General Insurance Unabridged

Insurance Planning and Legal Coverage

When “de-risking” won’t protect you from misfortune, transfer the risk to a 3rd party (e.g. insurance company

Insurable Interest

Can only insure against loss that you yourself would suffer a loss on

Indemnity

Your maximum reimbursement is the value of the item

Screening and segregation of applicants

Separating people based on their risk categories

Deductibles

Insurance company reimburses individuals’ claims only for the amount above an established minimum [insured pays before insurance provider]

Coinsurance

Policyholder pays a stated % of the outlay along with the insurance company e.g. 80/20 co-insurance (insurance co. pays 80% and insured pays 20%)

Coinsurance can take the following forms

Exclusions, Waiting periods, Prespecified Limits, Experience-Based Alteration in Policy Costs, Use of Group Policies

Exclusions

Eliminating certain conditions from insurance payout

Waiting Periods

Amount of time before reimbursements are allowed

Prespecified Limits

Establishes the amount the insurance company is willing to pay contractually

Experience Based Alteration in Policy Costs

Charges rates to policy holders based on their loss experiences as clients

Use of Group Policies (Adverse Selection)

Motivates employers to help monitor for moral and morale hazards

• Reduces processing and marketing costs

Property Insurance - Homeowners Insurance Coverages Section I

A: Attached - Dwelling + any structures attached to dwelling (garage,deck,fence)

B: Backyard- Other structures (pool, detached garage, fences)

C: Contents - Personal Property; provides coverage anywhere in the world; has special limits

D: Damage- Loss of Use - Insurances additional living expenses due to damage of insured property

Property Insurance - Homeowners Insurance Coverages Section II

E: Enemies - Personal Liability; insured legally liable for bodily injury or property damage (insurance co. gets rights to settle any lawsuits)

F: First Aid - Medical Payments; provides limited amount (per person( for necessary medical expenses involving persons other than the insured while on insured’s property

Coverage needed & payout for homeowners insurance

ACV (Actual Cash Value) – Default coverage, Equals RCV - Depreciation

RCV (Replacement Cash Value) – Must opt into RCV, costs 20% more than ACV, depreciation NOT considered

If purchased RCV, determine if properly insured or underinsured

Primary residence (homeowner) insurance coverage must be >= 80% of dwelling’s RCV to receive

100% of loss amount

f have RCV but underinsured (< 80% homeowner’s coverage), insurance company applies a formula to determine reimbursement amount:

Insurance Reimbursement = Amount of Insurance in Force/ Amount of Insurance Required x Amount of Loss - Deductible

Amount of Insurance Required = Coinsurance percentage x replacement cost

Personal Auto Policy (PAP)

Covers liability, medical payments, and damage

• Owner of the vehicle, not the driver, is the insured (includes resident family members)

PAP Exclusions

• Intentional damage

• Rental use

• Business use

PAP Pricing Factors

e.g. type of the car, age of drivers, previous accident and driving violations record

Before signing a PAP:

Understand deductibles

• Know what’s excluded

• Compare liability limits

Collision

covers inanimate objects while auto is moving

Other-than-collision (Comprehensive)

covers animate objects

Liability Insurance

Protects you personally against having to pay for losses to others

3rd party liabilities occur through personal injuries and property damage to

others (caused by you)

• Extend to your home and you + family members

• Basic liability insurance purchased within homeowners’ and auto insurance policies

• Additional liability coverage purchased through a separate umbrella liability insurancepolicy

Umbrella Liability Insurance

Provides excess liability coverage on home and auto

• Covers personal injury liability, slander and defamation

• $1mm-$10mm coverage

• Premiums inexpensive

Does not pay til basic liability insurance policy pays first!

Health Insurance

Health insurance pays for medical expenses (illness or accident)

Majority of Americans receive medical coverage via their employer or gov’t

• Healthcare expenses for Americans has changed dramatically in recent

decades

• When corporations were able to shift the financial burden shifted to individuals

• Relieved from having to provide a single, comprehensive health insurance plan (BC/BS), corporations began offering several options based on cost and quality

All medical coverage includes:

Basic medical expenses + major medical policies

Health maintenance Organizations (HMOs)

Provides full range of medical services for a flat fee

• Primary care physicians used as “gatekeepers”

• [OK-least expensive]

Preferred Provider Organizations (PPO)

Unlike HMOs, primary care physicians not used as “gatekeepers” whose approval is needed in order to be reimbursed for additional service

• [GOOD; more $$ than HMO but PCP doesn’t coord specialty visits]

Point of Service Systems (POS)

Patients can choose either POS or non-POS healthcare providers

• [VERY GOOD-more complex, p367]

Blue Cross Blue Shield (BC/BS)

• A traditional provider given nonprofit status by individual states

• Before the 70’s, it was common for companies to pay the full amount for employee medical bills

• Today, BC/BS competes with other provider types.

