personal finance chapter 9

basic health insurance a term used to describe most health insurance, which includes a combination of hospitals, surgical, and physician expense insurance
hospital insurance insurance that coves the costs associated with a stay; room charges, nursing costs, operating room fees, drugs supplied by the hospital. generally a part of all insurance. depending on the policy, hospital insurance may reimburse the policyholder for specific charges, give the holder a set amount of money for each day the person is hospitalized, or pay the hospital directly for the holder’s expenses. if the policy holder receives a set amount of money per day of hospitalization, he or she must make up the difference between what is charged and what is received from the insurance company
surgical insurance insurance that covers the cost of surgery. generally lists the specific operations it covers and all cities . you will have to pay any charges above what the policy will cover. don’t cover experimental treatment
physician expense insurance insurance that coves physicians fees outside of surgery. includes office or home visits, lab fees, and x-ray costs when they are not preformed in the hospital
major medical expense insurance insurance that covers medical costs beyond those covered by basic health insurance. meant to offset all financial effects of a catastrophic illness. doesn’t provide complete coverage, but instead allows deductibles and coinsurance payments
stop-loss provision a medical insurance feature that limits the total dollar amount that the policyholder is responsible for holding
traditional fee-for-service plan and managed health care(prepaid care) basic types of health care plans
traditional fee-for-service plan an insurance plan that provides reimbursement for all or part of your medical expenditures. in general, it gives you a good deal of freedom to choose your doctor and hospital. dis: relatively expensive and involve a good deal of paperwork.
managed health care plan an insurance plan that entitles you to the health care provided by a specific group of participating doctors, hospitals, and clinics. these plans are offered by health maintainence organizations or variations of them. most of your expenses are already covered and dont need to be reimbursed. receive all health services at one location, might not see the same doctor everytime, co-payments necessary. adv: efficiency, less paperwork, involve a number of doctors.
private health care plans more than 800 insurance companies whose main business comes from selling health insurance to people to be offered as part of a benefits package. these companies offer a variety of traditional fee for service and managed health care plans rather than insurance policies
1) health maintenance organizations (HMOs) 2) preferred provider organizations (PPOs) two basic types of managed health care
HMO most popular form; prepaid insurance plan that entitles members to the services of participating doctors, hospitals, and clinics. members pay a flat fee for this privilege and then can select a managing physician who is responsible for the care of that member. might be a co-payment. has three types: individual practice association, group practice, point-of-service. adv: efficient, costing as little as 60% of what comparable fee-for service insurance plan would cost. dis: service is too quick and waits can be long. getting referrals is a hassle, lack of choice in doctors, unable to establish relationships with doctors, doctors receive bonuses based on the number of patients seen or based on the amount of money saved
individual practice association plan, group practice plan, point-of-service plan three types of hmos
individual practice association plan an hmo made up of independent doctors, in which the patients visit the doctors and receive their medical treatment in their office. many ipa doctos maintain a regular practice too
group practice plan an insurance plan in which doctors are generally employed directly by an HMO, and members of the hmo must receive their medical treatment from these doctors at a central facility
point of service plan an insurance plan that allows its members to seek medical treatment from both hmo doctors and non hmo doctors. drs tend to be free or at least covered at a very low co-payment rate. private employers can still join HMOs, need a referral to switch doctors in different ares. hmos emphasize preventive medicine because preventing an illness is an awful lot cheaper than curing it. hmos provide regular exams
Preferred provider organization an insurance plan which an employer or insurer negotiates with a group of doctors and hospitals to provide health care for its employees or members at recued rates. a cross between a traditional fee for service plan and an hmo. doctors and hospitals that agree to the pricing system become members of the ppo. generally have an additional, or penalty, co-payment requirement for service from nonmembers. adv: allows for halth care at a discount, with the negotiating power of the insurer or employer determining how great a discount is achieved
actuaries statisticians who specialize in estimating the probability of death based on personal characteristics ex: age and general health, as well as lifestyle specifics such as whether or not you exercise.
