Week 3: Insurance > Insurance

Week 3: Insurance > Insurance

“Week 3 at a Glance … Insurance: What is it and how does it work? … Wills and Health Directives: It’s Never too Early … Your Financial Reflections”
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Summaries

  • Week 3: Insurance > Insurance: What is it and how does it work? > When Things Go Wrong
  • Week 3: Insurance > Insurance: What is it and how does it work? > How does insurance work?
  • Week 3: Insurance > Wills and Health Directives: It's Never too Early > Advance Directives, Wills, & Trust</span><span style=
  • Week 3: Insurance > Optional: Which insurance do you need? > Auto Insurance
  • Week 3: Insurance > Optional: Which insurance do you need? > Be-Financially-Smart Activities
  • Week 3: Insurance > Optional: Which insurance do you need? > Disability Insurance
  • Week 3: Insurance > Optional: Which insurance do you need? > Life Insurance
  • Week 3: Insurance > Optional: Which insurance do you need? > Homeowners Insurance
  • Week 3: Insurance > Optional: Which insurance do you need? > Renter's Insurance
  • Week 3: Insurance > Optional: Health Insurance > The Health Insurance Marketplace
  • Week 3: Insurance > Optional: Health Insurance > The Affordable Care Act
  • Week 3: Insurance > Optional: Health Insurance > How Health Insurance Works
  • Week 3: Insurance > Optional: Health Insurance > Health Savings Accounts
  • Week 3: Insurance > Optional: Health Insurance > Employer-based Insurance, HMOs and PPOs with Robin Flagg
  • Week 3: Insurance > Optional: Health Insurance > State Health Insurance Assistance Programs

Week 3: Insurance > Insurance: What is it and how does it work? > When Things Go Wrong

  • There are fortunately things you can do to protect yourself and your family from the worst effects of these unexpected, negative financial events, so that’s what we’re going to be talking about this week- how to prepare for when things go wrong.
  • What are you going to do? Well, naturally, that’s going to depend on the type of trouble and the size of the trouble.
  • For these big, emergency expenses, you’re going to need insurance.
  • Now, insurance can be a bit confusing, even for the most financially adept.
  • Everyone needs insurance, but not everyone needs every type of insurance.
  • What types of insurance do you need? How much insurance? What types of insurance do you have? What does it cover? Take a moment and answer the following questions about your insurance.
  • I’m going to briefly discuss different types of insurance here.
  • The first assignment this week is to get three quotes from three different insurance companies for policies with the same limits and the same terms.
  • For most people, I’d suggest going with either auto or homeowner’s insurance.
  • If you don’t have auto or homeowner’s insurance, get quotes for a type of insurance that you do have or might be considering.
  • Second, I’m asking everyone with homeowner’s or renter’s insurance to spend 30 minutes photographing your most valuable possessions.
  • You will store these outside of your home so that if you do ever lose your possessions in a fire, you’ve got a record of them when you file a claim with your insurance company.
  • Everyone should have health insurance, and now with Obamacare, everybody can have it.
  • Many of you get your health insurance through your employer, and those who don’t have health insurance and can’t get it through an employer can enroll through the new federal health insurance programs.
  • To learn more about health insurance, watch Robin Flagg’s video on the course website.
  • Moving on to homeowner’s insurance, if you own your home and you’ve got a mortgage, you almost certainly have got homeowner’s insurance already.
  • If you rent, you should consider getting renter’s insurance.
  • Next, auto insurance, you know, if you own a car, you are legally obligated to buy auto insurance.
  • That’s going to go for pickup trucks, vans, motorcycles, any vehicle you might be driving, but the state-mandated insurance minimums are going to be exactly that.
  • They’re not going to be enough if you cause a big accident, and they’re not going to pay you if you are hit by an uninsured driver.
  • If you need to save money on your car insurance, you should consider increasing your deductible.
  • If you’ve got a lot of wealth, say you’ve got more wealth than the liability limits on your auto or your homeowner’s policies, you should consider getting an umbrella insurance policy.
  • These policies protect you from liability judgments beyond your homeowner’s and auto insurance policies.
  • A lot of people say, well, do I need life insurance? Do I not need life insurance? There’s a pretty simple basic rule.
  • If someone else depends on your income- such as your children, husband, wife, domestic partner- you need life insurance.
  • If people do depend on your income and you need life insurance, you should buy a term life policy, not a cash value policy.
  • Disability insurance, you know, if you work for a living and you’re not yet approaching retirement age, you need disability insurance.
  • If you’re approaching or past retirement age, you might want to think about getting long-term care insurance.
  • Remember, insurance is for the extraordinary, unexpected expenses that could get you and your family into real financial trouble, the big stuff- medical bills, disability, losing your home, losing your life.
  • Buy a new TV. If you can’t wait, if you just can’t live without the TV till then, buy it from your emergency fund and pay yourself back, and don’t use a credit card to replace your TV unless you’re sure you’re going to be able to pay off the entire amount when your next bill arrives.
  • Insurance isn’t going to prevent such things from happening, of course, but with a little careful planning, insurance can keep you out of bankruptcy.
  • If these negative financial events happen to you, good insurance strategy can protect you, save you money, and free you up to enjoy the more positive things that life has to offer because odds are you’re not going to win the lottery.

Week 3: Insurance > Insurance: What is it and how does it work? > How does insurance work?

