Personal Finance Ch. 11 & 12

Guaranteed Renewable Term Insurance(p. 352) Protects you against the possibility of becoming uninsurable.
Dying too soon; before you can provide for others. The type(s) of financial risk reduced via life insurance is
Term Life Insurance The type of life insurance that pays only if the insured person dies within the time period of the policy is called
Cash-Value Life Insurance The type of life insurance that has pays a death benefit and has aspects of an investment is
Child-Rearing Years One’s need for life insurance is generally greatest during what phase of the life cycle?
Variable Life Insurance Which of the following types of life insurance allows the insured to choose the types of investments made with their cash value accumulations?
Replacement of the lost income stream The potentially largest component of potential financial losses from premature death is
Owner The person who controls all rights granted by a life insurance policy is the
Coinsurance and a deductible. Lyle Coleman’s health insurance policy will pay 80 percent of all covered expenses after he pays first $500 per year. This policy defiantly has
Health Maintenance Organization (HMO) _____ provide(s) preventative care as well as other types of care for a set monthly fee which is considered to be advance payment for the care recieved.
Waiting Period You can help yourself afford a longer benefit period under a disability income insurance plan by selecting a longer
Health Savings Account Persons who have no health insurance through their employer or their employer provides only a high-deductible plan can make tax-sheltered deposits into an investment account called a __________ from which they can pay medical expenses.
Own-Occupation Policy Which of the following types of disability income insurance policies will only provide benefits if you can no longer perform the occupation you had at the time you became disabled?
Health Care Plan Which of the following is a general term used to describe an HMO, health insurance or another plan that pays for or provides reimbursement for direct health care expenditures?
not medically necessary Long-term custodial care is not covered by health insurance because the care is
Higher policy premiums will have to be paid. Which of the following is generally true regarding conversion of group coverage to individual coverage?
$150,000 Sarah Armstrong has an insurance policy that pays up to $500 per day for room and board, up to $150,000 per episode, and up to $500,000 per year. When Sarah had a stroke, she was in the hospital for 25 days. While the room and board charges were only $450 per day, the additional cost of the hospitalization was $140,000. How much would the insurance pay?
High-deductible health care plan and health savings account Which pair of terms is characteristic of consumer driven health care?
The cash surrender value The actual amount received when a cash-value life insurance policy is canceled by either the company or the policyholder is
Term Life Each of the following life insurance policies is being considered by a 25-year old. Which would have the lowest cost per $1000 of coverage?
Buy term and invest the rest Your approach to life insurance should be to
Mortgage Life Insurance(p. 353) Will pay the remaining mortgage if the insured dies before repaying the debt.
Group Term Life Insurance(p. 353) Policy is issued to people as members of a group rather than as individuals. Most such policies are written for a large number of employees, with premiums being paid in full or in part by the employer.
Credit Term Life Insurance(p. 353) Will pay the remaining balance of a loan if the insured dies before repaying the debt.
20-Pay Life Policies(p. 354) Allow premium payments to cease after 20 years
Paid-at-65 Policies(p. 354) Require payment of premiums only until the insured turns 65
Single-Premium Life Insurance(p. 354) The premium is paid once in the form of a lump sum.
Adjustable Life Insurance(p. 354-355) Allows you to modify any one of these three components, with corresponding changes occurring in the other two.
Modified Life Insurance(p. 355) Whole life insurance for which the insurance company charges reduced premiums in the early years and higher premiums thereafter.
Endowment Life Insurance(p. 355) Pays the face amount of the policy either upon the death of the insured or at some previously agreed-upon date, whichever occurs first.
Fixed-Rate Policies (p. 355) Policies that earn a guaranteed minimum rate of return, often 3 or 4 percent.
Current Rate(p. 355) Rate of return the insurance company has recently paid to policyholders.
Vanishing-Premium Life Insurance(p. 356) Is designed to allow policyholders to cease making premium payments after just a few years.
Return-of-Premium Policy(p. 356) Policy promises to return all the premiums paid if the insured person maintains the policy and lives past a certain number of years-usually 30.
Variable Life Insurance / Flexible-Premium Variable Life Insurance(p. 356-357) Allows you to choose the investments made with your cash-value accumulations and to share in any gains or losses.
Life Insurance Policy(p. 357) Written contract between the insurer and the policyholder.
Contingent Beneficiary(p. 357) The back-up beneficiary if the original beneficiary dies.
First-to-Die Policies(p. 358) Pays only when the first insured died.
