Ch. 8, 9, 10 (Chapter 8 (Insuring Your Life (8-3 How Much Life Insurance…
Ch. 8, 9, 10
Insuring Your Life
8-1 Basic Insurance Concepts
8-1a The Concept of Risk
Risk is the chance of economic loss
Strategies to reduce risk
Avoiding risks entirely
E.x. not driving a car to avoid getting in a car accident
Loss Prevention and Loss Control
Loss control examples: wearing a seatbelt or buying a car with air bags
Acceptance of the risks
Pay a relatively small premium and get a promise that if something breaks, it will be reimbursed
Aka giving the insurance company the risk of the loss
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8-1b Underwriting Basics
The process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums
Supposed to help guard against adverse reaction
When only high risk people apply for and get coverage
Always trying to get better at it
In order to set premium rates that will protect policyholders adequately and yet be competitive and reasonable
Life vs health insurance
Replaces lost income in the event of premature death
Covers medical costs when sick as well as plans that relate to disabilities and long term care
8-2 Why Buy Life Insurance
8-2a Benefits of Life Insurance
Can they stay in the same home if you're gone? Can they afford college? Will they have good access to money for food?
Protection from creditors
A life insurance policy can be structured so that death benefits are paid directly to a named beneficiary, which means that creditors cannot claim the cash
Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes, and under certain circumstances, they can pass to named beneficiaries free of any estate taxes.
Some types of life insurance policies can serve as a savings vehicle, particularly for those who are looking for safety of principal.
8-2b Do You Need Life Insurance?
Neither a single adult without children or other relatives to support typically needs life insurance, nor does a child.
Life insurance requirements of married couples depend on their earning potential and assets—such as a house—that they want to protect.
8-3 How Much Life Insurance is Right for You?
8-3a Step 1: Assess Your Family’s Total Economic Needs
What financial resources will my survivors need should I die tomorrow?
Income needed to maintain an adequate lifestyle.
Estimate monthly need by reviewing your family’s current monthly budget, including expenses for housing costs, utilities, food, clothing, and medical and dental needs.
Also consider other expenses such as property taxes, insurance, recreation and travel, and savings.
Extra expenses if an income producer dies.
These expenses include funeral costs and any expenses, such as child care and housekeeping, that might be incurred to replace services currently provided by the insured or surviving spouse, who must give up those responsibilities and find a job
Special needs of dependents
such as long-term nursing care for a disabled or chronically ill child, an emergency fund for unexpected financial burdens, or a college education fund for your children.
It’s necessary to determine the average amount needed to pay off outstanding bills and other similar obligations, possibly including the home mortgage.
If a high percentage of your wealth is in illiquid assets, the cash proceeds from life insurance can be used to pay bills and maintain assets until they are sold at a fair market value or re-titled to an heir
8-3b Step 2: Determine What Financial Resources Will Be Available After Death
The resources typically include money from savings, investments, Social Security survivor’s benefits, possible proceeds from employer-sponsored group life insurance policies, mutual funds, and proceeds from selling selected other assets that can be liquidated comfortably.
8-3c Step 3: Subtract Resources from Needs to Calculate How Much Life Insurance You Require
Subtract part two from part one
If available resources are greater than anticipated needs, then no additional life insurance is required.
Review every five years or after a big life change (having a kid, buying a home, job change, marital status change)
Social Security survivor’s benefits
Benefits under Social Security intended to provide basic, minimum support to families faced with the loss of a principal wage earner
Buying the Right Life Insurance at the Right Price Tips
Don’t let an insurance agent tell you how much insurance you need. Use the methods in this chapter to determine the right amount of insurance for you. Agents often have a strong motivation to sell large policies—the larger, the better
Consult an independent insurance broker. Independent brokers have access to more products than the representative of any single company
Just say no to one-meeting recommendations. A broker who makes a recommendation in the first meeting is moving too fast and probably is not considering all of your best options
Know how your agent is compensated. Is he or she compensated by a commission-alone, fee-plus-commission, or fee-only structure? If you don’t know how your broker is paid, you cannot recognize possible conflicts of interest
Keep your insurance and investment decisions separate. Term insurance provides protection against premature death alone, without a savings element. Whole life and universal life policies provide both insurance and savings; consequently, they cost much more. If you combine insurance and investing, make sure you understand why and the costs of doing so. Most people buy separate insurance and investment products
Always do some comparison shopping. There are lots of alternatives, with major price differences for essentially the same product
Avoid replacing old whole-life insurance policies. After holding a whole-life policy for years, you may lose the premiums that you’ve paid and pay more administration fees if you replace it. Just buy more insurance if your circumstances warrant doing so
Avoid buying expensive riders. Insurance agents often try to sell riders that provide special, extra coverage. Make sure that you need any riders that you buy
Consider your budget when buying insurance. Make sure you understand and can afford new insurance before you buy it
8-3d Life Insurance Underwriting Considerations
It begins by asking potential insureds to complete an application designed to gather information for use in estimating the likelihood that the insured will die while the life insurance policy is in effect.
How Much Life Insurance is Right for You?
Two methods to estimate how much insurance is needed
The multiple-of-earnings method
A rough rule of thumb used by many insurance agents is that your insurance coverage should equal 5 to 10 times your current income.
Needs analysis method
Takes into account financial obligations and resources
8-4 What Kind of Policy is Right for You?
8-4a Term Life Insurance
Term Life Insurance
Insurance that provides only death benefits, for a specified period, and does not provide for the accumulation of cash value
Straight (or level) term
a term insurance policy written for a given number of years, with coverage remaining unchanged throughout the effective period
The annual premium on a straight term policy can increase each year on an annual renewable term policy or remain level throughout the policy period on a level premium term policy
a term insurance policy that maintains a level premium throughout all periods of coverage while the amount of protection decreases
a term life policy provision allowing the insured to renew the policy at the end of its term without having to show evidence of insurability
8-4b Whole Life Insurance
Whole Life Insurance
life insurance designed to offer ongoing insurance coverage over the course of an insured’s entire life
8-4c Universal Life Insurance
permanent cash-value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest, usually at competitive money market rates
Savings feature. A universal life insurance policy credits cash value at the “current” rate of interest, and this current rate of interest may well be higher than the guaranteed minimum rate.
Flexibility. The annual premium that you pay can be increased or decreased from year to year because the cost of the death protection may be covered from either the annual premium or the accumulation account (i.e., the cash value).
If the accumulation account is adequate, you can use it to pay the annual premium. The death benefit also can be increased (subject to evidence of insurability) or decreased, and you can change from the level benefit type of policy to the cash value plus a stated amount of insurance.
Changing premiums and protection levels. A policyholder who economizes on premium payments in early years may find that premiums must be higher than originally planned in later policy years to keep the policy in force. Indeed, some policyholders expect their premiums to vanish once cash value builds to a certain level, but often the premiums never disappear, or they reappear when interest rates fall.
