Week 8 - Insurance Flashcards
What is insurance most suitable for?
Low probability events that would cause you significant financial hardship
What can you afford to self insure
- small electronics
- extended warranties
- vacations
- pets
What might vary in terms of being able to self insure?
- short-term disability
- long-term care insurance
What can you probably not afford to self insure?
- Homeowners
- Auto
- Health
- Long-term disability insurance
What is the affordable care act and what was its impact?
Also called Obamacare. Enacted to make make affordable health insurance available to more people. Resulted in millions signing up for health care
What are some different types of health insurance?
- Employer based
- Healthcare market place (Covered California)
- Medicaid (and Medical)
- Medicare
What are allowable underwriting factors under the Affordable Care Act?
- Age
- Tobacco use
- Geographic location
- Insurers can also charge diff premiums for: plans that cover spouses and/or dependents, diff levels of insurance (bronze, silver, gold, platinum, & catastrophic)
(T/F) Everyone who owns a motor vehicle needs auto insurance
True
What should you always have when it comes to automobile insurance?
Uninsured and underinsured motorist coverage
Describe what your liability coverage should be at least
- $300,000 bodily injury liability coverage per accident
- $100,000 bodily injury liability coverage per person
- $50,000 property damage liability coverage
When should you consider getting more liability coverage (auto insurance)?
If you have significant assets or income
How can you keep premia low for auto insurance?
By choosing as high a deductible on collision and comprehensive coverage as you can afford.
For older car, consider not buying collision and/or comprehensive coverage
(T/F) Car insurance follows the car, not the driver (except for rental cars)
True
Do you need homeowners insurance?
Yes, if you own a home
How can you obtain a lower premium
By choosing as high a deductible as you can afford
What two cases would you need renters insurance?
- You have valuable possessions in your home the loss of which would be a financial hardship
- You want protection from potential liability claims if someone (other than a family member or roommate) is hurt in your home
Why would you need to buy life insurance?
If people who you love are dependent upon your income
What should you buy for life insurance?
Buy term-life policies
What should you NOT buy when it comes to life insurance?
Whole life, universal live, cash-value policies; these are complicated and expensive mixes of insurance and investments
If you commit suicide during the contestability period, what happens to your life insurance?
The insurance company will refund your premium payments but will not pay the insured amount
Are life insurance payments to beneficiaries considered taxable income?
No
When would you need long-term disability insurance?
If you depend upon your employment income and are not approaching retirement age
What is a way long-term policies differ in terms of disability?
They can differ in whether your disability must prevent you from working your current job to qualify for payments or whether you must be unable to do any job to qualify for payments
What is the difference between short-term and long-term policies?
Short-term policies are often employer-sponsored; long-term policies are sometimes employer-sponsored
How can you keep your premium low on long-term disability?
By choosing as long a waiting period as you can afford
Why are long-term care policies complicated?
- Companies may dispute the need for long-term care
- Companies may dispute the level of long-term care
- Long-term care standards and costs may change between the purchase of the policy and need for care
(T/F) If you are sufficiently wealthy, you should not self-insure
False
(T/F) People with too little wealth should rely on Medicaid
True
What happens when insurance companies initially set rates too low?
Insurance companies may not have the funds to fully pay its policyholders when claims are made
What are umbrella policies?
Provides extended auto, homeowners, and some other liability insurance.
Why would you need an umbrella policy?
If your wealth significantly exceeds the liability limits of your auto and/or homeowners policies
Should you get pet insurance?
Most people should self insure
What are the two only cases you should consider travel insurance?
- Your probability of making a payable claim is unusually high
- A loss would cause you significant financial hardship
What is adverse selection?
People who are at the greatest risk buy insurance and those at low risk don’t
What are types of insurance with correlated risk, moral hazard, and adverse selection?
- Hurricanes, flood, damaged crops
- Unemployment insurance
How do insurance companies cover their claims?
Charge high enough premiums which also give them profit
What are the two types of life insurance?
Term life insurance and cash value life insurance (whole, universal, verbal)
What is term life insurance?
Payment to beneficiary if you die. The policy is for a specified length of time. These are much cheaper and simpler because commissions paid to agents selling tend to be much lower.
What is level term life insurance?
Fixed annual premium for a fixed number of years
What is cash value life insurance?
Combines investment and life insurance, these are more complicated
What are the two types of disability insurance?
- Short-term - sometimes paid by employer
- Long-term - covers you up to 65-70, gets more expensive as you get older
What are the 5 types of government insurance?
- Worker’s compensation
- Social security
- State disability
- Long-term
- Group vs. individual
What is worker’s compensation?
Covers injuries sustained on the job. This makes up 66.6% of gross wages or 80% take-home pay.
What is social security?
When you are unable to work any job whatsoever. Doctor must vouch that disability will last more than a year or result in death
What is state disability?
Limited amount for a short period of time
What is group vs. individual?
Prices vary for individual. Price influenced by age, gender, and how healthy you are (smoking and medical history). The younger the cheaper.
What is medicare?
Federal health insurance program primarily for aged ppl over 65 or people with permanent disabilities. You receive payments 24 months after your disability is diagnosed. Once you’re 65, part A kicks in
What are the two components of medicare?
- Part A - hospital insurance
- Part B - medical insurance
What is the medicare advantage?
Forego government paying your claims
What are the out of pocket terms for medicare?
- You pay the first $1260 of medical bill (pt A)
- $147 deductible (pt B) also 75% of your expenses
- Coinsurance is 20% of bill and has fee schedule, you are responsible for paying this
How to sign up for medicare
website, there is a 7-month window how to sign up for medicare
What is a premium?
A monthly payment
What is a deductible?
The first amount of money that you’re responsible for before insurance kicks in
How do health insurance companies avoid adverse selection?
by:
- insuring large pools of employees
- charging individuals premiums based on risk
What is the 3 legged stool of the ACA?
- Get rid of underwriting
- Mandating purchase of insurance
- Health insurance exchanges
What resulted in employer based health care?
- The financial distress of hospitals during the depression
- Wage camps imposed during WWII
- The federal government’s decision not to tax employee fringe benefits, including health insurance
What was Kaiser Permanente a precursor of?
Current HMO’s
What are preferred providers?
Insurers contract with doctors and agree to pay discounted price. if denied then they can pay more to go out-of-network
What are aspects of HMOs?
- pick a primary care physician as point-person
- insurance dictates medication
- need referrals to see specialists
- must stay in HMO network
- co-pay: flat rate
- low-no deductibles
- per capita rate
- cost less than PPOs
What is a health savings account?
Gives you the money and put in savings account that you can pay into pretax dollars. It is a defined contribution that is tax-free if used for medical reasons. Otherwise it stays and grows
(T/F) The lower the deductible, the higher the premium
True
What are the pro’s and con’s of an HSA?
Pros: reduces costs bc don’t pay high premiums
Cons: If you run out of money in HSA and have high deductible then you are at risk
What are some features of an HSA?
- Pre-tax savings account for medical expensies
- You and/or your employer make annual contributions
- Don’t need to spend your HSA contribution in the year you make it
- Usually coupled with high-deductible health insurance plans
