Insurance



Insurance Team Assignment: Solutions

Life Insurance

1. When does a person need life insurance? OR Who should purchase life insurance?

2. How should you determine how much life insurance to buy?

3. The two types of life insurance are a) term and b) permanent. What are the primary differences between the two?

4. Research (e.g., Google) “Buy Term and Invest the Difference”. Describe this philosophy. Why do some people support this philosophy?

5. Provide examples of how a family’s living costs may change due to the death of a spouse?

6. You and your spouse are trying to determine how much insurance to buy for you. That is, you are trying to determine how much to insure your life. These are the facts you will utilize:

a. Ongoing annual expenses in the first year = $80,000; you would like to fund the annual ongoing expenses for six years

b. Annual Inflation = 3%

c. After tax return on investments = 5%

d. Funeral Expenses = $15,000

e. Credit Card debt to pay off = $20,000

f. Child’s Education in current dollars = $40,000; your child will need the money in three years

g. First year spouse’s after-tax salary = $30,000

h. Assume expenses and salary grow at the rate of inflation

i. To be conservative, assume no social security

j. Assets to help with living expenses = $0

Disability Insurance

1. Who needs disability insurance?

(note: I disagree that your income is your most important asset. That is, income is not an asset. However, income is very important to grow your assets.)

2. What is the purpose of disability insurance?

Support LT disability

3. What features or considerations should you consider when selecting a disability policy?

How much benefit should you purchase (% of gross salary)—usually limited to 60% if you make under 100%

How quickly does it pay? The elimination period--- 30, 60, 90 days. Most people select 90 days because it is cheaper.

Benefit period? 2 years, 5 years, all the way to age 65

Definition of Disability? Your job? Any job?

Will it pay for partial disability? Say you can work part time

Does the policy index to inflation? Better policies compound interest

Health Insurance

1. What is the purpose of health insurance?

Guarding against catastrophic surgeries, chronic pain

2. What is the advantage of having group health insurance?

3. The three types of health insurance are listed below. Which would you prefer and why?

a. Indemnity plan: full choice in selecting your physician; usually pay 80% of customary costs; usually have a deductible

b. Preferred Provider Organization (PPO): full choice in selecting your physician, but in-network physicians. If see physician out of network, reimbursement will likely be less.

c. Health Maintenance Organization (HMO): no physician choice. Typically, lower premiums, lower deductibles, may pay more of the health insurance bill compared to the indemnity and PPO plans.

Auto Insurance

Define Liability Coverage: Pays for injuries or damages caused to other people or property for you

Bodily Injury:

Property Damage

What does the example “25/50/10” mean?: Insurance will cover one person’s injuries up to $25,000 but not more than $50,000 for all people and up to $10,000 for all property damage.

Medical Payments Coverage: Pays medical bills for those in your car regardless of who is at fault, if you are in another car, or pedestrian.

Usually, up to $5,000 per person, no deductibles

Uninsured and Underinsured Coverage: Provides protection for you and your passengers when injured when the other party is not insured or underinsured

Injury only

Collision: Protects your vehicle if hit object including another care -- deductibles

Comprehensive: fire, theft vandalism, broken glass, hitting an animal, or other losses not covered by collision—deductibles

What factors influence your vehicle insurance premium?

Credit history

Prior insurance claims

Driving record

Coverage

Why should you consider dropping collision and comprehensive as your vehicle ages?

Homeowners Insurance

1. What is the importance of obtaining replacement cost insurance-- “guaranteed replacement cost”?

2. Describe the following coverages related to homeowners insurance:

k. Dwelling amount

l. Contents (typically, 70-80% of dwelling amount)

m. Other structures: e.g., sheds, detached garages (typically 10% of dwelling amount)

n. Loss of Use: cannot live in, insurance company will pay for you to live elsewhere while your house is being repaired plus immediate needs (e.g., toothbrush)

o. Personal Liablity: someone gets hurt; dog bites someone down the road. Should cover all your assets

p. High Value Items

3. What is typically not covered in a homeowners policy? Floods, ground seepage—only cash value coverage, not replacement

4. Define Umbrella Liability Insurance. Why should an individual consider obtaining an umbrella policy?

5. What is CLUE—Comprehensive Loss Underwriting Exchange?

Database of claims—insurance companies can analyze a house and see if there are several claims—may be difficult to insure.

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