  • In 1970, I passed the first two of these, and I got a summer job as an actuarial trainee at US Life Insurance Company in New York City, a couple of blocks from Wall Street.
  • He replied that he hated ties, and that at US Life Insurance Company in New York, everyone had to wear a tie.
  • You know, even though I didn’t last as an actuary, I’ve always found insurance fascinating, especially the risk management side, and in this video I want to talk briefly about how insurance works.
  • What would you have done in the days before homeowner’s insurance? Let’s say you live on a farm in rural America, and one day some coals fall out of your fireplace onto the wood floor.
  • So in the 1800s, some American farmers in the same townships joined together to form mutual fire insurance companies.
  • Let’s imagine a mutually-owned fire insurance company with a total of 100 farmers who are policyholders.
  • Of course, some years two houses might burn down, so the insurance company would need some extra reserves on hand.
  • There are situations and risks that insurance companies don’t like to cover, and insurance for these tends to be expensive or limited.
  • There hasn’t been an earthquake on the Hayward Fault in many, many years, but when the big one strikes insurance companies are going to get swamped with billions of dollars of claims, all at once.
  • Insurance companies are also concerned about what’s called moral hazard.
  • Insurance companies worry that if people are fully insured, they may take more risks than they otherwise would.
  • Suppose, for example, that you own an expensive diamond necklace, and you’ve got no insurance for it.
  • So you decide to take a little more risk, and the insurance company bears the consequences.
  • That’s when people who are at the greatest risk by insurance, and those at low risk don’t.
  • If life insurance were sold to everyone at the same price, smokers, people with heart conditions, and the elderly would buy a lot of life insurance, while the young and healthy would not.
  • Life insurance companies make a great effort to determine how big of a risk each policyholder represents.
  • They then charge people at higher risk, such as smokers, more money for life insurance.
  • In some cases, they may simply refuse to sell life insurance to someone who’s to great a risk.
  • Now, can you think of other types of insurance with correlated risks, like earthquake insurance? What about some types of insurance with potential moral hazard, which is insurance that could cause people to take risks they wouldn’t otherwise take? And what about types of insurance for which there might be adverse selection, you know, people at greater risk buying more insurance than people at low risk? I’d like you to pause the video for a moment and try to think of examples of each of these three.
  • So what did you come up with for insurance with correlated risk? Some good examples are insurance for hurricanes, floods, damaged crops.
  • We don’t usually think of something like life insurance as having correlated risk, but an outbreak of a major illness such as the 1918 flu pandemic could result in a lot of correlated Insurance actuaries have pretty tricky jobs, don’t they? What about moral hazard? That is people taking more risk because they’re insured.
  • Moral hazard is greatest when the insurance company completely eliminates the negative consequences of risk taking, but with a lot of types of insurance, that’s just not possible.
  • Health insurance might cover the financial cost of being treated for lung disease, but it can’t eliminate the pain or guarantee you’ll survive.
  • Moral hazard is pretty low because insurance can’t eliminate all the negative consequences to you of taking more risks with your health.
  • One type of insurance with high moral hazard is unemployment insurance.
  • You can get private supplemental unemployment insurance, but usually it only covers the difference between your state unemployment benefits and about half of your former salary.
  • Why not 100%? Well, insurance companies figure that if you’re going to get the same income whether you’re working or not, you’re more likely to lose your job, but if you’re going to lose half your income, you’ll try harder to keep it.
  • While farmers formed insurance companies to protect against losses from fire, they didn’t insure themselves against the loss of a chicken in their coupe or a cow in their barn.
  • Why not? Because these were smaller losses that most farmers could sustain without too much outside help- sure, the loss of a cow might set the farmer back, but not so much that it warranted getting an insurance company involved in paying regular premiums.
  • This is an important point to keep in mind when you think about insurance for you.
  • Insurance companies charge premiums that are high enough to cover their claims and give them a profit.
  • On top of that, Fitbit also comes with a 365-day manufacturer defect warranty, so the $11 warranty the store was offering to sell me was basically just insurance against the risk that my friend would walk so much in one year that he wore out his Fitbit.

Week 3: Insurance > Wills and Health Directives: It’s Never too Early > Advance Directives, Wills, & Trusts

  • I also have copies of my revocable living trust, my power of attorney for property, and my advance health care directive.
  • What do each of these documents do, and which of them do you need? Let’s start with the advance health care directive.
  • Who needs an advance health care directive? Every adult, you advance health care directive lets your physician, family, and friends know what health care treatments you want in a situation in which you are unable to communicate.
  • As long as you can communicate and aren’t incapacitated, you will always be able to make your own health care decisions.
  • You get an advance directive for your benefit, but you also get it for your family.
  • The first part is that you appoint a health care agent, also known as a health care proxy or an agent under a power of attorney for health care.
  • You authorize this person to make decisions about your health care when your primary doctor determines that you lack the ability to understand the nature and consequences of your health care decisions or the ability to make and communicate your health care decisions.
  • Here, you state your wishes about health care and in some states about organ donation.
  • So if you are stating your wishes in your living will, why do you need a health care agent? Because the living will isn’t going to cover every circumstance.
  • Also keep an original directive for yourself in a safe place, and let your family members know where it is.
  • It’s important to have your advance directive in your medical records, so give an original to your primary care physician.
  • The courseware has a link to a website where you can download advance directives and instructions for every state.
  • It also allows you to nominate a guardian for your minor children and to direct that some or all of your assets be held in trust for your beneficiaries.
  • So if you care about who gets what and who will be caring for your children, get a will.
  • If you want to make life much easier for your family, consider putting your house and other significant assets into a revocable living trust.
  • Whoever has the power of attorney relating to property will be able to engage in financial transactions such as selling property or stocks, opening or closing bank accounts, and buying or canceling insurance policies on your behalf, so pick someone who you trust to make good decisions for you.