Charges or fees. Universal life usually carries heavy fees compared to other policy types. Most states require the insurance company to issue an annual disclosure statement spelling out premiums paid, all expenses and mortality costs, interest earned, and beginning and ending cash values.
Universal life is a suitable choice if you’re looking for a savings vehicle with greater potential returns than offered by a whole life policy. Its flexible nature makes it particularly useful for people anticipating changes, such as the birth of a child, that require changes in death protection.
8-4d Other Types of Life Insurance
8-5 Buying Life Insurance
8-5a Compare Costs and Features
8-5b Select an Insurance Company
firm’s reputation, its financial history, commissions and other fees, and the specifics of their policy provisions. If you’re choosing a company for a cash-value life insurance policy, the company’s investment performance and dividend history are also important considerations.
limit the companies that you consider to those that have been doing business for 25 years or more and that have annual premium volume of more than $100 million.
8-5c Choosing an Agent
Does the agent have a college degree with a major in business or insurance? Does the agent have a professional designation, such as Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), or Certified Financial Planner® (CFP®)? These designations are awarded only to those who meet experience requirements and pass comprehensive examinations in such fields as life and health insurance, estate and pension planning, investments, and federal income tax law.
8-6 Key Features of Life Insurance Policies
8-6a Life Insurance Contract Features
All life insurance policies should have one or more beneficiaries. An insured should name both a primary beneficiary and various contingent beneficiaries.
Watching for Agent's Conflict of Interest
Agents only rarely disclose their commissions—and likely will do so only if you ask. Ask agents about the commissions that they receive on competing insurance products. If they balk at the request, it’s time to find another agent
Agents often avoid bringing up the negative aspects of a policy to make the sale. This also tempts some agents to oversimplify policy features. You need to ask the hard questions
While some existing policies should be kept and some replaced, agents only get paid for giving advice when it leads to commissions. So agents can be unreliable sources of advice about the performance of an existing policy. Getting a second opinion from an agent with another firm is always a good idea
Watch out when agents present company illustrations and projections of future policy performance. It’s hard to make good decisions solely on the basis of comparing one illustration with another. Don’t accept the projections and assumptions uncritically
Be aware that some lawyers, accountants, and financial planners don’t ask hard questions about life insurance proposals because they depend on life insurance agents for business referrals. Thus, it can be hard to find objective sources of advice concerning life insurance proposals. Consider using a fee-only insurance advisor
Notwithstanding these potential conflicts of interest, you can accomplish a lot by doing your own homework and by relying on recommended advisors who are true fiduciaries that put their clients first
Lump sum. This is the most common settlement option, chosen by more than 95 percent of policyholders. The entire death benefit is paid in a single amount, allowing beneficiaries to use or invest the proceeds soon after death occurs
Interest only. The insurance company keeps policy proceeds for a specified time; the beneficiary(ies) receives interest payments, usually at competitive market rates with a guaranteed below-market minimum rate. This option is used when there’s no current need for the principal—for example, proceeds could be left on deposit until children go to college, with interest supplementing family income. However, it’s important to be aware that the interest received is normally taxable
Fixed period. The face amount of the policy, along with interest earned, is paid to the beneficiary over a fixed time period. For example, a 55-year-old beneficiary may need additional income until Social Security benefits start
Fixed amount. The beneficiary receives policy proceeds in regular payments of a fixed amount until the proceeds run out
Life income. The insurer guarantees to pay the beneficiary a certain amount for the rest of his or her life, based on the beneficiary’s sex, age when benefits start, life expectancy, policy face value, and interest rate assumptions.
This option appeals to beneficiaries who don’t want to outlive the income from policy proceeds and then become dependent on others for support. An interesting variation of this settlement option is the life-income-with-period-certain option, which guarantees a specified number of payments that would pass to a secondary beneficiary if the original beneficiary dies before the period ends
an advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder
Although these loans do not have to be repaid, any balance plus interest on the loan remaining at the insured’s death is subtracted from the proceeds of the policy.
a nonforfeiture option pays a cash value life insurance policyholder the policy’s cash value when a policy is terminated before its maturity. State laws require that all permanent whole, universal, or variable life policies contain a nonforfeiture provision.
Rather than receiving the policy’s cash value, insurance companies usually offer the following two options—paid-up insurance and extended term insurance:
Paid-up insurance. The policyholder uses the cash value to buy a new, single premium policy with a lower face value. For example, a policy canceled after 10 years might have a cash value of $90.84 per $1,000 of face value, which will buy $236 of paid-up whole life insurance. This paid-up insurance is useful because the cash value would continue to grow from future interest earnings, even though the policyholder makes no further premium payments. This option is useful when a person’s income and need for death protection decline, but he or she still wants some coverage.
Extended term insurance. The insured uses the accumulated cash value to buy a term life policy for the same face value as the lapsed policy and a coverage period determined by the amount of term protection that the single premium payment buys at the insured’s present age. This option usually goes into effect automatically if the policyholder quits paying premiums and gives no instructions to the insurer.
As long as a whole life policy is under the reduced paid-up insurance option or the extended term insurance option, the policyholder may reinstate the original policy, usually within three to five years of its lapsing, by paying all back premiums, plus interest at a stated rate, and by providing evidence that he or she can pass a physical examination and meet any other insurability requirements.
Change in Policy
Many life insurance contracts contain a provision that permits the insured to switch from one policy form to another. For instance, a policyholder may decide that he’d rather have a policy that is paid up at age 65 rather than his current, continuous premium whole life policy. A change-of-policy provision allows this change without penalty.
Going from lower to higher may require an insurability check up
8-6b Other Policy Features
Multiple Indemnity Clause
a clause in a life insurance policy that typically doubles or triples the policy’s face amount if the insured dies in an accident
a clause in a life insurance contract containing a waiver-of-premium benefit alone or coupled with disability income
Guaranteed Purchase Option
an option in a life insurance contract giving the policyholder the right to purchase additional coverage at stipulated intervals without providing evidence of insurability
Nearly all life insurance policies have a suicide clause that voids the contract if an insured commits suicide within a certain period, typically two years after the policy’s inception.
Other than the suicide clause, the only common exclusions are aviation, war, and hazardous occupation or hobby.
a life insurance policy that pays policy dividends reflecting the difference between the premiums that are charged and the amount of premium necessary to fund the actual mortality experience of the company
Also called accelerated benefits, this feature allows the insured to receive a percentage of the death benefits from a whole or universal life policy prior to death.
Some insurers offer this option at no charge to established policyholders if the insured is diagnosed with a terminal illness that is expected to result in death within a specified period (such as six months to a year) or needs an expensive treatment (such as an organ transplant) to survive.
These benefits can also be added as a living benefit rider that pays a portion of a policy’s death benefit in advance, usually about 2 percent per month, for long-term health care such as nursing home expenses.
This rider can add an extra 5 to 15 percent to the normal life insurance premium, and benefits are capped at some fixed percentage of the death benefit.