Survivorship Joint Life Policy(p. 358) Pays when the last person covered dies.
Life Insurance Application(p. 358) The policyholder’s offer to purchase a policy. Provides information and becomes part of the life insurance policy (contract).
Lapsed Policy(p. 359) Policy that has been terminated because of nonpayment of premiums.
Nonparticipating Polices(p. 359) Polices that do not pay dividends
Suicide Clause(p. 358) Allows life insurance companies to deny coverage if the insured commits suicide within the first few years after the policy is issued.
Grace Period(p. 359) Period of time during which an overdue premium may be paid without a lapse of the policy.
Multiple Indemnity Clause(p. 360) Provides for a doubling or tripling the face amount if death results from certain specified causes.
In-Force Illustration(p. 361) A chart that shows the cash-value status of the policy and projections for future years given the rate of return current at the time of the illustration (rather than the rate used at the inception of the policy).
Living Benefit Clause(p. 352) A provision in cash-value life insurance policies that allows the payment of all or a portion of the death benefit prior to death if the insured contracts a terminal illness.
Viatical Companies(p. 362) Specialize in buying life insurance polices from insureds for $0.50 to $0.80 per $1 of death benefit in return for being named beneficiary on the policy.
Free-Look Provision(p 369) Allows consumers that period of time to study a newly written policy and, if desired, cancel it and receive a full refund.
Net Cost(p. 370) Equals the total of all premiums to be paid minus any accumulated cash value and accrued dividends.
Cost Index(p. 370) A numerical method used to compare the costs of similar plans of life insurance.
Interest-Adjusted Cost Index (IACI)(p. 370) Measures the cost of life insurance, taking into account the interest that would have been earned had the premiums been invested rather than used to buy insurance.
automatic premium loan(p. 362) Provision allows any premium not paid by the end of the grace period to be paid automatically with a policy loan if sufficient cash value or dividends have accumulated.
Permanent Insurance (p. 353) Does not need to be renewed and the coverage is maintained for the entire life of the insured as long as the premiums are paid. Cash-Value Insurance
Re-Enter Provision(p. 352) Requires proof of good health at the beginning of each five year interval.
Multiple-of-Earnings Approach(p. 348) Estimates the amount of life insurance needed by multiplying your income by some number, such as 5, 7, or 10. Life insurance agents often suggest this simple approach.
Beneficiary(p. 348) A person or organization designated to receive a benefit from a life insurance policy or estate or investment/savings account.
cash surrender value(p. 361) Represents the cash value of a policy minus any surrender charges.
Cash-Value Life Insurance(p. 351) Pays benefits at death and includes a savings/investment element that can provide a reduced level of benefits to the policyholder prior to the death of the insured person.
Cash Value(p. 351) Represents the value of the investment element in the life insurance policy.
convertible term insurance(p. 352-353) Offers policyholders option of exchanging a term policy for a cash-value policy without evidence of insurability.
current rate(p. 360) Rate of return the insurance company has recently paid to policyholders.
death benefit(p. 359) Amount that will be paid to beneficiary when the insured dies.
face amount(p. 352) Dollar value of protection as listed in the policy and used to calculate the premium.
Final Expenses(p. 346) One-time expenses occurring just prior to or after a death.
guaranteed insurability (guaranteed purchase option)(p. 362) Permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without evidence of insurability.
guaranteed minimum rate of return(p. 360) Minimum rate that, by contract, the insurance company is legally obligated to pay.
incontestability clause(p. 358) Places a time limit on the right of the insurance company to deny a claim.
insurance agent(p. 367) Representative of an insurance company authorized to sell, modify, service, and terminate insurance contracts.
insurance dividends(p. 358 – 359) Surplus earnings of insurance company when the difference between the total premium charged exceeds the cost to the company of providing insurance.
insured(p. 357) Individual whose life is insured.
interest-adjusted net payment index (IANPI)(p. 370) If a policy will remain in force until death, this method allows you to effectively measure the cost of cash-value insurance. The lower the IANPI, the lower the cost of the policy.
layering term insurance policies(p. 367) Purchasing level-premium term policies so that coverage grows when you need it most and then can be decreased as your needs change.
level-premium term insurance/guaranteed level premium term insurance(p.352) Term policy with long term under which premiums remain constant. Also called guaranteed level-premium term insurance.
