Unit 4: Money Management
Lesson 6: How to Protect Your Money
Topic 2: Insurance
OBJECTIVES
Identify different types of insurance a person can get.
Identify where to obtain the different types of insurance.
SUPPLEMENTAL RESOURCES
Insurance (Individual Title from the Survival Skills Reading or Cassette
Unit) – A $9.95 workbook by Phillip
Roy, Inc. (1800 255-9085).
Insure Yourself: A guide to insurance – A $6.95 workbook by Globe Fearon (1800 848-9500).
INSTRUCTIONAL FORMAT
This lesson will cover basic information about insurance. Although insurance
does not directly protect a person's money, it does protect a person from
having to pay an enormous amount of money when tragedy strikes. Very few
people have enough money saved to buy a new home if it burns, a new car if
it is totaled in an accident, or support a family if the primary wage-earner
suddenly dies. The most common types of insurance people carry include health,
life, homeowners, and auto. There is a detailed lesson on
auto insurance in the Transportation unit.
Discuss the different types of insurance and where a person can get it.
HEALTH INSURANCE – Most people get health insurance through their employer.
People who are disabled or retired are entitled to government health insurance
through the Medicaid or Medicare System. A person who is not eligible for
health insurance from any of these sources can purchase health insurance
independently through an insurance company. However, the monthly premiums
(amount of money the person pays for the insurance) are expensive, and coverage
is limited. Alternatively, a person may want to check into hospital insurance
(usually referred to as hospitalization), which is cheaper and covers the
major expenses of hospital care. When health insurance is offered through
work, the company usually pays for part of the premium and the employee pays
the rest each month. This will entitle the employee and family, if covered,
to seek medical treatment at a significantly reduced cost. Depending on the
coverage, the employee may have to pay a certain percentage of the total
medical costs, a flat fee for each visit to the
doctor, or may pay nothing at all. The amount a person pays toward the premium
and the amount of coverage a person gets is going to vary tremendously.
LIFE INSURANCE – Life insurance provides money to the policy holder's
family when he dies. The purpose of this money is to pay for funeral expenses,
outstanding bills, and provide income if the policy holder was the primary
wage-earner. Life insurance policies are usually purchased from a company
independently, but some companies offer a death benefit to their employees.
There are two basic types of life insurance policies a person can purchase
from a company. The first is term life insurance. With term life
insurance, the person pays a monthly premium over a certain period of time
(5, 10, 15, 20 years, etc.). The premium increases as the person gets older.
If that person were to pass away during that period of time, her beneficiaries
would receive the proceeds of that policy. The more coverage a person wants
($100,000 instead of $50,000, for example), the higher premium she will pay.
The second type of life insurance is called permanent or whole
life insurance. With permanent life insurance, the person pays a higher premium
for the same coverage with a term policy. However, the premium does not increase
with age. The advantage is that the coverage lasts a lifetime even after
you can stop paying the premiums, and the money paid into the policy has
a cash value. In other words, a person can use that money while she is alive.
Here's an example. Sally has been paying her monthly premiums for 10 years.
Her cash value is $10,000 and her benefit value is $75,000 (the amount her
beneficiaries would receive if she died). If she needed $5,000 for a down
payment on car, she could deduct that from her $10,000. However, her death
benefit is going to be significantly lower than $75,000. If she wanted to
get her coverage back up to original level, she would have to pay the $5,000
back with interest. It is important to point out that compared to other
investments, permanent life insurance is not the best investment.
DISABILITY INSURANCE – This coverage is usually offered by a person's
employer. Independent companies offer this coverage, but it is going to be
more expensive than getting it through an employer. Like other types of
insurance, disability insurance involves paying a premium. In the event that
the person is injured or falls ill and is either temporarily or permanently
disabled, he would receive monetary coverage that would help with medical
costs and lost income. Many independent insurance companies offer Accidental
Death and Dismemberment (AD&D) Insurance. This seems like a good deal
due to the low premiums. But the likelihood of being dismembered according
to the policy, is more unlikely than dying. The amount of coverage is usually
limited as well. Recommend that students stay away from this type of insurance
and buy term or whole life insurance.
HOME OWNER'S INSURANCE – Like automobile insurance, this coverage is never offered by an employer. Most people have their automobile and home owner's insurance through the same company. Both home owners and home renters can get this type of insurance. The only difference is that the home owner's coverage includes the house as well as the property in the house. Again, people pay a premium for a certain amount of coverage. In the event of a fire, natural disaster, theft, or vandalism, the coverage will help pay to fix the house or replace possessions. Additionally, the insurance covers your liability of someone being inured in your home or on your property. If someone falls down your steps and breaks his leg, you may be responsible for the medical costs. Homeowner's insurance covers this type of expense.
SIGNS OF GENERALIZATION
Students consider the types of insurance they need and obtain it through
work and/or an insurance company.
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