Like a living benefits feature, this option allows a terminally ill insurance holder to receive a percentage of the insurance policy’s death benefit for immediate use. But unlike the living benefits feature, this isn’t handled through the insurance company but rather through a third-party investor.
The insured sells an interest in the life insurance policy to the investor, who then becomes the policy’s beneficiary, and then receives a cash amount from that investor—most commonly 60 percent of the policy value. After the insured dies, the investor receives the balance from the policy.
Approach viatical settlements carefully because they mean giving up all future claims on the life insurance policy and can also affect the insured’s Medicaid eligibility in some cases.
8-6c Understanding Life Insurance Policy Illustrations
Life Insurance Policy Illustrations
a hypothetical representation of a life insurance policy’s performance that reflects the most important assumptions that the insurance company relies on when presenting the policy to a prospective client
typically has two parts
Guaranteed illustration. The insurance company is required by law to disclose the worst-case scenario, which shows the effects of the insurer crediting the minimum interest and charging the maximum amount based on standard mortality tables. It’s safe to assume that the benefits, cash surrender value, and accumulated values will never be lower than what this scenario presents.
Current illustration. This is the insurance company’s representation of policy performance based on the credit rates and mortality charges currently in effect.
Ask the insurance agent to provide an inforce reprojection that shows any changes in credits or charges that the insurance company has declared for the next policy year. These changes in credits and charges will affect premiums or benefits. Most agents will not provide this unless you ask them. Watch for any unanticipated premium increases.
Make sure the narrative summary has these things
Policy description, terms, and features. This section overviews the main components of the policy. Double-check that the policy’s premiums and benefit projections match your needs
Underwriting discussion. This provides a detailed description of the policy’s benefits, premiums and tax information
Column definitions and key terms. This defines the terms used in the illustration. Make sure that you understand all the definitions and terms
Disclaimer. This section informs the prospective client that the illustration’s portrayal of future values could vary from actual results
Signature page. This section provides a numerical summary of the illustration in 5- and 10-year increments. The insurance agent’s signature here acknowledges that he or she has explained that the nonguaranteed elements are subject to change, and your signature acknowledges that you understand this
Insuring Your Health
9-1 The Importance of Health Insurance Coverage
Over 15% of the working population don't have health insurance
Costly advances in medical technology, an aging U.S. population, and a poor demand-and-supply distribution of health care facilities and services
In addition, administrative costs, excessive paper work, increased regulation, and insurance fraud
from 1999 to 2017, the average annual premium for families experienced more than a three-fold increase
9-2 Health Insurance Plans
9-2a Private Health Insurance Plans
Private Health Insurance
health insurance consisting of contracts written between a group, (employer, union, etc.) and the health care provider
traditional indemnity (fee-for-service) plans
health insurance plan in which the health care provider is separate from the insurer, who pays the provider or reimburses you for a specified percentage of expenses after a deductible amount has been met (minimum # before you can actually be covered, aka bullcrap)
The amount the insurance company pays is commonly based on the usual, customary, and reasonable (UCR) charges—what the insurer considers to be the prevailing fees within your area, not what your doctor or hospital actually charges.
If your doctor charges more than the UCR, you may be responsible for the full amount of the excess.
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You pay 20% of expenses + deductible
managed care plans
a health care plan in which subscribers/users contract with the provider organization, which uses a designated group of providers meeting specific selection standards to furnish health care services for a monthly fee
Under a managed care plan, the insured pays no deductibles and only a small fee, or co-payment, for office visits and medications.
Most medical services—including preventive and routine care that indemnity plans may not cover—are fully covered when obtained from plan providers.
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9-2b Government Health Insurance Plans
a health insurance plan administered by the federal government to help persons age 65 and over, and others receiving monthly Social Security disability benefits, to meet their health care costs
administered by the Social Security Administration. It’s primarily designed to help persons 65 and over meet their health care costs, but it also covers many people under 65 who receive monthly Social Security disability benefits.
Basic hospital coverage
This coverage (commonly called Part A) provides inpatient hospital services such as room, board, and other customary inpatient service for the first 90 days of illness. A deductible is applied during the first 60 days of illness.
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Supplementary medical insurance
a voluntary program under Medicare (commonly called Part B) that provides payments for services not covered under basic hospital insurance (Part A)
covers the services of physicians and surgeons in addition to the costs of medical and health services such as imaging, laboratory tests, prosthetic devices, rental of medical equipment, and ambulance transportation.
It also covers some home health services (such as in-home visits by a registered nurse) and limited psychiatric care.
Unlike Medicare’s basic hospital insurance, SMI is a voluntary program for which participants pay premiums, which are then matched with government funds. Anyone age 65 or over can enroll in SMI.
Medicare Advantage plans
commonly called Plan C, these plans provide Medicare benefits to eligible people, but they differ in that they are administered by private providers rather than by the government. Common supplemental benefits include vision, hearing, dental, general checkups, and health and wellness programs
Prescription drug coverage
a voluntary program under Medicare (commonly called Part D), insurance that covers both brand-name and generic prescription drugs at participating pharmacies. Participants pay a monthly fee and a yearly deductible and must also pay part of the cost of prescriptions, including a co-payment or co-insurance
a state-run, public assistance program that provides health insurance benefits only to those who are unable to pay for health care
Each state has its own Medicaid regulations, eligibility requirements, and covered medical services.
Worker's Compensation Insurance
health insurance required by state and federal governments and paid nearly in full by employers in most states; it compensates workers for job-related illness or injury
Although mandated by the federal government, each state is responsible for workers’ compensation legislation and regulation.
Specifics vary from state to state, but typical workers’ compensation benefits include medical and rehabilitation expenses, disability income, and scheduled lump-sum amounts for death and certain injuries, such as dismemberment.
Premiums are based on defined job description classes, total payroll for the job classes, and claim filing history. Employers who file the most claims pay the highest rates.
Affordable Health Care Act of 2010
Businesses employing more than 50 full-time employees must provide health insurance for their employees, or else pay a penalty of $2,000 per employee in excess of 30 employees.
In addition, the ACA requires that health insurance plans provide the following features:
Cover pre-existing conditions
Parents must have the option to carry their children on their plan until age 26
Lifetime dollar limits on total insurance coverage are prohibited
Plans must cover preventive care and medical screenings
Insurers must spend at least 80 percent of premiums on claims
Ambulatory patient services
Maternity and newborn care
Mental health and substance use disorder services, including behavioral health treatment
Rehabilitative and habilitative services and devices
Preventive and wellness services and chronic disease management
Pediatric services, including oral and vision care
Provides four levels
9-3 Health Insurance Decisions
9-3a Evaluate Your Health Care Cost Risk
(1) expenses for medical care and rehabilitation and (2) loss of income or household services, generally 60-75%
A health insurance plan should include the following
Loss prevention and control.