Week 3: Insurance > Optional: Which insurance do you need? > Auto Insurance

  • Almost every state in the US requires drivers have liability insurance.
  • Liability insurance pays for other people’s losses in accidents that you cause.
  • There are two main types of liability insurance, bodily and property.
  • As with other types of insurance, it’s true, your premiums are going to be cheaper if you buy minimum coverage.
  • You buy the bare minimum auto insurance policy of 15/30/5.
  • It happens so fast you can’t stop in time and you crash your car into the back of his brand new BMW. Not only is his car totaled but he’s saying his neck hurts and he needs to go to the ER. The BMW drivers hospital bill ends up being about $25,000.
  • Remember, you could be sued for things like lost wages, compensation for pain and suffering, funeral costs, and even legal expenses.
  • You’re $5,000 property coverage and $15,000 for one injury isn’t going to go very far.
  • How much do you need? One rule of thumb is to keep your liability insurance at least as high as your assets.
  • Now if you think that you need more protection than auto insurance offers, look into buying an umbrella liability policy.
  • Additional liability insurance might be a lot less expensive than you think.
  • To increase bodily injury liability coverage from $100,000 per person and $300,000 per accident to $250,000 per person and $500,000 per accident.
  • Not surprisingly than, if you lived in a no-fault state you’re required to have personal injury protection insurance, which covers your medical expenses.
  • No-fault insurance laws are designed to remove the need for lawsuits.
  • So check your state to decide whether you need residual bodily injury liability insurance.
  • Now that we’ve covered the types of insurance you’re legally required to buy, let’s do the car insurance equivalent of organizing your sock drawer.
  • We’ll go through some of the options you might want to add to your auto insurance coverage.
  • In addition to liability insurance there are five more auto insurance add-ons you should consider, uninsured motorist, underinsured motorist, collision, comprehensive, and medical payments coverage.
  • Under insured motorist coverage covers you in case you’re the victim of a serious accident caused by a driver with minimum insurance and very little money.
  • They’re sort of the peanut butter and jelly of auto insurance.
  • Collision insurance is similar to property damage liability, except for it pays for damage to your car not the other drivers.
  • If you are at fault you pay your deductible and your insurance company pays for any additional repairs up to the book value of your car.
  • Comprehensive insurance covers damage to your car from things other than collisions.
  • Medical payments coverage is for medical expenses from car accidents for you and your passengers, regardless of who causes the accident.
  • If you your family have good health insurance you probably don’t need this coverage.
  • So how do you know whether you should get collision or comprehensive insurance? Well take a look at your car.
  • With both of these options the most insurance companies are going to pay is the book value of your car.
  • Suppose that my daughter had a policy in her name with both comprehensive and collision insurance and a deductible of $250. If she dropped collision insurance she would save $570 a year.
  • The most the insurance company is going to give her for that car is $2,700 minus the $250 deductible.
  • Before you buy auto insurance online make a plan and know what you actually need and what you can do without.
  • Insurance companies offer a wide range of discounts and that could save you some money.
  • After editing the script for auto insurance Sarah wrote, aside from income and learning stuff, this whole MOOC thing is turning out to be quite helpful in another way.
  • I did a little figuring and I realized that at this level of auto insurance my house equity is way exposed if I bash into the back of a brand new BMW containing an injured driver with a good lawyer.
  • So I upped my auto insurance to $100,000 bodily injury liability per person and $300,000 per accident.
  • I tacked on uninsured and underinsured motorist insurance.

Week 3: Insurance > Optional: Which insurance do you need? > Be-Financially-Smart Activities

  • The website I’m using for this exercise, ratekick.com, is one resource you might consider if you are shopping for a lower cost policy.
  • The website also lets you estimate how much you might save an your insurance premium by increasing the deductibles on your collision and comprehensive coverage or even dropping collision and comprehensive on an older car you could afford to replace.
  • My zip code- 94705, and my current insurance carrier is Liberty Mutual.
  • Now we have quotes, which are coming in here for different insurance companies.
  • AAA would charge me $581 for six months, and that is with liability of $100,000 for each person injured in an accident, $300,000 for any one accident, and $100,000 for property damage- my liability for property damage.
  • So for another $24, I have increased my liability insurance from $100,000 to $250,000 per person in an accident, and from $300,000 to $500,000 per accident.
  • Adequate liability insurance as well as uninsured and underinsured coverage on your automobile insurance policy.

Week 3: Insurance > Optional: Which insurance do you need? > Disability Insurance

  • I had life insurance, but I didn’t have long-term disability insurance.
  • Disability insurance protects your income if you get sick or hurt and can’t earn.
  • Some people think that disability insurance is only for people who work dangerous jobs actually, most disability claims are the result of illness and off-the-job injuries.
  • You probably won’t get seriously ill or injured to the point that you can’t work remember, insurance is for just such unlikely, but financially devastating, events.
  • You insure your house, your car, why not insure your income? Two main types of disability insurance are short-term and long-term.
  • Short-term disability lasts for a specific period of time, such as a year.
  • Short-term disability is paid for by your employer, which is great.
  • Or, if you have a well-stocked emergency fund, you might decide to do without short term disability, and cover periods where you’re unable to work out of your emergency fund.
  • Disability insurance gets more expensive as you get older, and, with the exception of joining some employer-based plans when you get your job, you have to have a health exam when you buy a new policy.
  • If you’re single, working, and not wealthy, disability insurance is a must.
  • If you’re married, but your spouse’s income won’t be enough to support you and your family, disability insurance is important for you, too.
  • Unless you’re wealthy enough that you don’t have to work for a living, long-term disability insurance is one of the most important types of insurance you can get.
  • So how much disability insurance should you get? The answer is, enough to cover your basic monthly expenses.
  • You probably won’t be able to buy enough disability insurance to cover your entire income.
  • Insurance companies will ask for your tax returns, and they check to see if you have other disability insurance policies.
  • Rather than paying high premiums for more insurance than you really need, consider saving more money for retirement.
  • You may already have some disability insurance through government programs, but these usually only pay for certain causes of disability, or a small portion of what you actually need in monthly income, or for a short period of time.
  • Veterans whose disability is the result of active duty in the military can qualify for veterans disability insurance, and many states, including California, have state disability funds.
  • State disability pays a limited amount and only for a short period of time.
  • Good long-term plans cover you for injury or illness until you’re 65, and they’ll cover both partial disability and full disability.
  • Some companies offer only group disability insurance.
  • Others offer individual insurance, and some companies offer both.
  • If your employer offers individual disability insurance, you may be able to keep it if you change jobs, so be sure you read the fine print on your policy to find out.
  • Prices for individual disability policies vary enormously, so you’re really going to want to shop around before deciding.
  • Women pay 30 to 50% more for disability, because they may become pregnant and need time off work.
  • If you belong to a professional association or guild, you may be able to get good pricing through them for your disability insurance, so be sure to check.
  • Many companies give you good price breaks for keeping all of your insurance in the family.
  • With ARDI policies, the prices start low, and go up a bit each year, whereas other disability policies tend to charge a fixed premium for several years.