beneficiary the individual designated to receive the insurance policy’s proceeds upon the death of the insured
policy owner (policyholder) the individual or business that owns the life insurance policy
face amount the amount of insurance provided by the policy at death
insured the persons whose life is insured by the life insurance policy. Sometimes the policy is owned or held by an individual, and sometimes its held by a business.
annuity a series of equal dollar payments coming at the end of each time period for a specified number of time periods.
grace period the length of time given to make a payment before interest is charged against the outstanding balance on a credit card
riders a special provision that may be added to your policy, which either provides extra benefits to the beneficiary or limits the company’s liability under certain conditions. Often an additional cost, but it is anything that the policy doesn’t give you.
workers compensation state laws provide payment for work-related accidents and illness. Each state determines the benefits level for the workers.
medigap insurance insurance sold by private insurance companies aimed at bridging gaps in medicare coverage. Can only sell you a standard medigap policy
disability insurance health insurance that provides payments to the insured in the event that income is interrupted by illness, sickness, or accident, more like earning power insurance. Your income stops when you are disabled.
insurance co-payment the amount you have to pay every time you go in to see the doctor
deductible the amount you have to pay before your insurance picks up the rest.
earnings multiple approach a method of determining exactly how much life insurance you need by using a multiple of your yearly earnings. Replaces stream of income
needs approach a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death, more complicated than earnings multiple, allows you to account for the fact that your family’s needs may be different from the average. Immediate needs at the time of death, debt elimination funds, immediate transitional funds, dependency expenses, spousal life income, educational expenses for the children
decreasing term insurance each time the renewable item is renewed, the premium increases. The term insurance in which the annual premium remains constant but the face amount of the policy declines each year.
whole life insurance cash value insurance that provides permanent coverage and a death benefit when the insured dies. If the insured turns 100, the policy pays off as well. Advantages: provides both savings and permanent insurance needs. Has 3 premium payment patterns: continuous, single premium or single payment whole life, or limited premium whole life. has fixed premium and death, cash-value is fixed too
to get the best rating on insurance purpose of A.M. Best, Moody’s, Standard and Poor’s
affordability, low initial premium, with the premium increasing as the insured gets older advantages of term life insurance
lump-sum settlement pays the entire death benefit, tax free, to the beneficiary at one time. Allows the beneficiary to withdraw, use, or invest the funds in any way that he or she wishes. Drawback: requires beneficiary to have self-control in managing it
interest-only settlement instead of receiving the death benefits immediately, they are left on deposit with the insurance company for a length of time earning interest is tied to the market interest rate, with a guaranteed minimum rate. Beneficiary will pay taxes on the interest earned after you death.
installments-payments settlement the cash-value, including both interest and principal, is completely distributed over a fixed period or in fixed payments. When proceeds are taken in installments, the portion of each payment attributable to the basic death benefit is tax-free, but the portion attributable to interest earned on the proceeds is taxable.
life-annuity settlement a settlement where the beneficiary receives income for life. 3 types: straight life, period certain annuity, and refund annuity
no medical exam characteristics of group term insurance
whole, variable, universal 3 types of cash-value insurance
medicare a government insurance program enacted in 1968 to provide medical benefits to the disabled and those over 65. cost of this insurance is covered by social security, with the individual patient paying an annual deductible
medicare, Medicaid, and workers compensation 3 government sponsored insurance
group health insurance health insurance that is sold, usually without a medical exam, to a specific group of indivuals who are associated for some purpose other than to buy insurance. refers the way insurance is sold rather than the characteristics of the policy. provide to a specific group of people. group insurance offered through an employer do require medical exams
individual insurance policy an insurance policy that is tailor-made for you, reflecting your age, health, geographic location, and chosen deductible amount. not many advantages. group and indivual offer the same coverafe, but the difference is cost- individual tends to cost more
medicaid government insurance plan for the needy, aged, blind, or disabled. enacted n 1965. joint program operated by the federal and state governments, with the benefits varying from state to state. purpose is to provide medical care for the people ahead. Medicaid payments go toward premiums, deductibles, and co-payments
disability most policies define people as disabled if they cant preform the duties of their own occupation or of any occupation for which they are reasonably suited for.