For example, choosing insurance plans with deductibles and waiting periods is a form of risk assumption because it’s more economical to pay small amounts from savings than to consistently pay higher premiums to cover them
9-3b Determine Available Coverage and Resources
flexible-benefit (“cafeteria”) plan that allows them to choose fringe benefits. Typically, the menu of benefits includes more than one health insurance option, as well as life insurance, disability income insurance, and other benefits.
Health reimbursement account HRA
an account into which employers place contributions that employees can use to pay for medical expenses. Usually combined with a high-deductible health insurance policy
When the account balance is used up, you must pay the remaining deductible of the health insurance policy before insurance begins to pay. You can “roll over” the amount of unused money annually.
Health Savings Account HSA
a tax-free savings account—funded by employees, employer, or both—to spend on routine medical costs. Usually combined with a high-deductible policy to pay for catastrophic care
An HSA is also combined with a high-deductible insurance policy to pay for catastrophic care in case of major accident or illness, and—as with an HRA—any unused money can be rolled over each year. If you change jobs, the money in your HSA belongs only to you and is yours to keep.
If you’re laid off from or leave a job where you’ve had health benefits, then you are legally eligible to continue your coverage for a period of 18 months under federal COBRA regulations
You’ll be responsible for paying 102 percent of the group insurance rate if you decide to continue your coverage during this time, but you’ll still pay group insurance rates that are often less expensive than buying individual insurance.
The downsides of COBRA is that once you leave the employer, you then will have to pay the employer's and the employee's premiums. So, this is not going to be as cheap for you as it was when you were an employee. So, understand, when you quit with COBRA, yeah, you can still be part of this bigger group health plan, but you're going to have to pay both the employer and the employee's premiums.
Some companies provide health insurance to retirees, but most don’t, so you probably shouldn’t count on receiving employer-paid benefits once you retire. Know what your options are to ensure continued coverage for both you and your family after you retire. Medicare will cover basic medical expenses, but you’ll probably need to supplement this coverage with one of the 12 standard Medigap plans, which are termed plans “A” through “L.”
If you need or want to purchase additional medical insurance coverage on an individual basis, you can purchase a variety of policies from a private insurance company such as Aetna, CIGNA, or United Healthcare.
The National Committee for Quality Assurance (NCQA) is a nonprofit, unbiased organization that issues annual “report cards” that rate the service quality of various health plans.
9-3c Choose a Health Insurance Plan
If you can’t get coverage from an employer, get plan descriptions and policy costs from several providers—including a group plan from a professional or trade organization, if available—for both indemnity and managed care plans. You should also check the state or federal insurance exchange available to you.
Things to Keep in Mind
How important is cost compared with having freedom of choice?
You may have to pay more to stay with your current doctor if he or she is not part of a managed care plan that you’re considering.
Also, you have to decide if you can tolerate the managed care plan’s approach to health care
Some states have experimented in recent years with the community rating approach to health insurance premium pricing, which prohibits insurance companies from varying rates based on health status or claims history. The community is defined as the area in which the insurance is offered.
In the “pure” approach, all policyholders in an area pay the same premium without regard to their personal health, age, gender, or other factors. Under the adjusted (modified) community rating approach, insurers can adjust premiums based only on your family size, where you live, whether you use tobacco, and your age. The ACA requires insurance companies to adhere to the adjusted community rating approach for individuals and small businesses
Will you be reimbursed if you choose a managed care plan and want to see an out-of-network provider?
For most people, the managed care route is cheaper—even if you visit a doctor only once a year—because of indemnity plans’ “reasonable charge” provisions
What types of coverage do you need?
Everyone has different needs; one person may want a plan with good maternity and pediatric care, whereas another may want outpatient mental health benefits. It’s important to consider that the ACA mandates minimum essential coverage standard requirements, which could limit your ability to get the exact coverage you prefer
How good is the managed care network? Research participating doctors and hospitals to see how many of your providers are part of the plan.
Check out the credentials of participating providers; a good sign is accreditation from the NCQA. Are the providers’ locations convenient for you? What preventive medical programs does it provide? Has membership grown? Talk to friends and associates to see what their experiences have been with the plan
How old are you, and how is your health? Many financial advisors recommend buying the lowest-cost plan—which may be an indemnity plan with a high deductible—if you’re young and healthy
Questions to Ask Yourself
Can I choose to use any doctor, hospital, clinic, or pharmacy?
What coverage, if any, is provided for seeing specialists like eye doctors and dentists?
Does the plan cover special conditions or treatments like psychiatric care, pregnancy, and physical therapy?
Does the plan cover home care or nursing home care?
What kind of limitations are there on the coverage of prescribed medications?
What are the deductible and any co-payment amounts?
What is the maximum I would have to pay out of health care expenses, either in a calendar year or during my lifetime?
How are billing or service disputes handled under the plan?
9-4 Medical Expense Coverage and Policy Provisions
9-4a Types of Medical Expense Coverage
usually pay for a portion of (1) the hospital’s daily semiprivate room rate, which typically includes meals, nursing care, and other routine services, and (2) the cost of ancillary services such as laboratory tests, imaging, and medications you receive while hospitalized.
Many hospitalization plans also cover some outpatient and out-of-hospital services once you’re discharged, such as in-home rehabilitation, diagnostic treatment, and preadmission testing.
Usually, surgical expense coverage is provided as part of a hospitalization insurance policy or as a rider to such a policy.
Most plans reimburse you for reasonable and customary surgical expenses based on a survey of surgical costs during the previous year. They may also cover anesthesia, nonemergency treatment using imaging, and a limited allowance for diagnostic tests.
also called regular medical expense insurance, covers the cost of visits to a doctor’s office or for a doctor’s hospital visits, including consultation with a specialist.
Also covered are imaging and laboratory tests performed outside of a hospital. Plans are offered on either a reasonable and customary or scheduled benefit basis. Sometimes, the first few visits with the physician for any single cause are excluded.
Major Medical Insurance
an insurance plan designed to supplement the basic coverage of hospitalization, surgical, and physicians expenses; used to finance more catastrophic medical costs
Comprehensive Major Medical Insurance
a health insurance plan that combines into a single policy the coverage for basic hospitalization, surgical, and physician expense along with major medical protection
often written under a group contract, although efforts have been taken to make this type of coverage available to individuals.
Dental insurance covers necessary dental care and some dental injuries sustained through accidents. (Expenses for accidental damage to natural teeth are normally covered under standard surgical expense and major medical policies.)
Limited Protection Services
Accident policies that pay a specified sum to an insured injured in a certain type of accident
Sickness policies, sometimes called dread disease policies, that pay a specified sum for a named disease, such as cancer
Hospital income policies that guarantee a specific daily, weekly, or monthly amount as long as the insured is hospitalized
9-4b Policy Provisions of Medical Expense Plans
Generally, policy provisions can be divided into two groups: terms of payment and terms of coverage.