Week 3: Insurance > Optional: Which insurance do you need? > Life Insurance

  • Since motorcycles aren’t the only way people die, I also bought myself a life insurance policy.
  • Before we had kids, I didn’t have to have life insurance, and I didn’t need it.
  • Of course, some couples without children may need life insurance, especially if one spouse has been out of work for many years while the other built a career.
  • So to find out whether you need life insurance, the first question you should ask yourself is, does somebody besides me depend on my income? Would anyone be in financial trouble if I died? If the answer is no, you probably don’t need it.
  • If the answer is yes, you should take a look into getting some life insurance.
  • If you do need life insurance, your next step is to ask two more questions.
  • There is term, sometimes called temporary life insurance, and there is cash value, also known as permanent life insurance.
  • Cash value includes whole life, universal life, and variable life insurance.
  • I’m strongly recommending that if you need life insurance, you buy term life insurance.
  • Let me give you a brief description of each of the types of insurance, and then I’ll tell you why term is by far the better choice for most people.
  • If you still need life insurance, you’d have to buy another policy, and you don’t get your premiums back.
  • Now, cash value, or permanent, life insurance gives you two things- a payment to your family when you die, just like term life, and a tax-sheltered investment from which you can borrow and pay policy premiums later in life.
  • Most people are better off separating their life insurance and their retirement savings.
  • The same is true of other types of insurance, isn’t it? You know, if you buy homeowner’s insurance and your house doesn’t burn down, you don’t get paid.
  • If you buy auto insurance and you don’t have an accident, no check in the mail, but you still have your house.
  • If you buy a term life insurance policy and you don’t die, you don’t get paid.
  • So what’s the problem? Term life insurance is much cheaper than other forms of life insurance.
  • Insurance companies like to sell complicated products because complexity makes it difficult for you to compare one product with another.
  • One reason term life insurance policies are cheaper is that the commissions paid to the agent selling them tend to be much lower than the commissions paid for other life insurance products.
  • That means more of your money is going to pay for your actual insurance and not to line your insurance agent’s pocket.
  • Insurance companies and insurance agents make a lot more money selling cash value policies such as whole life, universal life, and variable life, and that’s why many insurance company websites and brochures try to get you to buy cash value instead of term.
  • There are different kinds of term life insurance you can buy, but the most common is called level term.
  • I currently have a 10-year term life insurance policy that expires the day before my birthday in 2017.
  • So what about cash value life insurance? Cash value policies combine life insurance with an investment.
  • After you adjust for the cost of equivalent term life insurance, the investment returns of these cash value accounts aren’t very good.
  • In her book, Making the Most of your Money Now, Jane Bryant Quinn recommends an online expert service that will calculate the investment rate of return of your life insurance policies.
  • So how much life insurance do you need? In the course website, there are links to some life insurance calculators.
  • Do you smoke? Maybe you don’t take those surgeon general warnings on the cigarette pack seriously, but life insurance companies sure do.
  • To get an idea how much smoking is going to cost you in life insurance premiums, I went to the website of Term4sale.com and looked up some quotes.
  • The annual estimated premium from an A-plus insurance company was $825. Now, if that same man does smoke and wants the same policy with the same payoff, the annual premium is $2,765, more than three times as much and nearly $40,000 extra over the life of the policy.
  • Don’t let your agent fudge the truth on your behalf because if you do die in what’s called the contestability period, two years in most states and one in others, the insurance company may investigate.
  • If you live beyond the two-year period and the insurance company finds out that you deliberately lied when you applied for your policy, you could be charged with fraud.
  • If you commit suicide within two years of taking out your life insurance, your insurance company is not going to pay the full policy amount.
  • One final point- life insurance is a long-term contract- 10, 20, 30 years, maybe your entire lifetime.
  • So you’re going to want to buy your policy from an insurance company that’s going to be in business for a long, long time, a company with high financial strength ratings.
  • Remember, these are ratings for the financial strength of the insurance companies.
  • I’ve been paying term life insurance premiums for many, many years without collecting a dime.

