Financial Lit - Insurance

insurance

contract (insurance policy) where one party (insurer) agrees to pay another party (insured) for losses affecting the insured’s interests (the insurable interest)

premium

the consideration (money) the insurer receives for paying the loss

homeowner’s insurance

provides coverage for losses due to damage or destruction of a home

life insurance

provides coverage after the insure party’s death, often to family members left behind (beneficiary)

term insurance

sold for a specific time period

whole life insurance

provides coverage throughout the insured’s life (has cash value)

health insurance

pays for hospital and medical treatment

disability insurance

provides a monthly income when one becomes disabled

automobile insurance

provides coverage for automobile accidents and damage to the insured’s automobile

liability

covers the damages if the (insured) driver injures someone or damages someone’s property in an automobile accident

collision insurance

pays for damage to the insured automobile when it is involved in a collision

comprehensive insurance

covers damage to the insured automobile resulting from causes other than collision (hail)

title insurance

protects a buyer of reality in the event that the seller did not have a clear title to that property

social insurance

protection of individuals against economic hazards such as unemployment, old age, or disability

medicare

a government program of medical care for the aged

social security

a program of the US government that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents

worker’s compensation insurance

protect workers who are injured on the job

malpractice insurance

insurance purchased by physicians and hospitals to cover the cost of being sued for malpractice

excess liability insurance

called an “umbrella” policy that provides liability coverage for at least $1 million. Added to homeowner’s insurance policy to cover liability for accidents on or away from insured property

Who should get life insurance?

Parents

People who will be missed financially

How does life insurance help?

Helps:

pay the bills

continue a family business

finance future needs like your children’s education

protect your spouse’s retirement plans

What is the biggest asset that you need to have insurance for?

Disability

when should people consider disability insurance?

When they start a full-time job

Most disability insurance policies will replace

60-80% of your income

health insurance premium

what you need to pay every month to maintain your insurance. Covers preventative care

deductible

amount of money you have to pay before insurance pays for costs

out of pocket maximum

most money you will pay for health care over an entire year

co-pay

the fixed amount you pay for a service, insurance pays rest

co-insurance

percentage you pay for a service, insurance pays the rest

5 health insurance plans

1. indemnity

2. HMO

3. PPO

4. POS

5. HSA

Indemnity plan

has the most choice, doctor of your choice

any doctor

co-insurance (%)

Responsible for difference if medical cost is > than usual cost

majority of procedures will be covered

The insurer pays 80% and you pay 20%

most expensive plan

HMO (Health Maintenance Organization)

Less choice

Monthly premium

Primary care physician

Need referral to see a specialist

Most affordable because this plan negotiates discounts with doctors

Co-pay

PPO (Preferred Provider Organization)

Similar to INDEMNITY plan (can see any doctor)

Also have “in-network” doctors that have lower rates (negotiated discounts)

If you see “in-network”, you pay co-pay

Also have out of network doctors, you pay co-insurance

Deductible (higher deductible, lower premium and lower deductible, high premium)

POS (Point of Service)

Hybrid of HMO and PPO
Primary care physician (like HMO) , co-pay

Also has PPO network, co-pay and co-insurance

Can go to see any doctor (outside of HMO and PPO) and pay higher co-pay and higher co-insurance

You can go through a primary care physician, in which case the services will be covered under HMO-like guidelines (usually just a copayment will be required)

HSA (Health Savings Account)

Medical saving account (tax-free so it’s “cheaper”)

Pays for non-covered medical expenses (co-pays, contact lenses, plastic surgery, lasik, prescriptions, medical equipment, etc.)

Put money away that will pay for elective procedures that insurance won’t pay for

not an insurance plan

aka flex spending