Terms of Payment
Four provisions govern how much your health insurance plan will pay: (1) deductibles, (2) participation (co-insurance), (3) internal limits, and (4) coordination of benefits.
the initial amount not covered by an insurance policy and thus the insured’s responsibility; usually determined on a calendar-year basis or on a per-illness or per-accident basis
a provision in many health insurance policies stipulating that the insurer will pay some portion—say, 80 or 90 percent—of the amount of the covered loss in excess of the deductible
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a feature commonly found in health insurance policies that limits the amounts that will be paid for certain specified expenses, even if the claim does not exceed overall policy limits
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Coordination of benefits
a provision often included in health insurance policies to prevent the insured from collecting more than 100 percent of covered charges; it requires that benefit payments be coordinated if the insured is eligible for benefits under more than one policy
Terms of Coverage
(1) the persons and places covered, (2) cancellation, (3) pre-existing conditions, (4) pregnancy and abortion, (5) mental illness, (6) rehabilitation coverage, and (7) continuation of group coverage.
Person and places covered
Some health insurance policies cover only the named insured; others offer protection to all family members
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The only time a policy is canceled is at the request of the insured or if a premium is not paid by the insured.
a clause included in most individual health insurance policies permitting permanent or temporary exclusion of coverage for any physical or mental problems the insured had at the time the policy was purchased. The Patient Protection and Affordable Care Act of 2010 prohibits such exclusions
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Pregnancy and abortion
Some liberal policies pay for all related expenses, including sick-leave pay during the final months of pregnancy, whereas others pay for medical expenses that result from pregnancy or abortion complications, but not for routine procedure expenses.
Many health insurance plans omit or offer only reduced benefits for treatment of mental disorders.
Rehabilitation coverage for counseling, occupational therapy, and even some educational or job training programs for insureds who are partially or totally disabled because of an illness or accident.
Continuation of group coverage
under the ACA, losing your job triggers a “qualifying life event” that allows you to obtain health insurance under COBRA. Or, you can buy a policy in the private health insurance market.
9-4c Cost Containment Provisions for Medical Expense Plans
Preadmission certification. This requires you to receive approval from your insurer before entering the hospital for a scheduled stay. Such approval is not normally required for emergency stays.
Continued stay review. To receive normal reimbursement, the insured must secure approval from the insurer for any stay that exceeds the originally approved limits.
Second surgical opinions. Many plans require second opinions on specific nonemergency procedures and, in their absence, may reduce the surgical benefits paid. Most surgical expense plans now fully reimburse the cost of second opinions.
Waiver of co-insurance. Because insurers can save money on hospital room-and-board charges by encouraging outpatient surgery, many now agree to waive the co-insurance clause and pay 100 percent of surgical costs for outpatient procedures. A similar waiver is sometimes applied to generic pharmaceuticals. For example, the patient may choose between an 80 percent payment for a brand-name pharmaceutical costing $35 or 100 percent reimbursement for its $15 generic equivalent.
Limitation of insurer’s responsibility. Many policies also have provisions limiting the insurer’s financial responsibility to reimbursing only for costs that are considered “reasonable and customary.” This provision can sometimes place limitations on the type and place of medical care for which the insurer will pay.
9-5 Long-Term-Care Insurance
9-5a Do You Need Long-Term-Care Insurance?
The odds of needing more than a year of nursing home care before you reach age 65 are 1 in 33, and the expense of a prolonged nursing home stay can cause severe financial hardship
Questions to Ask Yourself
Do you have many assets to preserve for your dependents? Because you must deplete most of your assets before Medicaid will pay for nursing home care.
It’s also worth considering the purchase of a policy under the Long-Term Care Partnership Program. Such a policy allows individuals who purchase a qualified long-term care policy to protect a portion of their assets that they would typically need to spend prior to qualifying for Medicaid coverage
Can you afford the premiums? Premiums of many good-quality policies can be 5 to 7 percent of annual income or even more.
Is there a family history of disabling disease? This factor increases your odds of needing long-term care
. If there’s a history of Alzheimer’s, neurological disorders, or other potentially debilitating diseases, the need for long-term-care insurance may increase
What is your gender? Women tend to live longer than men and are more likely to require long-term care. They’re also the primary caregivers for other family members, which may mean that when they need care, help won’t be available
Do you have family who can care for you?
The availability of relatives or home health services to provide care can reduce the cost of long-term care
9-5b Long-Term-Care Insurance Provisions and Costs
Type of Care
Some long-term-care policies offer benefits only for nursing home care, whereas others pay only for services in the insured’s home
Some important gatekeeper provisions determine whether the insured will receive payment for claims
One common gatekeeper provision requires the insured’s inability to perform two of six activities of daily living (ADLs) such as bathing, dressing, or eating.
Most policies today cover several levels of service in state-licensed nursing homes: skilled, intermediate, and custodial care
Long-term-care policies reimburse the insured for the cost of services incurred up to a daily maximum. For nursing home care policies, the daily maximums generally range from $100 to $500, depending on the amount of premium that the insured is willing to pay.
The maximum duration of benefits ranges from one year to the insured’s lifetime.
Most financial planners recommend the purchase of a policy with a duration of three to six years to give the insured protection for a longer-than-average period of care.
the period, after an insured meets the policy’s eligibility requirements, during which he or she must pay expenses out-of-pocket; when the waiting period expires, the insured begins to receive benefits
Typical waiting period options are 30, 60, 90, 180, and even 365 days.
Pre Existing Conditions
If someone has already been diagnosed with Parkinson’s or Alzheimer’s disease, takes memory drugs, needs any type of assistance in walking, has had a stroke, or has osteoporosis, an insurance company may not be willing to sell that person a long-term insurance policy.
Long-term-care insurance is rather expensive, and premiums vary widely among insurance companies.
Many policies offer inflation protection riders that, for an additional premium, let you increase benefits by a flat amount, often 5 percent, per year. Others offer benefits linked to the rise in the consumer price index (CPI). Inflation protection riders can add between 25 and 40 percent to the basic premium for a long-term-care insurance policy.
the delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty
Consumers directly pay about 20 percent of long-term care costs, and government programs such as Medicare and Medicaid cover less than half of the total cost for those meeting their strict eligibility requirements.
Fortunately, long-term-care insurance policies are available that are indemnity policies paying a fixed dollar amount for each day you receive specified care either in a nursing home or at home
Most individual long-term-care products are purchased either through organizations like the American Association of Retired Persons (AARP) or directly from the more than 100 insurance companies that offer them. Employer-sponsored long-term-care insurance is also growing in popularity.
9-5c How to Buy Long-Term-Care Insurance
Buy the policy when you’re healthy.
Once you have a disease, such as Alzheimer’s or multiple sclerosis, or have a stroke, you become uninsurable. So the best time to buy is when you’re in your mid-50s or 60s
Buy the right types of coverage—but don’t buy more coverage than you need.