Week 3: Insurance > Optional: Which insurance do you need? > Homeowners Insurance

  • My neighbors learned a lot about homeowner’s policies- how some policies are better than others and how the fine print doesn’t matter until things go wrong.
  • So let’s talk a bit about how homeowner’s policies work and how they vary.
  • If you have a mortgage, your mortgage company will require you to have a homeowner’s policy, but don’t let them pick a policy for you.
  • Doing so is likely to save you a lot of money and get you the right policy.
  • Do the policies cover the same risks? Do they have the same limits? Do they have the same deductibles, the same replacement cost rules? If one policy is for actual cash value and the other for full replacement cost, they are not the same.
  • OK, you need to buy a homeowner’s policy with a high enough policy limit to rebuild your home.
  • There are actual cash value policies and replacement cost value policies and guaranteed replacement cost policies.
  • If your home is damaged or destroyed, an actual cash value policy will pay you the cost of rebuilding, minus depreciation.
  • If you have an actual cash value policy, you’ll probably get paid less than half the cost of replacing your roof with a new one.
  • If you have a replacement cost policy, the insurance company will pay the entire cost of replacing your destroyed roof, up to the limits of your policy.
  • If you have a guaranteed replacement cost policy, the insurance company will pay the full cost of replacing your roof, up to some amount above your policy limit, such as 125%. Now, a roof is not likely to cost more than your policy limit, but if your entire house burns down, rebuilding might cost more than your policy limits, especially if your policy is old and the limit hasn’t been properly adjusted for rising building cost.
  • Actual cash value and replacement cost value policies also use different methods to determine how much an insurance company is going to pay if your stuff is damaged, lost, or stolen.
  • If you have an actual cash value policy, your insurance company is not going to give you $800 for the loss of that old TV. Maybe they’ll give you $300, maybe less.
  • With a replacement cost value policy, the insurance company will pay you what it costs for you to replace your old TV with a new TV with similar features.
  • Naturally, the replacement cost value policies are more expensive than the actual cash value policies because insurance companies end up paying out more money when there are claims filed.
  • Sometimes there are maximum limits for different categories of property, such as computer equipment, so read your policy carefully in advance.
  • What are the limits on what they’ll pay you? Most home owner’s policies also provide coverage for loss of use.
  • If, for example, you need to move out of your home because of a fire, your policy may pay for you to rent a place while your home is been repaired or rebuilt.
  • There are two different ways that homeowner’s policies specify what risks are covered- named perils coverage and all risks coverage.
  • Named perils policies are less expensive because they only cover risks, or perils, specifically named in the policy- obvious things like fire, lightning, and theft and a few less common risks such as volcanic eruption, a peril that doesn’t keep me awake at night.
  • When you compare prices on policies, you want to be sure that you’re comparing policies offering the same coverage.
  • When comparing two policies, the big questions to ask are, are the policy limits the same? Do both policies cover specific named perils? Or do both policies cover all risks except the same specifically excluded perils? Do both policies insure your home for actual cash value, for replacement cost value, or for guaranteed replacement cost? Do both policies insure your property for named perils or for all risks except excluded perils? Note that some HO3 policies will insure your house for all risks except excluded perils, while only insuring your property for named perils.
  • Do both policies insure your property- your furniture, clothing, jewelry- for the same limits and the same valuation method? Note that some policies use replacement cost value for your house, but actual cash value for your property.
  • Be sure to compare apples with apples when shopping for any insurance policy.
  • Before you buy, read your policy slowly and carefully.

Week 3: Insurance > Optional: Which insurance do you need? > Renter’s Insurance

  • So why buy renters insurance? Reason number one- because it would be a big financial blow to have to replace all of your belongings.
  • If you’ve already got auto insurance, be sure to get a quote from your auto insurance company.
  • Reason number three- renters insurance provides liability and medical coverage if a guest gets hurt in your rented home or apartment.
  • If a friend slips on your rug and breaks her wrist, your policy will pay for her medical expenses, lost wages, and possibly compensation for pain and suffering.
  • Your landlord may have property and liability insurance.
  • Renters insurance covers your property for risks such as fire, lightning, damage from smoke, and theft.
  • Most renters insurance policies use the named perils method.
  • It’s possible to buy open perils renters insurance, but it tends to be more expensive since it covers more things.
  • A couple of things that are not covered with either named perils or open perils policies are earthquakes and floods.
  • An important thing to pay attention to in a renters insurance policy is whether the policy provides for replacement cost value or actual cash value coverage.
  • That’s not going to be enough money to let you go out and buy a nice new TV. With replacement cost value policies, the insurance company gives you enough money to replace your old TV with a new one with similar features and of comparable quality.
  • Now, what if something happens that’s serious enough to make your rental home unlivable? A renters insurance policy may also include coverage that helps pay your temporary living expenses.
  • Depending on the policy, this means the insurance company would help pay for things like hotel bills, restaurants, renting a temporary place, even moving expenses.

Week 3: Insurance > Optional: Health Insurance > The Health Insurance Marketplace

  • What is it? Well, it’s a resource where you can go and find insurance products to provide health insurance for you or members of your family in a way that’s easy to compare, that is accessible, and perhaps most important, makes it possible to take advantage of subsidies for people who can’t afford to fully cover themselves.
  • Who is eligible to make use of the health insurance marketplace? The plans in the health insurance marketplace are available to anyone who is a US citizen or a legal resident of the United States.
  • This is something for people that need insurance, and we all do because we don’t know when we’re going to get sick.
  • They cover surgery if you need that, obstetrical services in childbirth, mental health and substance abuse services, prescription drugs, rehabilitative services for people that need to get back to walking or some other problem like that, laboratory services, pediatric services for children, and perhaps most important, the preventive and screening services that we know that people that don’t have insurance often forgo, either because they can’t pay for them or they’re afraid that they’re finding out that they have a problem that they won’t be able to pay to work on.
  • So in the past, prior to this law, when you applied for health insurance, they would ask questions about what doctors have you seen and what have you been diagnosed with, and they could call up those doctors and find out that you had even a minor problem.
  • They could charge you more for that, or they could decline to offer insurance, kind of like what car insurance issuers do.
  • Now if you’re the right age, and you’re the citizen, and you’re eligible, you pay the same premium as the guy next door or the lady down the street, which is a good thing that’s different.
  • The great majority of people, over 90% of those that are getting coverage through the marketplaces, are getting some level of subsidy that reduces their premium and makes it affordable.
  • Remember that the law requires everyone to have insurance, and it make sure that they can afford it.
  • For most of those people, more than half, their monthly premium is less than $100. So remember, I talked about that broad range of benefits.
  • So we want people to get coverage, and we’re helping them do it.
  • When you go through the marketplace, some people whose income is quite a bit low actually qualify for the Medicaid program, and that’s a program where all of your health benefits are covered.
  • So that’s really important, and a lot of people don’t know that.
  • That’s been expanded in recent years, so going through this marketplace application is valuable for that and for another program, the Children’s Health Insurance Program, that in some cases is a better value for people with kids than these insurance.
  • Lots of employers now are covering mom and dad. And if people need buy coverage for kids, this is a place to do that.
  • So one final question, can you tell us how people who want to know more about marketplace insurance can get answers for their questions? Www.Healthcare.
  • 1-800-318-2596 is a 24 hour a day, toll-free number, and out in the community we have people called assisters and navigators.

