life insurance, annuities and health insurance
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The Griffith Insurance Education Foundation
Life Insurance, Annuities and Health Insurance
David T. Russell, Ph.D.Director, CSUN Center for Risk and Insurance
March 14-15, 2013
Agenda Overview of Life/Annuity/Health Market Overview of Life Insurance Products Overview of Annuity Products Overview of Health Ins Products Regulation Of Health Insurance Review of PPACA
The Griffith Insurance Education Foundation
Life/Annuity/Health Insurance US Life/Health/Annuity Market: $1.24t CA Life/Health/Annuity Market: $166b Life Insurance Market Has Zero Growth Annuity Market Growing Nicely Life Insurers Continue to Gather Assets Being ID’d as “Systemically Important?” Health Insurance Market in Flux
The Griffith Insurance Education Foundation
The Players in CA (2011 Prems)
1. Anthem Blue Cross 2. John Hancock 3. Met Life Investors (Annuities) 4. Prudential 5. Met Life 6. Lincoln National
The Griffith Insurance Education Foundation
Why Buy Life Insurance? Cover Risk of Premature Death Protect Survivors’ Lifestyle Fund Plans After Death (Ex: College) Guarantee Debts and Settlements Protect Knowledge/Skills of Key People Investment Features Tax Benefits (Always Under Review)
The Griffith Insurance Education Foundation
Life Insurance Products Whole Life Insurance Term Life Insurance (No Cash Value) Universal Life Insurance Variable Life Insurance Variable Universal Life Insurance Other
The Griffith Insurance Education Foundation
Term vs. Cash Value Term: “Renting” Insurance
Protects Only for Term of Policy Must Be Renewed, If Needed
Cash Value: “Owning” Insurance Provides Permanent Protection Usually Accumulates Cash Value Higher Premiums Earlier in Life
The Griffith Insurance Education Foundation
8
Term Life Versus Whole Life: Premiums
Age
$
overpayment
underpaymentLevel
Prem (Whole)
mortality curve (~term)
120x
The Griffith Insurance Education Foundation
Term Life Insurance Carries Low Prems that Rise Over Time Builds No Cash Value Favored by Most “Experts” Must Be Renewed at Increasing Rates Employer-Provided Ins is Group Term
The Griffith Insurance Education Foundation
Whole Life Insurance High, Level Premiums for Life Permanent Coverage-No Need to Renew Builds Cash Value Earns Interest/Dividends Tax Deferred Allows Policy Loans or Policy Surrender* Variable Life Allows Investment Choices *If cash value exceeds surrender charges.
The Griffith Insurance Education Foundation
Universal Life Combination of Whole and Term Ins Permanent Protection Premiums are Flexible Can Build Cash Value if Prems Paid Carries Higher Fees Variable UL Allows Investment Choices
The Griffith Insurance Education Foundation
Life Insurance Pricing Driven by Interest Rates Driven by Mortality Factors
Age Gender Smoking Family History Health (Medical Records, Medical Exam) Other (Hobbies, Mkt Competition)
The Griffith Insurance Education Foundation
Life Insurance Contract Terms Incontestible Clause Suicide Clause Reinstatement Grace Period Convertible
The Griffith Insurance Education Foundation
Current Life Insurance Issues Policy Replacements Twisting & Churning Sales of Unsuitable Products Characterizing Life Ins as “Savings” Life Insurance “Settlements” Tax Benefit Under Attack (Again)
The Griffith Insurance Education Foundation
Annuities Annuity = Stream of Regular Payments Life Annuity: Stream Lasts for Life Cannot Outlive a Life Annuity Second-to-Die/Joint Annuity: Two Lives Social Security is a Joint Annuity Annuities Primarily Used for Retirement Annuities Often Purchased with 401(k) $
The Griffith Insurance Education Foundation
Types of Annuities Fixed Annuities
Provides Fixed Return (Guarantees) Inflation Adjustment Available, at a Cost
Indexed and Variable Annuities Returns Depend on Performance of Stocks
Life Annuities vs. Period Certain Option Life Annuities End at Death; Period Certain
Options Protect Family if Death
The Griffith Insurance Education Foundation
Annuity Pricing Sensitive to Two Main Factors
Interest Rates Mortality (Age and Gender) Expenses and Commissions
Closer to Death Means More per Month Premiums Often Funded w/401(k) Premiums Can Exceed $1 million
The Griffith Insurance Education Foundation
Why Regulate Annuities? Most Annuities are Deferred Insurer Gets $ Up Front and Invests Payout May Last for Decades Buyers Uninformed, Life Savings at Risk Large Upfront Commissions May Result
in Unsuitable Sales Annuity Assets Exceed $1 trillion
The Griffith Insurance Education Foundation
Annuity Facts Regulation: Fixed vs. Indexed vs. Variable
Fixed & Indexed Regulated by State Variable Annuities Regulated by SEC Indexed Annuities May Transition to SEC
Suitability—Some Sales Not Advisable Sell an Annuity to a 76 yo Cancer Survivor?