Your policy should cover skilled, intermediate, and custodial care as well as adult day care centers and assisted living facilities. If you have access to family caregivers or home health services, opt for only nursing home coverage; if not, select a policy with generous home health care benefits.
Understand what the policy covers and when it pays benefits. The amounts paid, benefit periods, and services covered vary among insurers. One rule of thumb is to buy a policy covering 80 to 100 percent of current nursing home costs in your area. Some policies pay only for licensed health care providers, whereas others include assistance with household chores. Know how the policy defines benefit eligibility
9-6 Disability Income Insurance
9-6a Estimating Your Disability Insurance Needs
Calculate take-home pay. Disability benefits are generally tax-free, so you typically need to replace only your take-home (after-tax) pay.
Benefits from employer-paid policies are fully or partially taxable. To estimate take-home pay, subtract income and Social Security taxes paid from your gross earned income (salary only). Divide this total by 12 to get your monthly take-home pay
Estimate the monthly amounts of disability benefits from government or employer programs
Social Security disability benefits. Obtain an estimate of your benefits by using the online calculators provided by the Social Security Administration at www.ssa.gov/planners/benefitcalculators.htm
Other government program disability benefits for which you qualify (armed services, Veterans Administration, civil service, the Federal Employees Compensation Act, state workers’ compensation systems). There are also special programs for railroad workers, longshoremen, and people with black-lung disease
Company disability benefits. Ask your company benefits supervisor to help you calculate company-provided benefits, including sick pay or wage continuation plans (these are essentially short-term disability income insurance) and plans formally designated as disability insurance. For each benefit that your employer offers, check on its tax treatment
Group disability policy benefits. A private insurer provides the coverage and you pay for it, often through payroll deduction
Add up your existing monthly disability benefits.
Subtract your existing monthly disability benefits from your current monthly take-home pay.
The result shows the estimated monthly disability benefits that you’ll need in order to maintain your present after-tax income. Note that investment income and spousal income (if the spouse is presently employed) are ignored because it’s assumed that this income will continue and is necessary to maintain your current standard of living.
9-6b Disability Income Insurance Provisions and Costs
(1) definition of disability, (2) benefit amount and duration, (3) probationary period, (4) waiting period, (5) renewability, and (6) other provisions.
With a residual benefit option, you would be paid partial benefits if you can work only part-time or at a lower salary
Benefit Amount and Duration
Most individual disability income policies pay a flat monthly benefit, which is stated in the policy, whereas group plans pay a fixed percentage of gross income.
Either way, never exceeds 60 to 70% of gross earnings
are likely to include a probationary period, usually 7 to 30 days, which is a time delay from the date the policy is issued until benefit privileges are available.
Typical waiting periods range from 30 days to a year.
Most individual disability income insurance is either guaranteed renewable or noncancelable.
many insurers offer a cost-of-living adjustment (COLA). With a COLA provision, the monthly benefit is adjusted upward each year, often in line with the CPI, although these annual adjustments are often capped at a given rate (say, 8 percent).
Although the COLA provision applies only once the insured is disabled, the guaranteed insurability option (GIO) can allow you to purchase additional disability income insurance in line with inflation increases while you’re still healthy
A waiver of premium is standard in disability income policies. If you’re disabled for a minimum period, normally 60 or 90 days, the insurer will waive any future premiums that come due while you remain disabled.
About one-third of people between the ages of 35 and 65 will be disabled for 90 days or longer before age 65, and about one in seven people between the ages of 35 and 65 will become disabled for five years or more.
Social Security offers disability income benefits, but you must be unable to do any job whatsoever to receive benefits. Benefits are payable only if your disability is expected to last at least one year (or to be fatal), and they don’t begin until you’ve been disabled for at least five months. The actual amount paid is a percentage of your previous monthly earnings, with some statistical adjustments.
insurance that provides families with weekly or monthly payments to replace income when the insured is unable to work because of a covered illness, injury, or disease
Protecting Your Property
10-1 Basic Principles of Property Insurance
10-1a Types of Exposure
Exposure to Property Loss
A cause of loss
As a rule, most property insurance contracts impose two obligations on the property owner
(1) developing a complete inventory of the property being insured
(2) identifying the perils against which protection is desired.
all property insurance companies require you to show proof of loss when making a claim, so you need to have a personal property inventory, along with corresponding values to make settling a claim go smoother
This also helps with seeing what kind of protection you need
Many insurance companies have easy-to-complete personal property inventory forms available to help policyholders prepare inventories.
These inventory forms can be supplemented with photographs or videos of household contents and belongings
Every effort should be made to keep these documents in a safe place, where they can’t be destroyed—such as a bank safe-deposit box.
For example, most homeowner’s or automobile insurance policies limit or exclude damage or loss caused by flood, earthquake, backing up of sewers and drains, mudslides, mysterious disappearance, war, nuclear radiation, and ordinary wear and tear
In addition, property insurance contracts routinely limit coverage based on the location of the property, time of loss, persons involved, and types of hazards to which the property is exposed.
failing to act in a reasonable manner or to take necessary steps to protect others from harm
Even if you’re never negligent and always prudent, someone might believe that you are the cause of a loss and bring a costly lawsuit against you.
It’s important to obtain adequate liability insurance through your homeowner’s and automobile policies or through a separate umbrella policy.
Two basic types of exposure
Physical loss of property
Loss through liability
Fire, smoke, lightning, windstorm, hail, volcanic eruption, explosion, glass breakage, aircraft, vehicles, riot or civil commotion, theft, vandalism, or malicious mischief
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Covers all basic-form risks plus weight of ice, snow, sleet; freezing; accidental discharge of water or steam; falling objects; accidental tearing, cracking, or burning of heating/cooling/sprinkler system or appliance; damage from electrical current
Minimum varies; other coverages in same percentages or amounts except
D—20% of A
Dwelling and other structures covered against risks of direct physical loss to property except losses specifically excluded; personal property covered by same perils as HO-2 plus damage by glass or safety glazing material that is part of a building, storm door, or storm window
Minimum varies; other coverages in same percentages or amounts except
D—20% of A
Covers same perils covered by HO-2 for personal property
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Covers same perils as HO-4 but covered perils are dwelling, other structures, and personal property covered against risks of direct physical loss, except losses as specifically excluded
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Modified Coverage Form
Same perils as HO-1, except theft coverage applies only to losses on the residence premises up to a maximum of $1,000; certain other coverage restrictions also apply
Covers same perils covered by HO-2 for personal property
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10-1b Principle of Indemnity
an insurance principle stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss
Most property and liability insurance contracts are based on this principle—although this principle does not apply to life and replacement cost insurance.
when dishonest policyholders purposely cause losses in order to collect the insurance payments
Actual Cash Value versus Replacement Cost
Principle of indemnity limits what the insured can get to the actual cash value of the loss
a value assigned to an insured property that is determined by subtracting the amount of physical depreciation from its replacement cost
Some insurers pay replacement cost without taking depreciation into account—for example, most homeowner’s policies cover building losses on a replacement cost basis if the proper type and amount of insurance is purchased.
