature commonly found in health insurancepolicies that places a constraint on the amounts

    that will be paid for certain specified expenseseven if the overall policy limits are notexceededby the claim.

    Terms

    D fi i i

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    8 - 38Chapter 8 - Insuring Your Life and Health

    DefinitionsCoordination of benefits provision

    A provision often included in health insurancepolicies to prevent the insured from collecting

    more than 100 percent of covered charges; itrequires that benefit payments be coordinated inthe event the insured is eligible for benefits undermore than one policy.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsPreexisting condition clause

    A clause included in most individual healthinsurance policies that permits permanent or

    temporary exclusion of coverage for any physicalor mental problems the insured had at the timethe policy was purchased; this clause, if includedat all, is much less restrictive in group policies.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsLong-term care

    The delivery of medical and personal care, otherthan hospital care, to persons with chronic medical

    conditions resulting from either illness or frailty.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsWaiting (elimination) period

    The period, after the insured meets the policyseligibility requirements, during which he or she

    must pay long-term care expenses; after thewaiting period expires, the insured will begin toreceive benefits for the duration of the policy aslong as its eligibility requirements continue to be

    met.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsGuaranteed renewability

    Policy provisions ensuring continued insurancecoverage for the insureds life-time as long as he

    or she continues to pay the premiums. Theinsurer may raise the premiums in the future,however, if the claims experience for the insuredspeer group of policyholders is unfavourable.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsOptional renewability

    Contractual clause allowing the insured tocontinue insurance only at the option of the

    insurer.

    Terms

    D fi iti

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    Chapter 8 - Insuring Your Life and Health

    DefinitionsDisability insurance

    Insurance that provides a weekly or monthlypayment to replace income when the insured is

    unable to work as a result of a covered illness,injury, or disease.

    Terms

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    THE END!