Health Care Planning How Can You Reduce

Health Care Planning

How Can You Reduce Your Personal Health Care Costs? n Stay well - focus on prevention w eat a balanced diet and keep your weight under control w avoid smoking and don’t drink to excess w get enough rest, relaxation, and exercise w drive carefully and look for accident and fire hazards in your home

Health Insurance and Financial Planning n Protection against financial loss due to illness or injury. n Part of your overall risk management plan to safeguard your family’s economic security w medical expense insurance w disability income insurance to protect your most valuable asset - your ability to earn an income

Health Care Planning FOUR LOSS TYPES: w Direct medical care w Recuperative care w Rehabilitation w Replacement of income

Health Care Providers n Individual n Group w Lower rates w Employee fringe w Coverage for existing health problems

Health Insurance and Financial Planning (continued) n Group plans comprise more than 85% of all health insurance issued n Most group plans are sponsored by employers, with the employer paying most or all of the cost n Group plans can be supplemented with individual plans n Following divorce, a former spouse can remain covered for three years, but the premiums can be as high as $4, 000 a year

Health Care Providers n Private insurance companies n Managed care plans w Preferred provider w Health maintenance

Health Care Providers n Government plans w Medicare w Medicaid

Health Care Coverages n Hospital n Surgical n Medical expense n Major medical expense n Comprehensive health n Dental expense and vision care

A Good Health Insurance Plan Should. . n Provide quality care at a reasonable cost n Offer basic coverage for doctor and hospital bills n Cover 120 days’ hospital room and board n Provide at least $1, 000 lifetime maximum person n Pay 80% of out-of-hospital expenses after the deductible is met n Have no unreasonable exclusions n Limit out-of-pocket expenses

Types of Health Care Coverages n Hospital w hospital room, operating room, lab tests, X-rays, medicine n Hospital indemnity w pays a fixed amount for each day in hospital. Best for people in high risk groups n Surgical w surgeon's fee n Physician w office visits, lab tests and X-rays

Types of Health Care Coverages (continued) n Major medical w covers expenses for a long term injury or illness n Comprehensive major medical w low deductible offered without a separate, basic plan n Dread disease w focuses on unrealistic fears, and only pays out for very specific conditions. Often sold by people working on commission.

Types of Health Care Coverages (continued) n Dental w group coverage for exams, cleaning, x-rays, fillings, oral surgery n Vision care w some group plans include exams and glasses n Long term care w fastest growing coverage, especially for women

Health Care Coverages n Medicare supplement (Medigap) n Long-term care n Accident and dread disease

Why Do People Buy Long-Term Care Insurance? To avoid losing assets 23. 0% Other reasons 25. 0% To avoid dependence 25. 0% Protect standard of living 15. 0% Guarantee services 12. 0% 1996, Teacher's Insurance and Annuity Association

Making Sense of Health Benefits GENERAL TERMS AND PROVISIONS: w Definitions w Who is covered w Time period

Making Sense of Health Benefits PAYMENT LIMITATIONS: w Policy Limits w Deductibles and copayments w Coinsurance w Coordination of benefits

Making Sense of Health Benefits COVERAGE LIMITATIONS: w Based on timing of loss w General exclusions w Maternity benefits

Disability Income Insurance n. Disability income insurance replaces a portion of the income lost when you cannot work because of illness or injury. n The chances of becoming disabled for at least three months are seven times greater than the chances of death!

Disability Income Insurance n Level of need n Important policy provisions w Elimination period w Benefit period w Degree of disability

Disability Income Insurance n Important policy provisions (continued) w Residual clause w Social Security rider w Cost-of-living adjustments

How Long Your Money Will Last

Trade-Offs in Choosing a Policy n Reimbursement versus indemnity n Inside limits versus aggregate limits n Deductibles and coinsurance n Out-of-pocket limit, or stop-loss n Benefits based on reasonable and customary charges

How to Choose an HMO Consider the following factors w accessibility w convenient office hours w alternative physicians w second opinions w type of coverage w appeal procedures w price

Life Insurance Planning

What is the Purpose of Life Insurance? n To protect people who depend on you from financial loss related to your death w 78% of all American households have it n To make charitable bequests upon your death n To save money for retirement or children’s education n To leave as part of your estate n To pay off a mortgage or other debts at the time of death

The Principle of Life Insurance n Mortality tables provide odds on your dying, based on your age and sex n Your premium is based on the projections for the payouts for persons who die

Determining Your Life Insurance Needs - Ask Yourself. . . n Do you need life insurance? w do you have people you need to protect financially? w does your partner work? n What are your objectives for life insurance? w to accumulate money for retirement? w to provide funds when you die? w how much can you afford?

