What is the financial impact of a premature death Four Major Areas o Premature Death o Poor Health o Long Life o Disability provide for them Wage earning adult What is premature death Still have financial responsibility to others if you o Education Level o 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 and while 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 rate o 3 needs approach need to know school housing food clothes transportation basic needs Value of life o Income PV future income o Needs approach Example was shown on the board from the website Needs approach is far greater than income approach It doesn t include your income Their needs are greater than what you could ever o Capital Protection provide for them 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 careers Financial Impact of poor health We cannot earn the same income o Miss work missed job opportunities o 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 death Financial Impact of Disability Ability to earn income may decrease or cease as in premature death Evaluate same exposure categories as premature death Living expenses may continue or increase Financial Impact of long life non wage earners What happens when you are retired People travel more and do things more than they did when working o Income o Expenses People can be on a fixed income Pension Fixed income People may spend less People may spend more Three sources of risk management solutions 3 legged stool Individual Employee benefit group insurance Government social programs Premature death Individual Life insurance Employer group Group life Poor health Long Life Health Insurance Long term care LTC Roth IRA Disability Short term disability Long term disability Health Insurance LTC Pensions 401k Roth IRA Short term disability Long term disability Supplemental Government social Social security 255 death benefit Referred to as survivor benefits Medicare Medicaid Social Security Social Security Workers compensation run at the state level Medicare for older people 65 Medicaid poorer Americans they made it easier to get this Employee benefits Plans Purpose Is to Retain Good Employees in Competitive Job Markets Employer Contributions Are a Deductible Business Expense for Qualified Qualified Status Related to Compliance with ERISA Requirements o Some have not qualified plans they are for specific people o 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 contract o Master contract o Cost savings Sub contract for indivudal actually interested Employer contribution Market savings to groups not individuals Loss ratios o 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 Underwriting o 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 drives of 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 time o Automatic determinent of benefits Benefits are set There is a formula for this Ex 3 times your retirement Risk Individual Group Employer Government Premature Death Life Life S S Survivor Poor Health Health LTC Health LTC Medicare Medicaid State Plans Disability STD LTD Social Security STD LTD Supplemental Aflac Long Life Annuities IRA s 401 K s Pensions Social Security o 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 Social Premature death Long life Poor health Disability Group Life insurance Retirement Health insurance Disability insurance o Why have social insurance Social security workers comp medicare medicaid state plans 1 Social problem need economic security o life health living on street stealing how do support myself family 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 Characteristics o compulsory everyone will participate o floor not end all be all there is a minimum standard ex Social security there s a minimum benefit for retirement o 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 social security Its designed to be adequate some people pay more into these things then they will ever receive in their life They tie benefits to something ex SS is tied to earnings o Benefits tied to earnings o Benefits are set by law Social security benefits aren t tied to means These are
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