• [EXCELLENT-most expensive among group insurance options]

Individual, non group health insurance policies

Individuals independently choose hospitalization, surgeries, ongoing medical expenditures cost/quality options

• [BEST-more expensive than group health insurance]

Basic medical expense

• Nonsurgical costs (in or out of the hospital)

• Hospital costs such as room, board and ancillary services

• Surgeon’s costs (in or out of the hospital)

Major medical expenses

• Used for expensive care

• However, each plan has varying deductible and participation requirements

Maximum-out-of-pocket (MOOP)

deductible + insured's portion of the coinsurance (capped)

Stop-loss limit

Max amount of expenses after deductible paid by insured

(Moop-Deductible)/Insured Coinsurance %

COBRA (consolidated omnibus budget reconciliation act of 1986)

COBRA applies to employers with group plans covering 20+ employees

• COBRA requires employees be allowed to continue their group health insurance coverage if coverage was lost for certain reasons

COBRA - Termination or reduction in hours of employment

max period of continuation coverage: 18 months

COBRA: employee enrollment in Medicare

max period of continuation coverage: 36 months

COBRA: Divorce or legal separation

max period of continuation coverage: 36 months

COBRA: death of employee

max period of continuation coverage: 36 months

COBRA: loss of “dependent child” status under the plan

max period of continuation coverage: 36 months

Disability Insurance

Provides benefits when unable to work due to accident or illness

Two forms of disability:

1. Short-term disability (up to two years)

2. Long-term disability (covers longer periods (up to age 65))

Own Occupation Disability

unable to work current job (best definition)

Any occupation disability

unable to work any job (Broader, worst definition)

Elimination Period

time before disability payments begin (e.g. 3-6 mos)

Residual Benefit

A partial payment when you have returned to your job but with a shorter

work week and reduced income

Preexisting Condition

Will not pay out benefits for illnesses or injury that occurred within a

period of time before the policy was activated.

Rehabilitation Benefit

Reimbursement for rehabilitation that helps a person get back into the

workforce more quickly.

concerns about potential worker incentives to profit

from illnesses means that…

most coverage of disability policies is limited to 60% of income

Long-Term Care Insurance

reimburses expenses incurred when unable to perform basic activities of daily living

Government Insurance

• Establishes a minimum quality of life for all citizens

− Employers and employees fund social insurance payments through mandatory payroll withholding

– Principal government insurance programs:

1. Social Security

2. Worker’s Compensation

3. Disability Payments

4. Unemployment Insurance

Worker’s Compensation

“No fault” insurance, provides income to people injured on the job

• Individual businesses are required to participate

• Regulated by the states

Unemployment Insurance

Provides payments when terminated from previous job

Organized by the federal government, managed by the states and funded by individual businesses

Benefit amount varies by state: Fixed sum or percentage of income

Typically lasts 24-26 weeks, managed at the State level (Federal not involved)

• Will not qualify if fired for misconduct

Medicare

People aged 65+ are eligible for Medicare

Earlier if have end stage renal disease or ALS (Amyotrophic Lateral Sclerosis)

• Must be covered by Social Security

Medicare Part A

Hospital Care + Free Cost

Medicare Part B

Doctor’s Charges + $164.60/mo (2024)

Medicare Part C

Medicare Advantage Plan (extra coverage) - pays additional expenses when basic Medicare end + Premium varies by plan

Medicare Part D

Prescription Drugs + Premium Varies by plan

Medicaid

For low-income Americans, pays 100% of basic medical coverage

• Run by individual states (with federal and state funds combined)

• Medicaid also covers younger people who don’t qualify for Medicare

Social Security - Disability Insurance

Pays disability income to people unable to work for 2+ years

Any occupation” disability (worst form)

• Elimination period is five months (benefits begin in month six)