bennie waller wallerbd@longwood 434-395-2046

Bennie D Waller, Longwood University

Personal Finance

Bennie [email protected]

434-395-2046Longwood University

201 High StreetFarmville, VA 23901

mailto:[email protected]


Insurance


Life and Health Insurance Health insurance is a necessity

Provides protection against catastrophic medical bills which could significantly impact your financial security.

Life insurance protects your family if you die Risk pooling – the concept that you are placed in a pool

with other to share risks Premiums – payments to insurance company to provide

coverage Actuaries – Beneficiary – the designated party to received proceeds


Do you need life insurance? Life insurance may not be needed by everyone

Single without dependents

Married, no children working spouse – you would want life insurance if spouse would suffer

Life insurance is likely needed if You have children

Married and with non-working spouse


How much insurance is needed? Earning multiple approach

Determines lump sum amount needed to replace stream of annual income

Multiply annual gross income by earning multiple (some planners recommend 5-15 times earnings)

Earning multiple is dependent on years and rate of return

Needs Approach More of a customized method of determining the financial

needs of ones family to maintain their lifestyle Immediate needs, debt elimination, children, spouse,

and dependency needs


Types of life insurance Term insurance – pays specific amount at death

Best alternative for many individuals Lower costs

Cash value insurance – life insurance and savings plan Tax advantages as cash-value is tax deferred Life insurance is not considered part of estate


Term Insurance Term insurance – where “term” refers to the number of years

of coverage and pays a stated benefit if insured dies during the coverage period. It has no “face” value, is more affordable but costs do increase each time policy is renewed.

Renewable term insurance – Most term insurance is renewable up to some specified age (e.g., 70 years old)

Decreasing term insurance – annual premiums remain constant but coverage benefits decrease each year reflecting the increasing probability of death as you get older. Based on the concept that you will require less insurance

as your wealth increases and children become self sufficient.


Term Insurance Group term insurance – provided usually to a group of

individuals such as a company. Typically without a medical exam. For example, employees of Longwood University.

Credit/mortgage insurance – a variation of group insurance provided by lenders to cover outstanding debts such as a mortgage.

Convertible term life insurance – the ability to convert a term policy into cash-value life insurance without medical exam. Premiums may increase.


Cash Value Insurance Insurance that provide a death benefit and savings. As long as

premiums are paid a benefit will eventually get paid.

3 basics types of cash value insurance Whole life Universal life Variable life


Whole Life Insurance Whole life – insurance that provides coverage when the

insured dies, turns 100 or some stated age. Premiums tend to be higher than term insurance due to the

fact that the company will eventually make a payout. Premiums are known in advance and many times are fixed. In earlier years, after fees and cost of death benefits are

deducted from premiums, goes into savings account and represents the “cash value” which increases over time.

As time passes, the policy premiums are not enough to cover death benefit. The cash value is used to supplement the premiums

Non-forfeiture right – policyholder has right to choose the cash value in exchange for giving up the right of death benefits.


Universal Life Insurance Universal life insurance – a cash value insurance that allows

policyholder to vary the premiums and level of protection.

Policyholder can increase or decrease premium payments which will increase/decrease cash value. Premiums are broken down into death benefit, administrative costs and cash value.

If premium paid isn’t large enough to cover death benefit and administrative expenses, the rest is subtract from cash value. If the cash value is not sufficient to cover these costs, the policy will lapse.


Variable Life Insurance Variable insurance – policy that provides death benefits and

cash value which are tied to the performance of some investment chosen by policyholder. Policyholder assumes the risk as the value of the policy will

vary


Clauses to be familiar Beneficiary – individual named to receive benefits Grace period – late payment period which the policy will remain

in effect, typically 30 days. After which policy can be cancelled. Loan clause – right to borrow against cash value at specified rate Non-forfeiture – provides choices available if premiums are

missed and protects cash value of policy. Typical choices are receiving the cash value or converting to term policy

Reinstatement – requirements to reinstate lapsed policy such as paying all past due premiums, interest and loan amounts.

Suicide – most policies will not pay for suicide within certain period of contract, typically 2 years.

Incontestability – will not allow company to dispute validity of contract after some period (2 years). It protects against policy cancellation due to error or innocent mistatements.


Riders Accidental death – double or triple indemnity

Guaranteed Insurability – right to increase insurance protection without medical exam at specified times such as birth of child or purchase of a home.

Cost of living (COLA) – increases coverage at same rate as inflation


Buying Life Insurance As with any purchase, do your homework

Check the financial stability of the company you are considering (S&P rating AAA is best)

Remember insurance agents are salespeople and make their living off of commissions.

Interview several agents and ask many questions.


Life Insurance comparisons


Health Insurance Most health insurance policies includes some combination of Doctor Hospital Surgery

Major medical insurance – coverage for catastrophic illness Stop-loss provision – limits payment amount by policy

holder

Dental and Eye care insurance – routine examinations, glasses

Dread Disease and Accidental insurance –


Choices for Health Insurance Private Health Care Plans

Traditional Plans Provides reimbursement for some portion of medical

expenditures and provides flexibility. Coinsurance – percentage of each claim that company

will pay. For example, 80% participation premium on hospital claims up to $3,000 and 100% thereafter. Policyholder would pay 20% of first $3,000.