combination disability your are covered if you cant preform your own occupation for the first 2 years of your disability.
waiting period (elimination period) the period after the disability during which no benefits occur, equivalent to a deductible in a health care insurance policy. most have a waiting range of 1 month to 6 months. longer the wait, the more expensive it is
waiver a disability insurance provision that allows your insurance to stay in force should you become unable to work because of a disability or illness
life insurance not meant to benefit you, the purpose is to protect your dependents in the event of your death. gives you a piece of mind by ensuring that your dependents will have the financial resources to pay off your debts.
insurance policy a contract with an insurance company that spells out what losses are covered, what the policy costs, and who receives payments if a loss occurs
risk pooling sharing the financial consequences associated with risk
premium a life insurance payment; the amount that everyone puts into the pot. the size of this depends on the probability of when you will die
modified whole life premiums begin at a level below comparable whole life and gradually rise in steps until the first premiums are above those of comparable whole life
combination whole life which include elements of whole life and decreasing term insurance. the change in coverage is done in such a way that the face amount of the policy remains constant, with the coverage gradually shifting from term to whole life
universal life insurance type of cash value insurance that’s much more flexible than whole life. it allows you to vary the premium payment and the level of protection. combines term insurance and tax-deferred savings featured in a package which both the premiums and benefits are flexible. adv: flexible dis: the returns fluctuate dramatically, you may not end up with as much savings as you anticipated
variable life insurance insurance that provides permanent insurance coverage as whole life does; however, the policyholder, rather than the insurance company, takes on the investment risk. type of whole life in which the cash value and death benefit are tied to and vary according to the performance of a set of investments chosen by the policy holder. two forms: straight variable and straight universal. returns are tax deferred. no guarantee of a minimum cash value, and what happens to the cash value doesn’t effect the insurance company. AIMED AT PEOPLE WHO WANT TO MANAGE THEIR OWN INVESTMENTS AND ARE WILLING TO TAKE RISKS
term what is the better insurance, term or cash-value?
term what type of insurance should a single person get?
term what type of insurance should a married couple with two incomes get?
cash-value what type of insurance should a married couple with one income get>
cash-value what type of insurance should a married couple with one income and gets get?
beneficiary provision person designated to receive the death benefits when you die. can be a person, a business, or a trust. also will name on or more contingent beneficiaries who will receive the death benefits only if the primary beneficiary dies before the benefits have been distributed
nonforfeiture clause defines the choices available to policyholders who miss premium payments, causing the policy to lapse. protects cash-value of the policy
straight line annuity a type of annuity where the beneficiaries receive monthly payments regardless of how long they live. insurance companys obligation ends when the beneficiary dies. a younger beneficiary receives less.
period certain annuity payments are guaranteed for a certain period of time, if the beneficiary dies before this time, the payments go to a secondary
refund annuity a type of annuity that provides the beneficiary with income for life as well as bestowing any reaming death benefit on a secondary if primary dies. monthly payments will besmaller than those received under straight line bc insurance company will have to pay out more money over time
cash-value insurance A type of insurance that has two components: life insurance and a savings plan.
renewable term insurance A type of term insurance that can be renewed for an agreed-upon period of up to a specified age (usually 65 or 70) regardless of the insured’s health.
credit or mortgage group life insurance Group life insurance that’s provided by a lender for its debtors.
convertible term life insurance Term life insurance that can be converted into cash-value life insurance at the insured’s discretion regardless of his or her medical condition and without a medical exam.
Traditional Net Cost (TNC) Method A method of comparing insurance costs that sums the premiums over a stated period (usually 10 to 20 years) and subtracted from this the sum of all dividends over that same period.
Interest- Adjusted Net Cost (IANC) Method or Surrender Cost Index A method of comparing insurance costs that incorporates the time value of money into its calculations.
Coinsurance or Percentage Participation Provision An insurance provision that defines the percentage of each claim that the insurance company will pay.
cleanup funds Funds needed to cover immediate expenses at the time of your death.

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