What is the financial impact of a premature death?- Four Major Areaso Premature Deatho Poor Healtho Long Lifeo Disability- What is premature death? Still have financial responsibility to others, if you provide for them- Wage earning adulto Education Levelo Income/ Expenses Assets/ Debt Liabilities Income: how much Expenses: health care, groceries, entertainment Debt (long term): Retirement, mortgage, education, transportation- What is premature death? Death before “expected”- normal/average age andwhile others are dependent on. Broken up in to exposure categories with multiple subcategories How much? What’s the loss? o 1.capital retention- how much do I have and how much do I need to keep (not that important) o 2.human life approach- net present value of current and future earnings (what is lost if I die tomorrow)- use current salary (1+ growth rate)/discount rateo 3. needs approach- need to know school, housing, food, clothes, transportation (basic needs) - Value of lifeo Income PV (future income)o Needs approach Example was shown on the board from the website. It doesn’t include your income Needs approach is far greater than income approach- Their needs are greater than what you could ever provide for them.o Capital Protection Taxes are a huge issue for estate planning Proceeds from life insurance aren’t taxed- When your younger or have young dependents you will have the greatest needs. - Life insurance is designed for people ealy in their careersFinancial Impact of poor health - We cannot earn the same income.o Miss work, missed job opportunitieso Younger healthier better looking people get better job opportunities. o Ability to earn income may decrease, or cease (as in premature death)o Living expenses may continue (or increase)o Evaluate same exposure categories as premature deathFinancial Impact of Disability - Ability to earn income may decrease, or cease (as in premature death)- Living expenses may continue (or increase)- Evaluate same exposure categories as premature deathFinancial Impact of long life (non-wage earners)- What happens when you are retired?- People travel more and do things more than they did when workingo Income People can be on a fixed income- Pension- Fixed income o Expenses People may spend less People may spend more Three sources of risk management solutions (3-legged stool)- Individual - Employee benefit/group insurance- Government/ social programsIndividual Employer/group Government/socialPremature death Life insurance Group life Social security +255 death benefitReferred to as survivor benefitsPoor health Health InsuranceLong term care (LTC)Health InsuranceLTCMedicareMedicaidLong Life Roth IRA Pensions401kRoth IRASocial SecurityDisability Short term disabilityLong term disabilityShort term disabilityLong term disabilitySupplementalSocial SecurityWorkers compensation (runat the state level)- Medicare- for older people (65+)- Medicaid- poorer Americans, they made it easier to get this Employee benefits - Purpose Is to Retain Good Employees in Competitive Job Markets.- Employer Contributions Are a Deductible Business Expense for “Qualified” Plans.- “Qualified” Status Related to Compliance with ERISA Requirements.o Some have not qualified plans, they are for specific peopleo Those are non-qualified and not tax deductible- Tax advantage from employer for offering employee contributions - Don’t just look at the annual salary, see if there is retirement savings- Offer employee benefits to attract and retain good employees- Many Benefits Are Not Taxable to Employees.- Non-Contributory Benefits Are Employer-pay-all.o You don’t have to pay anything- Contributory Programs Involve Employee Contributions.o You are required to put in a certain amount and then a company can match it.Group Insurance - The basic contracto Master contract Sub-contract for indivudal actually interestedo Cost savings Employer contribution Market savings- to groups not individuals Loss ratioso No evidence of insurability No need to show evidence of insurability.o As a group you get experience rating As a group they evaluate to either lower or raise the premiums Ex. Join a gym and we’ll pay for some of that cost. Preventative costs for the group- Underwritingo Group main purpose Eligibility - A-major tax benefit as long as aimed at all employees, not just golden group - B-have to be working there to get policy- Have to be there when benefits kick in- no evidence of insurability, no elimination of pre-existing conditions, don’t need proof or have to get physical - experience rated, costs vary by experience of group, with small group if one person gets sick seriously drivesof experience, for large company a few injuries don’t really affect anything o Flow of participants New people are coming in and older people are leaving Members of group are changing over timeo Automatic determinent of benefits Benefits are set There is a formula for this. Ex. 3% times your retiremento Minimum participation Needs to have enough people to keep it going.- Example he gave was about his high school it didn’t have enough people so it closed, no one would want to insure this.- can get package as long as certain amount participates (40%,50%)Individual Group SocialPremature death Life insuranceLong-life RetirementPoor health Health insuranceDisability Disability insurance o Why have social insurance? Social security, workers comp, medicare, medicaid, state plans- 1.Social problem- need economic securityo life, health (living on street, stealing, how do support myself/family) Risk Individual Group (Employer) GovernmentPremature Death Life Life S.S. SurvivorPoor Health Health, LTC Health, LTC Medicare/Medicaid/StatePlans Disability STD,LTD STD,LTD (Supplemental- Aflac) Social Security Long Life Annuities, IRA’s 401 K’s, Pensions Social Security- 2.Lack of private market- not many people want to give policies to old people - 3.Economic security- what would happen to country if old people were living on streets Social Programs - Basic Characteristicso compulsory- everyone will participateo floor- not end all be all there is a minimum standard ex. Social security, there’s a minimum benefit for retiremento Social adequacy- not individual equity (doesn’t cost me more or you less, everyone has same chance) We are not concerned with individual equity for
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