Right of Subrogation
the right of an insurer, who has paid an insured’s claim, to request reimbursement from either the person who caused the loss or that person’s insurer
Nearly all property and liability insurance contracts have an other-insurance clause, which normally states that if a person has more than one insurance policy on a property, each company is liable for only an allocated amount of the loss based on its proportion of the total insurance covering the property
in property insurance, a provision requiring a policyholder to buy insurance in an amount equal to a specified percentage of the replacement value of their property
If the policyholder has the stipulated amount of coverage (usually 80 percent of the value of the property), then the insurance company will reimburse for covered losses, dollar-for-dollar, up to the amount of the policy limits.
insurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils such as fire, theft, vandalism, and windstorms
insurance that protects against the financial consequences that may arise from the insured’s responsibility for property loss or injuries to others
10-2 Homeowner's Insurance
10-2a Perils Covered
property and liability insurance policy covering all perils unless they are specifically excluded
Names Peril Policies
property and liability insurance policy that individually names the perils covered
Section One Perils
Coverage on the dwelling is the same for the HO-3 and HO-5 forms, but coverage on the house itself and other structures (e.g., a detached garage) is comprehensive under HO-3 and HO-5 but is a named peril in HO-2.
An HO-5 provides comprehensive coverage on the personal property where the HO-3 provides only named perils.
The size of premiums for HO-5 and HO-3 policies can differ substantially among insurance companies and states.
Buying an HO-1 or HO-2 policy is not recommended because of its more limited coverage.
types of Section I perils covered include just about every situation, from fire and explosions to lightning and wind damage to theft and vandalism.
Some perils are specifically excluded from most homeowner’s contracts—in particular, most policies (even HO-5 and HO-3 forms) exclude earthquakes and floods, even if you live in an area where the risk of an earthquake or a flood is relatively high and the catastrophic nature of such events causes widespread and costly damage.
Section Two Perils
The coverage under Section II of the homeowner’s contract is called comprehensive personal liability coverage because it offers protection against personal liability (major exclusions are noted later) resulting from negligence.
It does not insure against other losses for which one may become liable, such as libel, slander, defamation of character, and contractual or intentional wrongdoing.
Surprisingly, this coverage is often applied to innocent injuries that just happened to occur at someone’s home. Think of this coverage as keeping your friends and neighbors as friends and neighbors.
also provides a limited amount of medical coverage, irrespective of negligence or fault, for persons other than the homeowner’s family in certain types of minor accidents on or off the insured’s premises.
10-2b Factors Affecting Home Insurance Costs
Factors affecting cost
Type of structure. The construction materials used, style and age of your home affect the cost of insuring it.
Location of home. Local crime rates, weather, and proximity to a fire hydrant, amount of claims filed in area, and proximity to the servicing fire department
Credit score. Research shows that people with lower credit scores tend to file more insurance claims. Affect premiums more than any other factor.
You may pay two or three times more than an otherwise comparable person with an excellent credit score
Other factors. Swimming pool, trampoline, aggressive dog, or other potentially hazardous risk factors on your property
is the behavioral bias in which people tend to rely unduly on past prices or estimates without considering new information.
Aka just because your property insurance premiums were competitive in the past does not mean that they’re still that way when your policy comes up for renewal. Be sure to shop around—don’t just renew your current policy.
And also consider that having a long-term relationship with an insurer reduces the chance of policy cancellation and can earn you a “forgiving loss.”
The representativeness bias
is the tendency to place too much weight on recent experience when making financial decisions.
Guess what happens the day after an area is hit by an earthquake? Despite the relative rarity of the event almost everywhere, many people run out to get it, and the price of earthquake insurance goes up!
Weigh the evidence carefully, assess your true risk exposures, and buy insurance accordingly.
10-2c Property Covered
The homeowner’s policy offers property protection under Section I for the dwelling unit, accompanying structures, and personal property of homeowners and their families.
Coverage for certain types of loss also applies to lawns, trees, plants, and shrubs.
However, the policy excludes structures on the premises used for business purposes (except incidentally), animals (pets or otherwise), and motorized vehicles not used in maintaining the premises (such as autos, motorcycles, golf carts, or snowmobiles)
(e.g., goods held by an insured who is a traveling salesperson, or other goods held for sale) is not covered.
(such as books, computers, copiers, office furniture, and supplies), typically up to a maximum of $2,500, while it is on the insured premises.
10-2d Personal Property Floater
an insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner’s policy
An unscheduled PPF provides the maximum protection available for virtually all the insured’s personal property.
Scheduled PPFs list the items to be covered and provide supplemental coverage under a homeowner’s contract.
Each individual piece of property needing this coverage is line-item scheduled with a description, any present serial number, make, model, and current value
This coverage is especially useful for expensive property, such as jewelry, fine art, guns, and collections, that is valued at more than coverage C limits (discussed later, ((1,000?))), and it includes loss, damage, and theft.
10-2e Renter's Insurance: Don't Move In Without It
If you live in an apartment (or some other type of rental unit), be aware that although the building you live in is likely to be fully insured, your furnishings and other personal belongings are not.
As a renter (or even the owner of a condominium unit), you need a special type of HO policy to obtain insurance coverage on your personal possessions.
This coverage covers the contents of a house, apartment, or cooperative unit, but not the structure itself, against the same perils as Form HO-2
Owners of condominium units need Form HO-6; it’s similar but includes a minimum of $1,000 in protection for any building alterations, additions, and decorations paid for by the policyholder.
A standard renter’s insurance policy covers furniture, carpets, appliances, clothing, and most other personal items for their cash value at the time of loss. Expect to pay around $150 to $250 a year for about $30,000 in personal coverage and $100,000 in liability coverage, depending on where you live.
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HO-4 and HO-6 policies include liability coverage and protect you at home and away.
10-2f Coverage: What Type, Who, and Where?
There are three types of property-related losses when misfortune occurs
Direct loss of property
Indirect loss occurring due to loss of damaged property
Additional expenses resulting from direct and indirect losses
Section I coverage
When a house is damaged by an insured peril, the insurance company will pay reasonable living expenses, such as the cost of renting alternative accommodations, while the insured’s home is being repaired or rebuilt.
The insurer will also pay for damages caused by perils other than those mentioned in the policy if a named peril is determined to be the underlying cause of the loss.
Food spoilage as a result of temp change (not covered) caused by a power outage cause of a lightning strike (covered)
Section II coverage
In addition to paying successfully pursued liability claims against an insured, a homeowner’s policy covers
(1) the cost of defending the insured,
(2) reasonable expenses incurred by an insured in helping the insurance company’s defense, and
(3) the payment of court costs.
A homeowner’s policy covers the persons named in the policy and members of their families who are residents of the household.