Estimating the Amount of Life Insurance You Need ŒThe Easy Method w typically, you will need to have enough insurance to cover 70% of your income for seven years The DINK (dual income, no kids) Method The “Nonworking” Spouse Method The “Family Need” Method looks at w employer provided insurance w Social Security benefits w income and assets

Determining Life Insurance Needs CALCULATING DOLLAR LOSS: n Multiple-of-Earnings Approach

Types of Life Insurance Policies ŒTerm life insurance w protection for a specified period of time w if you don’t pay premiums, coverage stops w renewability option Ÿat the end of the term you can renew the policy without having a physical

Types of Life Insurance Policies Œ Term life insurance (continued) w conversion option Ÿcan change your policy from term to a whole life policy without a physical w decreasing term insurance Ÿyour premium stays the same, but the amount of coverage decreases as you age 12 -8

Types of Life Insurance Policies (continued) Whole life insurance w you pay a premium as long as you live w amount of premium depends on your age when you start the policy w provides death benefits and accumulates a cash value w you can borrow against the cash value or draw it out at retirement w look carefully at the rate of return your money earns

Whole Life Policy Options n Nonforfeiture clause w if you stop paying premiums you can use the cash value in a variety of ways. n Limited payment policy w pay higher premiums during your earning years only, keeping lifetime coverage n Variable life policy w minimum death benefit guaranteed, but can be more depending on how your premium dollars are invested

Whole Life Policy Options (continued) n Adjustable w you can change your premium amount and thus your coverage n Universal life w lets you pay premiums in almost any amount w combines term insurance and investment elements

Decreasing Term Insurance

Comparison of Term vs. Cash Value

Types of Policies Issued in 1994* Term 22% Whole Life 45% Decreasing 2. 0% Variable 2% Universal 11% Other 10% *1997 Insurance Fact Book Variable Universal 8% 12 -12

Other Types of Life Insurance Policies Group life insurance w often through an employer w no physical required w usually term insurance Credit life insurance w debt is paid off if you die Ÿmortgage, car, furniture w also protects lenders w expensive protection

Life Insurance Contract Provisions n Naming your beneficiary (one or more) n Length of grace period for late payments n Reinstatement of a lapsed policy if it has not been turned in for cash n Suicide clause during first two years n Automatic premium loans w uses the accumulated cash value to pay the premium if you do not

Life Insurance Contract Provisions (continued) n Misstatement of age provision n Policy loan provision w can borrow against your cash value n Rider to add or alter benefits w cost of living protection n Waiver of premium disability benefit n Accidental death benefit w pays twice the policy face amount n Guaranteed insurability option n Accelerated benefits

Buying Your Life Insurance n Look at your income, savings, group life insurance, and Social Security benefits n Compare policy costs which are affected by w cost of doing business w return on its investments w mortality rate among policyholders w features of the policy w competition from other companies

Buying Your Life Insurance (continued) n Use the interest-adjusted index to compare policies w takes into account the time value of money w helps you make cost comparisons among insurance companies n Determine from whom to buy your policy w examine both private and public sources w look up the company’s rating

Choosing Your Insurance Agent n Ask friends, parents and neighbors for recommendations n Find out if the agent belongs to professional groups or is a CLU n Is the person willing to take the time to answer your questions and find a policy that is right for you? n Do they ask about your financial plan? n Do you feel pressured? n Are they available when needed?

Obtaining and Examining a Policy n Apply and provide medical history n Read all of the contract n After you buy it you have ten days to change your mind n Give your beneficiaries and lawyer a copy

Choosing Settlement Options n Options are the choices for how you want the money paid out w One lump-sum is most common w Limited installment plan Ÿin equal installments for a specific number of years after your death w Income for life Ÿpayments to the beneficiary for life w Proceeds left with the company Ÿpays interest to the beneficiary

Should You Switch Policies? n If benefits exceed costs of getting another physical and paying policy set up costs. n Are you still insurable? n Can you get all the provisions you want?

Financial Planning with Annuities n What is an annuity? w a contract where you pay money in, and at a certain date get regular payments back during your lifetime n Why do people buy annuities? w to supplement retirement income and to shelter income from taxes n How are annuities taxed? w income deducted and interest earned is not taxed until you draw the money out