Life Insurance (p. 346) An insurance contract that promises to pay a dollar benefit to a beneficiary upon the death of the insured person.
limited-pay whole life insurance(p. 354) Whole life insurance that allows premium payments to cease before the insured reaches the age of 100.
needs-based approach A superior method of calculating the amount of insurance needed that considers all of the factors that might potentially affect the level of need.
nonforfeiture values(p. 361) Amounts stipulated in a life insurance policy that protect the cash value, if any, in the event that the policyholder chooses not to pay or fails to pay required premiums.
owner/policyholder(p. 357) Retains all rights and privileges granted by the policy, including the right to amend the policy and the right to designate who receives the proceeds.
paid-up(p. 354) Point at which the owner of a whole life policy can stop paying premiums.
participating policies(p. 359) Life insurance policies that pay dividends.
premium quote service(p. 366) Offers computer-generated comparisons among 20 to 80 different companies.
settlement options(p. 360) Choices from which the policyholder can choose in how the death benefit payment will be structured.
Social Security survivor’s benefits (p. 347) Government program benefits paid to a surviving spouse and children.
Term Life Insurance(p. 351) “Pure protection” against early death; pays benefits only if the insured dies within the time period (term) that the policy covers.
universal life insurance(p. 355-356) Provides the pure protection of term insurance and the cash-value buildup of whole life insurance, along with face amount variability, rate of cash-value accumulation, premiums, and rate of return.
variable-universal life insurance(p. 355) Form of universal life insurance that gives the policyholder some choice in the investments made with the cash value accumulated by the policy. Also called flexible-premium variable life insurance.
waiver of premium(p. 362) Sets certain conditions under which an insurance policy would be kept in full force by the company without the payment of premiums.
Decreasing Term Insurance(p. 352) The face amount of coverage declines annually, while the premiums remain constant.
whole life insurance(p. 354) Form of cash-value life insurance that provides lifetime life insurance protection and expects the insured to pay premiums for life. Also called straight life insurance.
Group health plan is sold collectively to an entire group of people rather than to individuals
Medicare is the federal government’s health care program for the elderly.
Medicare Part A is the hospitalization portion of the program; it requires no premium.
Medicare Part B is the supplementary health expense insurance portion for outpatient care, doctor office visits, or certain other services of the Medicare program; it requires payment of a monthly premium of usually $115.
Medicare Advantage Plans Offered by private companies (insurers or HMOs) approved by Medicare and they combine Parts A and B into one plan.
Out-of-Pocket Costs Any dollar amounts for care that people covered by health care plans must pay themselves
Medicaid a government healthcare program funded jointly by the federal and state governments for low income families or individuals. Eligibility is based on household income and net worth.
S-CHIP program a government program similar to Medicaid, it covers children whose parents are middle income but do not have access to a private health care plan. No premiums.
One in Six Ratio of Americans covered by Medicaid or the S-CHIP program
Long-term Care Insurance (p. 322) Provides reimbursement for costs associated with custodial care in a nursing facility or at home.
Disability income insurance insurance covers and replaces a portion of the income lost when you cannot work because of sickness or injury.
Short term disability income insurance plan replaces a portion of one’s income for a short period of time; around 2 years.
Long term disability income insurance plan this covers periods of five or more years of income that is lost through sickness or injury.
Social Security Disability Income Insurance benefits form the federal government if their disability is total (meaning they cannot work at ANY job) and is expected to last one year (or until death if that is anticipated within a year).
Health care plan a generic name for any program that pays or provides reimbursement for direct health care expenditures.
Health maintenance organizations (HMOs) Health insurance plans that provide a broad range of health care services for a set monthly fee on a prepaid basis.
Primary Care Physician A professional that must order all procedures and approve referrals to specialized health care providers within the HMO.
Managed care plans plans that seek to control the conditions under which health care can be obtained.
Individual practice organization a structure in which the HMO contracts with-rather than hires-groups of physicians.
Health insurance provides protection against direct medical expenses resulting from illness and injury.
Comprehensive health insurance Provides protection against financial losses resulting from hospital, surgical, and medical expenditures.
Indemnity Plans/Fee-for-Service Plans (p. 324-325) These plans compensate the insured for the cost of care received.
Preferred provider organization (PPO) a group of health care providers (doctors, hospitals, and other health care providers) who contract with a health insurance company to provide services at a discount.
Provider sponsored network (PSN)/ Provider-sponsored association a group of cooperating physicians and hospitals who have banded together to offer a health insurance contract.
Consumer driven health care an approach to health care protection where the consumer elects the health care plan with a high deductible and high overall policy limits.
High deductible health care plan Can either be traditional health insurance or an HMO that follows the consumer-driven health care philosophy by charging relatively high deductibles.
