Life and Health Insurance Lecture Notes

The Role of Insurance

• Insurance is a legal contract transferring uncertain risk from one party to another.
• It pools risks among many people, reducing financial uncertainty.
• Essential in financial planning.

Benefits and Costs of Insurance to Society

• Insurance indemnifies policyholders, restoring them to their financial position pre-loss.

Types of Insurance Companies

• Classified by formation location, ownership structure, authorization to do business, and type (commercial vs government).

Private vs Government Insurers

• Private insurers are owned by citizens; government insurers offer social insurance for catastrophic or uninsurable risks.
• Examples: Social Security, Medicare, Medicaid.

Commercial Insurance Companies

• Multi-line vs monoline insurers.
• Stock and mutual companies fall under commercial insurers.

Stock Companies

• Owned by stockholders, aim for shareholder profits, issue non-participating policies.

Mutual Companies

• Owned by policyholders, issue participating policies, return surplus as dividends.

Insurance Industry Oversight

• Regulated by state and federal laws to protect public welfare (McCarran-Ferguson Act, Fair Credit Reporting Act).
• NAIC creates model laws for regulatory uniformity.

Key Insurance Roles

• Producers: licensed to sell insurance.
• Underwriters: assess risk and set premiums.
• Actuaries: calculate rates and reserves.
• Adjusters: manage claims.

How Insurance is Sold

• Agents, brokers, and various agency systems (career, managerial, etc.)

Legal Concepts in Insurance

• Contracts require competent parties, legal purpose, offer and acceptance, consideration.
• Special contract features: Unilateral, Aleatory, Adhesion, Conditional.

Life Insurance Policy Types

• Industrial, group, ordinary (term and whole life).
• Term life: temporary coverage, cheaper, no cash value.
• Whole life: permanent, includes cash value, more expensive.

Special Use Policies

• Family plan, joint life, credit life insurance, etc.

Non-Traditional and Variable Insurance Products

• Adjustable life, universal life, equity index universal life.
• Variable products: investment risk borne by policyholder.

Life Insurance Provisions, Options, and Riders

• Standard provisions include entire contract, insuring clause, consideration clause.
• Riders: Waiver of premium, accidental death benefit.

Group Life Insurance

• Offered to groups, typically employer-employee.
• Contributory vs non-contributory plans.

Annuities

• Protect against outliving income.
• Types: Immediate, Deferred, Fixed, Variable.

Social Security

• Provides retirement, disability, and survivor benefits.

Retirement Plans

• Qualified vs non-qualified plans.
• 401(k), SEP, SIMPLE, Keogh plans.

Health and Accident Insurance

• Covers medical expenses, disability, long-term care.
• Types: Individual, group, private, government.

Disability Income Insurance

• Protects income in case of disability.
• Individual vs group plans.

Insurance Plans for Seniors

• Medicare: Part A (hospital), Part B (medical), Part C (Advantage), Part D (drugs).
• Medigap: Supplementary insurance.

Long-Term Care Insurance

• Covers extended care needs for ADLs or cognitive impairment.
• Stand-alone policies or riders on life insurance.

Policy Provisions and Underwriting

• Uniform policy provisions required.
• Underwriting assesses risk, determines premiums.

Marketing and Advertising Regulations

• Fair practices required, disclosures necessary.

Tax Considerations

• Taxation varies for different insurance types, benefits, and premiums.