Chapter 9 - Life/Health Insurance Flashcards
When does life insurance pay benefits?
When the individual with the policy dies.
What is the purpose of life insurance?
To replace the lost income of the dead person to protect dependents who are left behind (i.e children, spouse).
What group of people do NOT need life insurance?
Young, unmarried people with no financial dependents.
Old, retired people who already have savings for retirement.
True or false: Life insurance benefits are tax-free.
True. Benefits are tax free provided that the policy was being paid for with after tax dollars.
What 5 factors should be considered when selecting the benefit size for a life insurance policy?
- Annual living expenses for spouse/kids.
- Future special expenses (i.e school, weddings, etc).
- A family’s level of debt.
- The value of your existing savings/wealth.
- Ability of your spouse to work.
What is one scenario where permanent life insurance might be better than term life insurance?
If your family has pre-existing medical problems, and you want to ensure you have coverage before you develop these problems too.
What does private health insurance cover which public health insurance does not cover?
Private insurance covers “medically unnecessary procedures”, such as eyecare, dental, and physiotherapy.
Public insurance covers all serious health matters that are considered “medically necessary”.
What main factor should be considered if self-insuring for health insurance?
Whether you can cover the risk for paying for procedures by yourself (i.e eye procedures, dental procedures, etc).
What is the purpose of disability insurance?
To protect your income incase you become unable to work.
For disability insurance, what is the difference between coverage for your “own occupation” and coverage for “any occupation”.
Own occupation disability insurance will provide you benefits if you are unable to perform your normal occupation.
Any occupation will ONLY provide you with benefits if you are unable to perform ANY occupation.
“Own occupation” disability insurance typically only lasts for a few years (2) before switching to any occupation.
Under which scenario are benefits provided by disability insurance tax-free?
Disability benefits are tax-free if you pay for insurance with after tax dollars.
If insurance is bought with before-tax dollars (i.e through an employer), then the benefits received are taxable.
What is a material omission in regards to insurance?
A material omission in insurance refers to the failure to disclose important information that could influence an insurer’s decision to issue a policy or determine its terms.
Critical illness insurance provides money for what main purpose?
This is insurance that provides a lump-sum benefit if you suffer a life-altering illness listed in the policy
You can use the money for what ever you need theoretically. It can be used for indirect expenses relating to illnesses. For example, retrofiting a house for wheelchair access.
(Although this money can also provide the recipient money for “bucket list” items before they die)
Who should purchase long-term care insurance?
Recall:
Long Term care insurance covers expenses associated with health conditions that cause individuals to need help with everyday tasks.
Typically covers nursing care; rehabilitation and therapy, personal care;’ homemaking services, and supervision by another person.
Probably don’t want to buy until you are at least 65. Since its for people who do not have wealth or an ability to support themselves later in life.
Why is permanent life insurance considered a scam?
Premiums are significantly higher than term life insurance.
Life insurance is only required in specific stages of life. Often, the age where term life insurance premiums exceed permanent life insurance premiums is the point where life insurance is no longer necessary.
In regards to disability insurance, what is the waiting period and the benefit period?
Waiting period is how long you must wait before receiving benefits.
Benefits period is how long the benefits will be paid for.
What is the grace period in regards to insurance?
The length of time which non-payment can occur on a policy before the policy is terminated (typically 30 days).
What is creditor insurance?
Creditor insurance is a type of life insurance that is controlled by the creditor (death benefits are paid directly to the creditor).
A creditor is an individual or company to whom you owe money.
Why is creditor insurance generally considered a poor type of life insurance?
Coverage decreases as the debt decreases, but the premiums remain the same.
Death benefits are paid directly to the creditor.
What is mortgage life insurance? Is mortgage life insurance recommended compared to regular term life insurance?
Mortgage life insurance is similar to creditor insurance, except for a house.
Mortgage life insurance is a type of life insurance designed to pay off the remaining balance of your mortgage if you pass away
This type of insurance is worse than regular term life insurance because it is typically more expensive than regular term life insurance, which can often give a sufficient amount to pay off a mortgage regardless.
What types of permanent life insurance allow for tax-sheltered growth of your money?
Whole life and Universal life are permanent life insurance policies that offer an opportunity to build savings tax-sheltered.
The premium for these types of life insurance is flexible (between a minimum and maximum amount).
The money invested is has tax-sheltered growth until it is withdrawn.
What is the difference between whole life insurance and universal life insurance?
Both are permanent life insurance policies.
Whole life: Life insurance company selects the investments in the account.
Universal life: You can select the investments in the account.