Health Savings account (HSA) Tax-deductible savings accounts into which individuals or employers can deposit tax-sheltered funds to pay medical bills.
Health Reimbursement account (HRA) Funds that employers set aside to reimburse employees for qualified health expenses.
Claims Ratio (payout ratio) Losses Paid —————— = premiums collected
Certificate of insurance Document or booklet that outlines group health insurance benefits. You will receive this if you have a group plan.
Dental expense insurance insurance that provides reimbursement for dental care expenses.
Vision care insurance provides reimbursement for eye examinations and purchase of glasses and contact lenses. Typically written on a group basis as an employee benefit.
Pre-existing conditions Medical conditions or symptoms that the plan participant knew about or had diagnosed within a certain time period (usually one to two years) before the plan effective date.
Accident insurance Pays a specific amount per day
Dread Disease Insurance Provides reimbursement for medical expenses arising out of the occurrence of a specific disease.
Open-Enrollment Period Occur once each year in October and last for about one month. Requirements are generally waived for such family changes as births, adoptions, divorce, and marriage.
Optionally Renewable Policies Can be canceled or changed by the plan provider but only at the time of expiration and renewal, often with 30 days’ notice.
Guaranteed renewable policies Polices that must be continued in force as long as the policyholder pays the required premium. Premiums may change but only if the change applies to an entire class of participants.
Noncancelable policies must be continued in force without premium changes up to the age of 65 as long the participant pays the required premium. Recommended when buying disability income insurance.
Deductibles are clauses in health care plans that require you to pay an initial potion of medical expenses annually before receiving reimbursement.
Copayment a variation of a deductible, requires you to pay a specific dollar amount each time you have a specific covered expense item.
Coinsurance clause requires you to pay a proportion of any loss suffered.
Item limits specify the maximum reimbursement for a particular health care expense.
Daily Limits Common in low-cost and supplemental hospital insure plans.
Episode limits specify the maximum payment for health care expenses arising form a single episode of illness or injury, with each episode being considered separately.
Recurring clause clarifies the conditions under which a recurrence of an illness is considered a continuation of the first episode or a separate episode.
Annual limits specify the maximum payment for covered expenses occurring within one year.
Coordination-of-Benefits Clause (p. 332) Prevents an individual from collecting insurance benefits that exceed the loss suffered by noting the order in which plans will pay if the insured individual is covered by multiple plans.
Premium Conversion Plans The employee’s share of the premiums is paid with pretax dollars; those amounts are not included when the employer reports the employee’s income to the IRS
Flexible Spending Arrangements Allows employees to place a portion of their salary into an account that is used to pay some of their health care expenditures, including employee-paid heath plan premiums.
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Allows a former employee to remain a member of a group health plan for as long as 18 months if the employee worked for an employer with more than 20 workers.
Guaranteed Portability Provision that allows an individual to convert group coverage to individual coverage within 180 days before COBRA ends.
Waiting period (elimination period) The time period between the onset of a disability and the date that disability benefits begin.
Benefit period The maximum period of time for which the benefits will be paid. Usually will not pay beyond age 65.
Own-occupation policy Will provide benefits if you can no longer perform the occupation you had at the time you became disabled.
Any-occupation policy will provide full benefits only if you cannot perform any occupation.
Split-definition policies Some policies provide own-occupation coverage during the first two years of a disability, and then switch to an any-occupation basis with income replacement for the remaining years of the benefits is an example of this policy. these usually provide benefits for rehabilitation and retraining at its expense.
Residual clause (p. 335) a feature of own-occupation policies that allows for some reduced level of disability income when a partial rather than full disability occurs.Pay cut % * $ Benefit per month=
Workers’ Compensation Insurance (p. 336) Covers employers for liability losses for injury or disease suffered by employees that result from employment related causes.
Social security rider (p. 336) Provides an extra dollar amount of protection if a person fails to qualify for Social Security disability benefits. 70% of all applicants are rejected.
Cost of living adjustments clause (p. 336) Will increase your benefit amount to keep up with inflation.
Activities of Daily Living (ASLs) (p.337) Criterion for deciding whether the insured becomes eligible for long-term benefits. If he/she cannot perform specified activities they are eligible.
Skilled nursing care (p. 338) intensive nurse care for people who need 24 hour supervision and help for daily activities.
Intermediate care (p. 338) Appropriate for people who do not need around the clock nursing but who are not able to live alone.
Custodial care (p. 338) For people who do not need skilled nurses but need supervision for some daily activities.

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