Week 3: Insurance > Optional: Health Insurance > The Affordable Care Act

  • It is one and the same, and this is health care reform.
  • The high cost- if you watched my video on the private insurance and how insurance works- the issue of having to go through underwriting, and people being sick and not being able to get insurance.
  • The issue of it being cost-prohibitive, and so forth, people who didn’t have employment, couldn’t get any care, whether it’s Medicaid, which is for the poor- it wasn’t for all the poor- so we had a problem in health care.
  • We had 50 million people who were uninsured, and costs kept going up, and people who were uninsured were going to the emergency room, and guess who was paying for it? Those of us with insurance.
  • What does the ACA do? It requires employers with over 200 employees to offer health insurance.
  • It expands Medicaid, which is the government insurance for the poor, which used to be only for poor women and children.
  • The other thing that the health care reform did, the one that will probably touch most of you the most, if you don’t get insurance through your employer, is it made changes to the individual marketplace.
  • If you remember my discussion in the video on how insurance works, and the issue of buying insurance on your own, when you’re not in a risk pool based on your employment, is you have to go through underwriting.
  • Well, health care reform basically says, insurance companies, you have to cover everybody.
  • Well, what does that mean for insurance companies? Now, what I think of here is a three-legged stool.
  • I’m going to say the individual marketplace for health insurance is a three-legged stool, and it’s a stool that keeps it together, for an insurance company and for everybody.
  • Insurance So the insurance company does underwriting.
  • If they can’t do underwriting, who’s going to buy insurance? Everybody who was sick, who couldn’t buy insurance before, are going to run to buy insurance.
  • California, four years ago, maybe five years ago now, passed a law that says, health insurance companies, you can’t treat men and women differently.
  • What should I do with my hands? Do the women pay less? No, because insurance companies have to cover their costs.
  • They pay a little less than their full costs, and the healthy pay for it.
  • So if we tell insurance companies, you have to cover everybody, then the insurance companies are going to say, well, if we can’t do underwriting, you need to make sure that we get healthy people as well as the sick people.
  • If you don’t make people buy insurance, who’s going to buy insurance? The sick people.
  • Those who are actually sicker can’t afford it, they leave, and it keeps spiraling out of control, and the whole insurance market fails.
  • So in order to make a no-underwriting world, where everybody can get insurance, you need to have everybody in the plan so insurance companies can survive.
  • Well, if you’re going to make everybody buy insurance, you better help people buy insurance.
  • When I say help, it’s not just financially help, which you do need to do- you can’t tell someone who barely has enough food to eat they have to buy insurance, without giving them some help to buy the insurance- but you also have to give them technical help.
  • You can’t mandate insurance unless you help people get insurance.
  • Leg number three are these health insurance exchanges.
  • These exchanges are where you go to get information on how to get health care- because you are mandated to get health care- and, if you qualify, if you earn less than 400,000- 400%, I’m sorry- if you earn less than 400% of the federal poverty level, which is about $40,000 for an individual, then the government will help you pay for the insurance.
  • So what does this mean to you? This means that you have to buy insurance.
  • Where do you get insurance? Well, if you work for an employer that has a lot of employees, then you may get it through work.
  • If your employer has more than 200 employees, they must give you health insurance.
  • If they have more than 50 employees and less than 200, they’re encouraged to give it, and if they don’t give you insurance, they have to pay a penalty.
  • One other way that’s through the employer is, if you don’t work, but you’re under 26, your parents can keep you on their insurance if their insurance has dependent care.
  • They do a calculation of what plans are in your area and whether or not you qualify for Medicaid, meaning you don’t earn enough to buy your own plan.
  • How much do you want to spend up front to protect yourself and have good insurance, versus how much do you want to save and only use if you need it.
  • So if you’re really, really sick, you probably want to pay up front and go to the doctor and never think about it.
  • If you’re really healthy, why do you want to pay a premium to a health plan where they can save your money and you never go to the doctor? In that case, you may want to pay less in a premium, but have a higher deductible and have more co-payments.
  • I personally prefer having more insurance and not worrying about it, but I can’t afford it if something happens.
  • So the big question is, should you get insurance, or should you pay the penalty? Now, me, with my political beliefs and where I come from, I think we should all be in this together, and we should all have insurance, and you need to be insured.
  • You don’t know what’s going to hit you, and one day, you’re the one that’s going to be sick and need the insurance.
  • If you are very young and healthy, then it may be best to not pay for insurance, to be hit by the penalty- because you should have insurance- but, financially, that may not equal out.
  • You’re going river rafting, or whatever, and if you don’t have insurance, then you know what? You might lose your savings.
  • Make a decision as to whether or not you would rather pay monthly out of your check pretax dollars- you’ll get a subsidy, if you can afford it- or if you would rather pay a little bit, and hope that you stay healthy and don’t need to use your insurance.