Limited coverage for guests
Most homeowner’s policies offer coverage worldwide when off premises temporarily. For example, an insured’s personal property is fully covered when lent to the next-door neighbor or kept in a hotel room in Paris.
The only exception is property left at a second home where coverage is reduced unless the loss occurs while the insured is residing there.
Homeowners and their families have liability protection for their negligent acts wherever they occur.
Excluded are negligent acts involving certain types of motorized vehicles (such as large boats and aircraft) and those occurring in the course of employment or professional practice.
10-2g Limitations on Payment
the amount necessary to repair, rebuild, or replace an asset at today’s prices
When replacement-cost coverage is in effect, a homeowner’s reimbursement for damage to a house or accompanying structures is based on the cost of repairing or replacing those structures, without taking any deductions for depreciation.
Homeowners are eligible for reimbursement on a full replacement-cost basis only if they keep their homes insured for at least 80 percent of the amount that it would cost to build them today, not including the value of the land.
Because inflation could cause coverage to fall below the 80 percent requirement, homeowners can purchase an inflation protection rider that automatically adjusts the amount of coverage based on prevailing inflation rates.
Without the rider, maximum compensation for losses would be based on a specified percentage of loss.
Even if a home is in an excellent state of repair, its market value may be reduced by functional obsolescence within the structure
The HO-8 policy (for older homes) solves this problem by covering property in full up to the amount of the loss or up to the property’s market value, whichever is less.
In Section I of the homeowner’s policy, the amount of coverage on the dwelling unit (coverage A) establishes the amounts applicable to the accompanying structures (coverage B), the unscheduled personal property (coverage C), and the temporary living expenses (coverage D).
Often, the limits under coverage B, C, and D are 10 percent, 75 to 100 percent, and 10 to 40 percent, respectively, of the amount of coverage under A.
However, coverage D is often unlimited for as long as the homeowner who experiences the loss is working to repair or replace their primary home that suffered the loss.
Ways to reduce premiums
It's risk sharing, not risk elimination. You're not looking to get out of paying for any little charge that may come up
Bundle homeowner's and auto insurance
Buying your homeowner’s and auto insurance from the same insurer can provide a discount of 5 to 15 percent.
Check on the discounts that you may get from insurers.
For things like having a smoke alarm, deadlocks, etc
Ask your insurance agent what you can do to reduce the risk of your home from the insurer’s perspective.
Ex. replacing old wiring, replacing heating system
Avoid risks that insurers don’t like to insure.
Ex. owning dogs (pitbulls) or something else that usually involved in claims
Manage your credit score
Shop carefully for homeowner’s insurance
keep in mind that you may be getting a longevity discount if you’ve been with your insurer for a few years.
Remember that homeowner’s policies usually specify limits for certain types of personal property included under the coverage C category. These coverage limits are within the total dollar amount of coverage C and in no way act to increase that total.
You can increase these limits by increasing coverage C.
In Section II, the personal liability coverage (coverage E) often starts out at $100,000, and the medical payments portion (coverage F) normally has a limit of $1,000 per person.
Additional coverage included in Section II consists of claim expenses, such as court costs and attorney fees; first aid and medical expenses, including ambulance costs; and damage to others’ property of up to $500 per occurrence.
Deductibles, which limit what a company must pay for small losses, help reduce insurance premiums by doing away with the frequent, small-loss claims that are proportionately more expensive to administer.
The standard deductible in most states is $250 on the physical damage protection covered in Section I.
However, choosing higher deductible amounts of $500 or $1,000 results in considerable premium savings—as much as 10 to 20 percent in some states.
Insurance companies increasingly offer a percentage deductible rather than a flat dollar deductible on homeowner’s insurance.
Named peril specific deductibles are also used by insurance companies.
Such deductibles are typically between 5 and 15 percent of the Coverage A amount.
10-2h Homeowner's Insurance Premiums
Remember that each type of property damage coverage is subject to a deductible of $250 or more.
Homeowners can choose from five different forms (HO-1, HO-2, HO-3, HO-5, and HO-8). Two other forms (HO-4 and HO-6) meet the needs of renters and owners of condominiums
An HO-4 renter’s policy offers essentially the same broad protection as an HO-2 homeowner’s policy, but the coverage doesn’t apply to the rented dwelling unit because the tenant usually doesn’t own it.
All HO forms are divided into two sections
Section I applies to the dwelling, accompanying structures, and personal property of the insured.
The scope of coverage under Section I is least with an HO-1 policy and greatest with an HO-5 policy. HO-8 is a modified coverage policy for older homes, which is used to insure houses that have market values well below their cost to rebuild.
Section II deals with comprehensive coverage for personal liability and for medical payments to others.
10-3 Automobile Insurance
10-3a Types of Auto Insurance Coverage
PAP Personal Automobile Policy
a comprehensive automobile insurance policy designed to be easily understood by the “typical” insurance purchaser
First four of six
Part A: Liability coverage
Pay damages for bodily injury and/or property damage for which you are legally responsible as a result of an automobile accident
Settle or defend any claim or suit asking for such damages
The policy does not cover defense of criminal charges against the insured due to an accident (such as a drunk driver who’s involved in an accident).
Provides for certain supplemental payments (not restricted by the applicable policy limits) for expenses incurred in settling the claim, reimbursement of premiums for appeal bonds, bonds to release attachments of the insured’s property, and bail bonds required as a result of an accident.
it typically sets a dollar limit up to which it will pay for damages from any one accident.
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Split limits of liability coverage available, with the first amount in each combination the per-individual limit, and the second the per-accident limit.
Bodily Injury Liability Losses
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Property Damage Liability Losses
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Part B: Medical payments coverage
Medical payments coverage insures a covered individual for reasonable and necessary medical expenses incurred within three years of an automobile accident in an amount not to exceed the policy limits.
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Medical payments insurance usually has per-person limits of $1,000, $2,000, $3,000, $5,000, or $10,000. Thus, an insurer could conceivably pay $60,000 or more in medical payments benefits for one accident involving a named insured and five passengers.
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Coverage under an automobile medical payments insurance policy applies to the named insured and to family members who are injured while occupying an automobile (whether owned by the named insured or not) or when struck by an automobile or trailer of any type.
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Part C: Uninsured motorists coverage
Part D: Coverage for damage to your vehicle
Part E pertains to your duties and responsibilities if you’re involved in an accident, and Part F defines basic provisions of the policy, including the policy coverage period and the right of termination.
10-3b No-Fault Automobile Insurance
10-3c Automobile Insurance Premiums
10-3d Financial Responsibility Laws
10-4 Other Property and Liability Insurance
10-4a Supplemental Property Insurance Coverage
10-4b Personal Liability Umbrella Policy
10-5 Buying Insurance and Settling Claims
10-5a Property and Liability Insurance Agents
10-5b Property and Liabilities Insurance Companies
10-5c Settling Property and Liability Claims