ICN: Chapter 2

TERMS TO KNOW!!!!!!!!!!!!!!!!!!!!!!!!!!!
Accidental bodily injury — an unforeseen and unintended injury that resulted from
an accident rather than a sickness

Cafeteria plan — type of employee benefit plan that allows insureds to choose
between different types of benefits

Cancellation — termination of an in-force insurance policy, by either the insured

or the insurer, prior to the expiration date shown in the policy

Comprehensive coverage — health insurance that provides coverage for most types of
medical expenses

Deductible — a specified dollar amount that the insured must pay first before the
insurance company will pay the policy benefits

Lump sum — a payout method that pays the beneficiary the entire benefit in one
payment

Nonrenewal — termination of an insurance policy at its expiration date by not

offering a continuation of the existing policy or a replacement policy

Riders — added to the basic insurance policy to add, modify or delete policy
provisions

Sickness — an illness, which first manifests itself while the policy is in force

Tax exempt — not subject to taxation

Taxable — subject to taxation

Underwriting — risk selection and classification process

Medical Expense Insurance

1. Basic Hospital, Medical and Surgical Policies

Basic hospital, surgical and medical policies, and major medical policies are
commonly grouped into what are referred to as MEDICAL EXPENSE INSURANCE. They
provide benefits for the cost of medical care that results from accidents or
sickness.

The three basic coverages (hospital, surgical and medical) may be purchased
separately or together as a package. These types of coverage are often referred to
as FIRST-DOLLAR coverage because they usually do not require the insured to pay a
deductible. This differs from MAJOR MEDICAL EXPENSE insurance. However, the basic
medical coverages usually have more limited coverage than the Major Medical
Policies.

Major Medical Expense insurance functions through reimbursement. The insurance

company reimburses the medical service provider for any amount due.

BASIC HOSPITAL EXPENSE COVERAGE: Hospital expense policies cover hospital room and
board, and miscellaneous hospital expenses, such as lab and x-ray charges,
medicines, use of operating room and supplies, while the insured is confined in a
hospital. There is no deductible and the limits on ROOM AND BOARD are set at a
specified dollar amount per day up to a maximum number of days. These limits may
not provide for the full amount of hospital room and board charges incurred by the
insured. For example, if the hospital expense benefit was $500 per day, and the
hospital actually charged $650 per day, the insured would be responsible for the
additional $150 per day.

Know This
THERE ARE NO DEDUCTIBLES FOR BASIC HOSPITAL EXPENSE COVERAGE

The MISCELLANEOUS HOSPITAL EXPENSES normally have a separate limit. This amount,
which pays for other miscellaneous expenses associated with a hospital stay, can be
expressed either as a multiple of the room and board charge (such as 10 times the
room and board charge) or as a flat amount. In addition, the policy may specify a
maximum limit for certain types of expenses, such as $100 for drugs or $150 for use
of the operating room. As with the room and board charges, the hospital
miscellaneous expense limits may not pay for the full amount needed by the insured
in the event of a lengthy hospital stay.

BASIC MEDICAL EXPENSE COVERAGE is often referred to as BASIC PHYSICIANS'

NONSURGICAL EXPENSE COVERAGE because it provides coverage for nonsurgical services
a physician provides. However, the benefits are usually limited to visits to
patients confined in the hospital. Some policies will also pay for office visits.
There is no deductible with benefits, but coverage is usually limited to number of
visits per day, limit per visit, or limit per hospital stay.

In addition to nonsurgical physician’s expenses, basic medical expense coverage can

be purchased to cover emergency accident benefits, maternity benefits, mental and
nervous disorders, hospice care, home health care, outpatient care, and nurses’
expenses. Regardless of what type of plan or coverage is purchased, these policies
usually offer only limited benefits that are subject to time limitations. The
insured is often required to pay a considerable sum of money in addition to the
benefits paid by the medical expense policies.

BASIC SURGICAL EXPENSE COVERAGE: This coverage is commonly written in conjunction

with Hospital Expense policies. These policies pay for the costs of surgeons’
services, whether the surgery is performed in or out of the hospital. Coverage
includes surgeons’ fees, anesthesiologist, and the operating room when it is not
covered as a miscellaneous medical item. As with the other types of basic medical
expense coverage, there is no deductible, but coverage is limited. Each contract
has a SURGICAL SCHEDULE that lists the types of operations covered and their
assigned dollar amounts. If the operation is not listed, the contract may pay for a
comparable operation. Special schedules may express the amount payable as a
percentage of the maximum benefit, list a specified amount, or assign a relative
value that when multiplied by its conversion factor gives the benefit payable.