Week 3: Insurance > Optional: Health Insurance > How Health Insurance Works

  • So we’re going to talk about health insurance.
  • Before we do that, I want to back up and talk about insurance, because many of you have a lot of experience or have seen other videos in this series or others about insurance.
  • You’re thinking, oh, I understand insurance.
  • So what’s the difference with health insurance? Well, I’m going to suggest to you that it’s very different.
  • So first of all, the concept of insurance- the whole idea of insurance is that someone is worried about a random event happening, a fire, an earthquake, a flood, a car accident.
  • So they buy insurance, and a bunch of people buy insurance, and they basically pool the risk.
  • The insurance companies are trying to avoid adverse risk.
  • If I’m an insurance company and I have the best HIV doctor in my network, who’s going to want to buy my insurance? Everybody with HIV.
  • These are all considerations that health plans think about when they think about bringing people into their insurance pool.
  • If you get a big group of people together, you have what’s called group insurance.
  • The insurance company assumes there are some older people.
  • So big companies buying insurance have a built in risk pool, or at least that’s the assumption.
  • Well, what happens if an individual is to buy health insurance? Someone works for a place that doesn’t offer insurance.
  • Remember, employers are not required to offer insurance pre-ACA.
  • So what happens? Well, they try to buy insurance on their own.
  • So like I talked about with car insurance, if it’s a boy, they cost more than a girl.
  • So when an insurance company does a risk assessment, does underwriting of an individual, they make it easy for you.
  • OK, so pre-ACA, there’s underwriting if you buy insurance on your own.
  • Insurance, when they do underwriting, they’re trying to decide if they can insure you.
  • So the irony of what happens is people who are healthy have no problem getting insurance.
  • People who are sick, who, by the way, are often the people who can’t work because they’re sick, they’re the ones that have to go find insurance on their own.
  • The insurance company says, we’re not going to insure you.
  • So a lot of people think of the insurance company as the bad guy.
  • Well, who’s going to come and buy insurance if it’s really expensive? Not the healthy person who never goes to the doctor, but the sick person.
  • So insurance companies are worried they’re only going to get sick people.
  • It’s not different than cost sharing in other insurance, but particular to health care.
  • There are different places in the process of insurance and accessing health care where you the consumer, you the patient, might have a share of costs.
  • It’s where the employer is paying a premium to the insurance company to cover the employees.
  • Or if you buy it in the individual market, it’s where you are paying a monthly premium to Blue Cross, to Health Net, to Aetna, to Kaiser, whatever your insurance company.
  • A premium is a monthly payment, whether or not you use any insurance, whether or not you use any health care.
  • The deductible is the first amount of money that you’re responsible for before your insurance kicks in.
  • A lot of people understand a car insurance deductible.
  • You might be responsible for the first $500. You pay $500, and the insurance pays the rest.
  • We’ll talk about a different kind of health plan called a health savings account and high deductible health plan in a different video.
  • Why not? It cost me $5. I don’t care how much it cost the insurance company, how much the doctor charged, how much it cost the employer, I only paid $5. So the issue with cost sharing is the more you pay, the less you might use insurance.
  • We will talk about this concept again in my video on high deductible health plans and health savings accounts.
  • There’s a deductible, that you pay after the premium but before your insurance kicks in.
  • Then there’s co-insurance, where you can pay any percentage 10%, 15%. I think 20% is what I have seen to be very common, where the insurance pays 80% of the charges, and you pay 20%. So that’s how the the health care insurance market works, the share of savings.
  • I want to talk very briefly about what’s going to be covered in more detail in other videos, the types of insurance.
  • These are all different options you might be faced with to buy insurance either on your own or through your employer, or through the new exchanges of health care reform.

Week 3: Insurance > Optional: Health Insurance > Health Savings Accounts

  • The other terms that we’re going to use are high deductible health plans, consumer directed health care.
  • The idea of a health savings account is to put the patient- let’s call him a consumer in this world- into the driving seat.
  • Let’s say I was going to buy you insurance- health care insurance, and I was going to pay $100 a month.
  • So the idea was, instead of giving the insurance company $100 a month, and you go to the doctor if you need, that I’ll give you the $100 a month.
  • If you use the money for medically approved services, it’s tax free.
  • I talked a little bit about high deductible health plans in my How Does Health Insurance Work, but basically a deductible is how much you pay, after the premium, before your health insurance kicks in.
  • If you’re deductible is $0- in other words, you pay your premium and you can get health insurance right away, then you pay a higher premium because you know- they know you’re going to use the health care.
  • So the question is, where do you pay the money? Up front, so you can go to the doctor first dollar coverage, no deductible? Or do you not pay up front to the insurance company, keep the money in your health savings account, and pay this huge deductible before it goes in? This is a hard question to answer.
  • That’s a good thing, and that means, yeah, maybe a high deductible health plan is better because I never get the deductible.
  • Why am I paying a premium? But what if you get into a car accident outside of your control? You may immediately empty out your health savings account.
  • So first is- the question is, do I do health savings account or do I do low deductibles and get first dollar premium, get an HMO or a PPO, which I talk about in other videos? The idea of a health savings account, the concept is you get this money.
  • The pro argument about health savings account is- especially if you’re healthy- and if you’re young and healthy especially, it will reduce your costs for you individually because you don’t pay high premiums.
  • If you never pay the deductible, you never pay the deductible.
  • The con is if you are sick and you run out of money in your health savings account and you still have a high deductible, you’re at risk for your costs.
  • So you really need to look at your income level, your comfort level with risk taking, your health care needs, and so forth, and figure it out.
  • So the idea is you have to be very wary about the decisions you make up front and consider your risk taking and what type of insurance and where you pay for your insurance, whether it’s in a premium or at the point of service, what works best for you.