Co-payment – policyholder must pay some amount of each claim.

Expensive and requires significant paperwork.


Choices for Health Insurance Managed Health Care –

Health maintenance organizations (HMO) - prepaid insurance that permits services from participating doctors and hospitals Individual practice plan – patients go to participating

offices and get treatment Group practice plan – patients must go to central facility

for treatment. Point of service plan – Plan that allows members to get

treatment from HMO and non-HMO doctors.


Choices for Health Insurance Preferred Provider Organization (PPO) – Insurance plan under

which employer (insurer) negotiates rates for its members.

Government sponsored Health Insurance

Worker’s compensation - states laws that provides payments for work-related accidents or illnesses.


Choices for Health Insurance Government sponsored Health Insurance

Medicare – Government provided insurance for the disabled and those over 65. Part A – provides hospital insurance. You are responsible

for a portion of the costs. Part B - Supplemental insurance Part C – Advantage Part D – Prescription Drug coverage –

Medigap – sold by private insuarance companies to cover “gaps” in Medicare coverage

Medicaid – insurance for the needy


Other Insurance Disability insurance – provides payments to the insured if

their livelihood is interrupted by illness or accident.

Long-term care insurance – coverage for nursing home care. Benefit Period—can range from 1 year to lifetime Waiting Period—0 days – 1 year Inflation Adjustment—protected from inflation Waiver of Premium—insurance stays in force while receiving

benefits


Long-term care provisions


Health Care Reform - Affordable Care Requires individuals to obtain health insurance or be fined

$695 (effective 2014)

Prohibits denial of coverage due to pre-existing conditions (effective 2014)

Allows children to remain on parents policy to age 26

Provides tax credits for those falling within 400% of poverty line (effective 2014)

Provides access to Medicaid for those with income less than 133% of poverty.


Property and Liability Insurance Homeowner Insurance – Six basic types of policies;

HO 1–Basic Form: provides the narrowest coverage of all HO policies limited to only 11 specifically named perils. Because of its limitations, the policy is not widely available.

HO 2–Broad Form: a “named perils” form of insurance that limits coverage to a set of specific perils (e.g., fire, windstorms).

HO 3–Special Form: an “open perils” form of insurance that covers all perils except those that are specifically excluded (e.g., earthquakes, nuclear accidents).


Property and Liability InsuranceHO 4–Tenant Insurance: policy that provides funds to replace

furnishings and personal property in a rented dwelling. These policies also provide liability insurance for renters up to a specified limit.

HO 6–Condo Insurance: policy that covers the personal property of condo or co-op owners, plus any structural improvements or alterations made to their unit.

HO 8–Modified Coverage: policy designed for an older home that limits coverage to repair costs or actual cash value, rather than replacement cost due to the expense of replacing materials and construction details used in older homes.


Homeowner’s Policy

Section 1: Property Coverage

Coverage A: Dwelling and attachments such as garage

Coverage B: Other structures – Storage shed

Coverage C: Personal property – e.g., stolen laptop

Coverage D: Loss of use - covers living expenses while home is being repaired



Section 2: Personal Liability Coverage

Protects policyholder and family from financial loss if someone is injured on their property or as a result of their actions.

Protects against liability suits

Also covers medical expenses of anyone hurt by policyholder, their family, or pet


Comparing Policies


Homeowner’s Policy Supplemental Coverage

Endorsement – an addendum to an insurance policy to add or delete coverage.

Personal articles floaters – additional coverage for personal property items (expensive jewelry, silver, computer)

Earthquake coverage

Flood protection

Replacement cost coverage –

Personal Umbrella policy – protection against lawsuits


Homeowner’s Insurance How much insurance do you need?

Enough for full replacement in event of total loss

Coinsurance – requires portion of loss to be paid by homeowner if underinsured.

80% rule – most companies require homeowners carry a minimum of 80% of replacement cost.


Property Insurance costs Cost of Insurance

Credit score High deductible Security systems Smoke alarms Multiple policy discounts Pay premiums annually

Shop around


Automobile Insurance Personal Auto Policy (PAP)

Part A: Liability – to protect against legal liability for injury and property damage.

Part B: Medical Expense – for medical and funeral expenses

Part C: Uninsured Motorist – required in many states to provide coverage caused by an uninsured driver

Part D: Collision/Comprehensive – for repairing your automobile in case


Automobile Policy


Auto InsuranceWhat drives auto insurance premiums?

Type and use of automobileDriving recordGeographical location Personal characteristics

AgeSex

Discounts – check with insurance companyCredit score


Getting the best rate

Shop around. Ask questions. Deal with reputable companies Take advantage of discounts Consider a car that is relatively inexpensive to insure Improve driving record Raise deductibles Keep adequate liability insurance


If you have an accident Move automobile to a safe place

Get information from witnesses and keep detailed records.

Cooperate with authorities and ask for alcohol test if you suspect the other driver to be under the influence.

Write down the facts as soon as possible

Don’t admit guilt or sign anything. Get copy of police report, review for accuracy.

Call agent


Thank You

bennie waller wallerbd@longwood 434-395-2046

Documents

insurance company

creditmortgage insurance

cashvalue life insurance

renewable term insurance

variation of group insurance

tax deferredlife insurance

proceeds bennie d waller

estate bennie d waller