Adverse Selection with Annuities
The Griffith Insurance Education Foundation
CA Health Ins Regulation Most CA Health Plans Are Overseen by
Department of Managed Health Care Legislative Oversight by Assembly
Committee on Health Some Plans Sold by Life Insurers Remain
Under DOI Jurisdiction Rates Must Be Filed for Public Comment,
but Rate Changes Need Not Be Approved
The Griffith Insurance Education Foundation
Health Insurance Plans Preferred Provider Organization (PPO)
Contracts w/Certain Providers who Discount Health Maintenance Org (HMO)
Total Control of Member Health Point of Service Plan (POS)
Elements of HMO (Some Choice of Provider) Fee For Service (Major Medical)
Allows Most Choice of Provider
The Griffith Insurance Education Foundation
Group Health Insurance Most People Receive Group Health Ins
Through Employers’ Plans Benefit of Scale/Expense Savings No Adverse Selection-Everyone Covered
Low Risks Cannot Opt Out Usually Employer Subsidized For Now, Group Ins Not Taxable
The Griffith Insurance Education Foundation
Other Sources of Health Insurance Social Security (Medicare)
Part A (Hospital); Payroll Tax (1.45% + Match) No Additional Premium if 40 Quarters of Work
Part B (Medical) $104.90* Monthly Prem in 2013 Part D (Rx) Premium (average $40*month 2013)
Medicaid (Medi-Cal) State-Run, Federally-Subsidized Ins for the Poor
Medicare Supplement (“Medigap”) Private Plans that Fill in Gaps in Medicare
The Griffith Insurance Education Foundation
PPACA Key Provisions Patient Protection & Affordable Care Act Expansion of Medicaid: Cover Individuals < age 65
with AGI up to 133% of Poverty Level (~$14,200 Individual, $29,300 Family of 4) Effective 1/14
Individual Mandate: Must Carry Health Ins 2014 or Pay Penalty $695 - $2,085, Based on Income (1/14)
Employer Mandate: Employers of 50+ Workers Pay $2,000 Penalty for No Health Ins (1/14)
Medical Loss Ratio: 80% of Premiums (85% for Large Group Plans) Must Be Spent on Claims and Quality Improvements; Rebate the Excess to Consumers
The Griffith Insurance Education Foundation
PPACA Key Provisions State Health Exchanges: Individuals and Businesses
< 100 Employees Can Access Exchange Market (1/14) Federal Support for Creation of the Exchanges
Premium Subsidies For People with Incomes Up to 400% of the poverty level ($44k Individual, $92k Family of 4) and No Employer Plan
Subsidy for Insurance Purchased through Exchange This Will Reduce Adverse Selection Concerns
Premium Tax Credit for Small Businesses Who Buy Ins
The Griffith Insurance Education Foundation
PPACA Key Provisions Coverage Requirements
Children Covered to Age 19 Despite Preexisting C. No Annual or Lifetime Limits on Coverage Children Covered to Age 26 on Parents Plan Must Include Well Care with No Copay/Deductibles
Premiums Limits Plan Increases, Compress Rate Differences
Prohibit Rescission for “Honest Mistake”
The Griffith Insurance Education Foundation
Health Exchange PlansBronze Plan
Silver Plan Gold Plan
Platinum Plan
Catastrophic Plan
% of coverage of benefit costs of the plan
60% 70% 80% 90%
Only available in individual market for those up to age 30 or
exempt from mandate
Out of pocket limit
Equal to the Health Savings Account (HSA) limit $6,250 individuals, $12,500 families in 2013
Pricing Factors
Age: 3:1Smoking Status 1.5:1
Area within a stateFamily composition
The Griffith Insurance Education Foundation
Feel free to contact me:David T. Russell, Ph.D.California State University, Northridge(818) 677-2438David.Russell@csun.edu
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The Griffith Insurance Education Foundation
Any Questions?
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