Week 3: Insurance > Optional: Health Insurance > Employer-based Insurance, HMOs and PPOs with Robin Flagg

  • Doctors saw this and saw that hospitals were able to stay viable.
  • Their Blue Shield payments to the doctors pay for.
  • Now, employers have evolved beyond the Blue Cross and Blue Shield of the Depression era and World War II era, and have tried different mechanisms for getting health care to their employees.
  • It started with an indemnity plan, which was just the employee would go to the doctor, and the doctor would bill the employer.
  • I’m going to tell you the story of one service plan, Kaiser, because it explains why we have these plans.
  • So Garfield hired doctors and put them at the new work sites.
  • So employers saw the situation through these service plans and said, that’s the model I want.
  • They decided to move more and more and more to these service plans, AKA health plans, AKA managed care plans, AKA HMOs, which we’ll talk about more later.
  • I use HMOs, but they used to be called service plans early on when they were created.
  • What is the history of HMOs? Well, if you had seen my previous video where I talked about employer based coverage, employers pay for health care for employees and they get a tax break for this.
  • One of the options that came up was what we call a service plan.
  • This started in the ’30s. And a particular service plan that caught the attention of a lot of employers was Kaiser Health plan.
  • Kaiser Health plan was created to treat Kaiser employees on site by a doctor who was paid by Kaiser a monthly per person amount, $1.50 per person, to set up a clinic at a Kaiser site.
  • The doctor who served Kaiser employees was there only for Kaiser employees, and Kaiser employees could only go to this doctor because he was already prepaid.
  • They had indemnity plans and they saw these service plans, and they looked at the two and service plans were deemed the winner.
  • They would gave it to the doctor or the health plan, if you will, Kaiser, and Kaiser would give it to the doctor.
  • So the goal of the plan, the goal of the doctor was to keep the patient healthy.
  • So in early 1980s, near nearly 90% of health plans were not for profit.
  • To keep people healthy yes, but also to keep them from seeing the doctor a lot.
  • So health plans put in what are called utilization controls.
  • You have to go to a primary care, a lower pay doctor if you will, before you get permission to go to a higher pay doctor.
  • This gatekeeper, this first doctor, this primary care doctor, is charged with helping the health plan save money and doing what that doctor can do and not to have you go to a specialist.
  • You don’t need permission to go to your primary care doctor, but you have to get prior authorization to go the next step.
  • So if you’re in the hospital, the health plan, believe it or not as a nurse in the hospital often times, that is looking over the shoulder of the nurses and the doctors in the hospital, saying, I think this patient can go home.
  • Nothing like peer pressure to make a doctor prescribe fewer antibiotics, right? And if a doctor has a lot of patients that go to the emergency room, that’s not good and they don’t want to be high on that list.
  • There are also financial incentives that exist in utilization control, where doctors will get bonuses if they can keep their patients healthy and below a certain price target.
  • It’s cheaper for you, and we’ll talk more about cost sharing and how you start sharing the costs for health care with your employer.
  • The idea is there’s the incentive of the health plan to help keep you healthy, to give you more primary care, to track what you’re getting in terms of services so you don’t get too much, because too much isn’t good, but also to make sure you get your vaccines and your preventative medicine.
  • If you’re in an HMO, you can’t choose your doctor.
  • I don’t want to be locked into a plan that tells me everything I can do and every doctor I can see or can’t see.
  • Our society got mad at HMOs where we were paying our premiums, and then we would go to the doctor and find out they weren’t letting us go to specialists.
  • They negotiate rates with doctors and hospitals.
  • Every time, if you have a PPO, every time you go to the doctor, your health plan will send you one of these.
  • In the first column, you’ll see it shows you how much the doctor charges.
  • The plan pays 100% of $130. I pay $5. The plan then pays $125.54.
  • What if I went out of network? For example, in this same example, the doctor bills $220. The plan is still going to pay that same amount of $125.54.
  • So I have to pay a lot more, almost $100 in this case, versus another doctor who was in network is only $5. But you know what? Having that ability to go out of network and get a doctor that I want makes a difference.
  • I didn’t want the plan to say, no, you don’t need to.
  • There’s less utilization control like that exists in a managed care plan.
  • As with managed care plans, it’s a trade off between choice and higher cost.

Week 3: Insurance > Optional: Health Insurance > State Health Insurance Assistance Programs

  • My guest today is David Sayen, the regional director for Medicare.
  • David, how does a person with Medicare who needs a little help understanding things get that help? Well beyond the Medicare handbook, 1-800-MEDICARE, our website, we know that some people like a personal touch.
  • It’s free and you’ve got trained people, mostly Medicare beneficiaries, that you can either meet them at some community facility, they put on events, or you can do it over the telephone.
  • Particularly at the time of the year when you’re choosing health plans, they’ll go out and do events at senior centers and other places and give you guidance with Medicare issues.
  • For people that are coming into Medicare, at any time of the year, they may have a decision about a prescription drug plan, about whether or not to be in Medicare Advantage, about whether to choose one of those supplemental programs we talked about.
  • David, how does someone with Medicare get in touch with the SHIP program? Well the SHIP counselors are in your community during open enrollment season, and you’ll see them at the library, in the senior center, and so forth, and advertised in local papers.
  • Gov website has a listing by state and county of the contact numbers for all of those counselors who are there to help you.
  • We mail one every year before the open season so you know about the health plans and Medicare prescription drug plans in your community.
  • Gov website you can look at that handbook, print out pages of it, if you like, and also look at frequently asked questions about all sorts of other things to learn about the program and to find the doctors and hospitals that work with Medicare.
  • My guest today has been David Sayen, the regional director for Medicare.

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