When the RELATIVE VALUE approach is used, each surgical procedure will be assigned
a number of points that are relative to the number of points assigned to the
maximum benefit. The maximum points are usually assigned to major surgical
procedures, such as open-heart surgery. The points for this maximum benefit are
usually high, such as 1,000 points. Other surgical procedures, such as an
appendectomy, may only have an assigned point value of 200. In order to determine
the amount payable for the appendectomy, the assigned points (relative value) of
200 are multiplied by a CONVERSION FACTOR. This conversion factor represents the
total amount payable per point.

For example, if the conversion factor was 10, the policy would pay $2,000 for the
appendectomy (200 x 10) and $10,000, the maximum benefit, for the open-heart
surgery (1,000 x 10).

2. Major Medical Policies

As opposed to the limited coverage available under the Basic Medical Expense
policies, Major Medical Expense policies offer a BROAD RANGE OF COVERAGE under one
policy. These policies take over when the limits of a basic insurance plan have
been exhausted, lending the insured protection from unexpectedly high medical
expenses. Generally, these policies provide the following coverage:

-Comprehensive coverage for hospital expenses (room and board and miscellaneous
expenses, nursing services, and physicians’ services);

-Catastrophic medical expense protection; and

-Benefits for prolonged injury or illness.

Usually a blanket limit for specific expenses is stated in the policy. There is
also a lifetime benefit per-person limit. Unlike the basic medical expense plans,
these policies usually carry deductibles, coinsurance requirements, and large
benefit maximums.

There are two common types of major medical policies available: Supplemental Major
Medical policies, and Comprehensive Major Medical policies.

SUPPLEMENTARY MAJOR MEDICAL POLICIES are used to supplement the coverage payable
under a basic medical expense policy. After the basic policy pays, the supplemental
major medical will provide coverage for expenses that were not covered by the basic
policy, and expenses that exceed the maximum. If the time limitation is used up in
the basic policy, the supplemental coverage will provide coverage thereafter.

The basic expense policy will provide coverage on a first-dollar basis (no
deductible). After the limits of the basic policy are exhausted, the insured must
pay a CORRIDOR DEDUCTIBLE before the major medical coverage will pay benefits. The
corridor deductible derives its name from the fact that it is applied between the
basic coverage and the major medical coverage.

3. Health Maintenance Organizations (HMOs)

By means of the Health Maintenance Act of 1973, Congress strongly supported the
growth of health maintenance organizations (HMOs) in this country. The act forced
employers with more than 25 employees to offer the HMO as an alternative to their
regular health plans. (The part of the act requiring dual choice has expired and
has not been reenacted).

Preventive Care Services

The main goal of the HMO Act was to reduce the cost of health care by utilizing
PREVENTIVE CARE. While most insurance plans offered no benefits for preventive care
prior to 1973, HMOs offer free annual check-ups for the entire family. In this way,
the HMOs hope to catch diseases in the earliest stages, when treatment has the
greatest chance for success. The HMOs also offer free or low-cost immunizations to
members in an effort to prevent certain diseases.

Know This
THE MEAIN FOCUS FOR AN HMO IS PRVENTIVE CARE.

General Characteristics
The HMO provides benefits in the form of services rather than in the form of
reimbursement for the services of the physician or hospital. Traditionally, the
insurance companies provide the financing, while the doctors and hospitals have
provided the care. The HMO concept is unique in that the HMO provides both the
financing and patient care for its members.

Limited Service Area

The HMO offers services to those living within specific geographic boundaries, such
as county lines or city limits. If individuals live within the boundaries, they are
eligible to belong to the HMO, but if they do not live within the boundaries, they
are ineligible.

Limited Choice of Providers

The HMO tries to limit costs by only providing care from physicians that meet their
standards and are willing to provide care at a prenegotiated price.

Copayments

A copayment is a specific part of the cost of care or a flat dollar amount that
must be paid by the member. For example, the member may be required to pay $5, $10
or $25 for each office visit.

There is usually no deductible required under HMO plans.

Prepaid Basis

HMOs operate on a capitated basis: the HMO receives a flat amount each month
attributed to each member, whether the member sees a physician or not. In essence,
it is a prepaid medical plan. As a member of the plan, you will receive all
services necessary from the member physicians and hospitals.

Primary Care Physician vs. Referral (Specialty) Physician

Care is provided to members of the HMO by a limited number of physicians that are
approved to practice in the HMO.

Primary Care Physician (PCP)

When an individual becomes a member of the HMO, they will choose their PRIMARY CARE
PHYSICIAN (PCP) or GATEKEEPER. Once chosen, the primary care physician or HMO will
be regularly compensated for being responsible for the care of that member, whether
care is provided or not. It should be in the primary care physician’s best interest
to keep this member healthy to prevent future time for treatment of disease.

Referral (Specialty) