Chapter 9: Life & Health InsuranceHealth Careo USA SPENT 2,600,000,000,000 on Health care!o 8,233.00 Per persono Annual premium was 15,745(family) and 5,615(single)o Per Month: 1,312.08(family) and 467.92 (single)- Types of Health Careo Basic health insurance, Major medical expense insurance, Dental and Eye, Dread disease and accident Insuranceo Basic Health Insurance (3 types) Hospital insurance cover: hospitalization expenses such as room fees, and drug fees. Surgical Insurance covers: direct costs of surgery such as the surgeon’s fees and equipment fees Physician expense insurance: covers physicians such as office fees, lab fees, andX-ray fees. o Major Medical Expenses Covers beyond basic plan Requires co-payments and deductible payments Stop-loss provision: limits the total expenses you would have to pay to a specific amount Life-time cap: It is the total amount the insurance company would pay you over the life of that policyo Dental and Eye Covers eye exams, glasses, contact lenses, dental work, and dentures Normally expensive unless it is provided by an employero Dread Disease and Accident Insurance Covers only specific illness or accidents A set dollar amount for reimbursement- Health Care Providerso Private Health Care Plans Fee-for-service/ traditional indemnity plans- Provides the greatest choices of doctors- Coinsurance-%- Co-payment or - Insurance covers potential riskso In insurance Risk is An Uncertainty with respect to economic losso Ways to deal with RISK: risk avoidance, loss prevention, risk assumption, and Insuranceo Insurance: Shared risk (more than one is liable for damages)- Risk is the possibility of experiencing harm, suffering, danger, or lossChapter 10 Property and Liability Insurance (AUTO)- Termso Liability Insurance: protects against the financial consequences from the insured’s responsibility for property losses or injuries to otherso Comprehensive (full coverage): You have to have it if you have a loan on your vehicle. You must insure against liability and for the value of vehicle itself.o Deductible: The limit what a company must pay for small losseso Premiums: The Monthly payment you pay for your insurance coverage- Liability Coverageo Covers bodily injury losseso Covers property damage o Covers losses due to lawsuito Can be combined with a single limit or split-limit coverageo THE MINIMUM COVERAGE- Medical Expenses Coverageo Covers all reasonable medical costs and funeral expenses incurred by the insured or the insured’s family members within 3 years - Uninsured Motorist’s Protectiono Coverage if injured by an uninsured motorist or a hit-and-run drivero Other driver MUST be at fault to collecto Also covers cots in excess of the other driver’s liability is insufficient- Comprehensive Physical Damage Coverageo Covers Collision loss and damages other than collision or comprehensive physical damageo Collision covers regardless of fault! - NOT Insured: o Intentional Injuries/damageso Use without permissiono Vehicle has less than 4 wheelso Individual not listed on policyo Carrying passengers for freeo Race/contest- “No Fault” Insuranceo ONLY available in no fault stateso Insurance pays for yours & their losses no legal battle- GAP insuranceo Coverage that pays for the difference b/w the vehicle’s value and what you may still owe on the loam- Determining the Cost of Auto Insuranceo Type of automobileo Use of the automobileo Your driving record o Where you liveo & Discounts- Filing a Claim: o Get HELP for the injured- DUI will lasts for 3 yearsChapter 11 Investment Basics- Investing: Putting your money into an asset that generates returns (stocks, bonds, mutual funds)- Speculation: Putting your money into an asset that the future value or return relies on supply and demand- *Pay your Self First*- *MUST KNOW TIME VALUE OF MONEY*!!!Investment Choices- Lending Investments: Bonds- Ownership Investments: Stocks- Savings Accounts: loan institutions money- Bonds: Loans where your rate of return is predetermined o Par value: The amount you receive when bond matureso Coupon Interest Rate: The interest paid annually on a bond as a percentage of par value- Stocks: You are PART OWNER in the corporation and receive a portion (DIVIDENDS) - Real Estate: Return is from Rent or Appreciation of the property- ***RATE OF RETURN= (ENDING VALUE – BEGINNING VALUE) + INCOME BEGINNING VALUE- ANNUALIZED RATE OF RETURN= (ENDING VALUE – BEGINNING VALUE) + INCOME X 1BEGINNING VALUE N- Nominal quoted rate: the rate of return without adjusting for inflation- Real Rate: The Inflation adjusted rate of return - Premiums: Additional returns demanded by investors for taking on additional riskType of Risk Premiums - Inflation Risk Premium: Compensation for the anticipated inflation over the life of the investment- Default Risk Premium: Compensation for the possibility that the issuer may not pay the interest or repay the principal- Maturity Risk Premium: Compensation on longer-term bonds for value fluctuations in the response to interest rate changes- Liquidity Risk Premium: Compensation for a bond that cannot be converted into cash quicklySources of Risk in the Risk Return trade off- Interest Risk: Risk from fluctuations in security prices due to changes in the market interest rate (Impossible to estimate)- Inflation Risk: Risk with rising prices will erode purchasing power closely linked to interest rate risk (Almost impossible to estimate) - Business Risk: Risk from POOR company management or product acceptance- Financial Risk: Risk From the company’s debt!- Liquidity Risk: Risk from not being able to liquidate a security quickly and cost effectively- Market Risk: Risks form the swings in the OVERALL market - Political and Regulatory Risk: Risk from unanticipated changes in the tax or legal environment- Call Risk: Risk that a callable security may be taken back before maturity - Systematic Risk: Risk from ALL securities and cannot be reduced through diversification- Unsystematic Risk: Risk from one particular investment and can be reduced through diversification- Diversification: # of different types of securities owned reduces risk! Chapter 12 Securities Market- Security: Investment instrument issued by an organization which offers debt or equity - Primary Market: The market for NEW security issues. Security is purchased directly from the issuero Initial Offerings (IPO): First time the company’s stock