Test 3 Review Auto Insurance Personal Auto Policy PAP o Who is covered The named insured and any resident family member Any person using the named insured s covered auto Any person or organization legally responsible for any insured s use of a covered auto on behalf of that person or organization Any person or organization legally responsible for the named insured s or family members use of any auto or trailer other than a covered auto or one owned by the person or organization o Coverage where the amounts of insurance for bodily injury liability and property damage Split Limits liability are stated separately Uninsured motorist o Pays for the bodily injury caused by an uninsured motorist by a hit and run driver or by a negligent driver whose insurance company is insolvent o In some states property damage is also covered o The uninsured motorist must be legally liable Constructive total loss o For a total loss the policy pays the actual cash value less the deductible o For a partial loss the policy pays only the amount necessary to repair or replace the damaged property of like kind and quality Tips for shopping for auto insurance Health Insurance Problems with US health care system o Rising health care expenditures o Large number of uninsured in the population o Uneven quality of medical care o Considerable waste and inefficiency o Defects in financing health care o Abusive insurer practices ACA Obamacare o Individual Mandate Certain groups are exempted o Employer Mandate through an exchange Tax credits Pro s and Con s of Obama care lecture o Pro s Beginning in 2014 most citizens and legal residents must have qualifying health insurance or pay a financial penalty The new law also provides premium tax credits so that eligible individuals can purchase affordable health insurance and comply with the law Employer has to pay for healthcare if they have more than 50 employees Larger employers must pay a fine for each employee that obtains subsidized insurance Increase of people who would qualify for Medicare Affordable for low income families No discrimination Stay of parent s plan until 26 years old Tax breaks subsidies for low income families Can t drop for honest mistake Company wants healthy employees o Con s Employer has to pay for health care if they have 50 or more employees Religious institutions have to pay for things that they don t believe in Increase in the cost of medication ex abortion birth control Increase in unemployment due to decrease in salary Increase in waiting period decrease in of physicians Giving coverage for things you don t need Younger healthier people don t need to stay on plan until 26 Elderly don t have enough care Class examples near front door applying deductible coinsurance and out of pocket max o Annual out of pocket limit stop loss limit The insured s total out of pocket spending is limited after which the insurer pays 100 of eligible expenses o Coinsurance provision States a percentage of the bill in excess of the deductible which the insured must pay out of pocket up to some maximum annual dollar limit Purpose is to reduce premiums and prevent overutilization of plan benefits o Deductible provision The purpose of the deductible is to eliminate small claims and the high administrative cost of processing them o Calendar year deductible An aggregate deductible that has to be satisfied only once during the calendar year Basics of Long term health insurance emphasized in class by McHugh o Policies guaranteed renewable Only way to cancel not pay premium o Pays a daily or monthly benefit for medical or custodial care received in a nursing facility in a hospital or at home o People who reach age 65 will likely have a 50 or more chance of entering a nursing home and about 10 of them will stay there five years or more o Elimination period Waiting period during which time benefits are not paid Deductible Life Insurance Compare term v whole life Variations on whole life o Whole life insurance Cash value policy that provides lifetime protection A stated amount is paid to a designated beneficiary when the insured dies regardless of Permanent whole life Entire life as long as you pay premium higher priced when when the death occurs younger collect interest o Term insurance Provides temporary protection Inexpensive while you are younger pure life insurance typically for a short time or for specific reason o Variable universal life insurance Important variation of whole life insurance Most are sold as investments or tax shelters The policy owner decides how the premiums are invested The policy does not guarantee a minimum interest rate or minimum cash value These policies have relatively high expense charges including front end loads for sales commissions back end surrender charges and investment management fees o Universal life insurance Flexible premium policy that provides lifetime protection After the first premium the policyholder decides the amount and frequency of payments Most policies have a target premium but the policy owner is not obligated to pay it The protection and savings components are unbundled Universal life provides considerable flexibility Cash withdrawals are permitted Policies receive favorable tax treatment Limitations include Insurers advertise misleading rates of return Cash value and premium payment projections can be misleading and invalid A policy may lapse because some policy owners do not have a firm commitment Insurers can increase the mortality charge to pay premiums Use of needs approach to determining how much life insurance To get Know slide L 4 o Under the needs approach The amount needed depends on the financial needs that must be met if the family head should die The calculation should consider An estate clearance fund Life income to the surviving spouse including income during and after the blackout Income needed for a 1 2 year readjustment period Income needed for the dependency period until the youngest child reaches age 18 period Special needs e g funds for college education and emergencies Retirement needs Tax related benefits of Life insurance income tax free o Life insurance proceeds paid in a lump sum to a designated beneficiary are generally received o The interest component of periodic payments is taxable as ordinary income o Premiums are generally not deductible o Dividends are not taxable but interest on dividends retained is taxable o If a policy is surrendered for its cash value any gain is taxable as
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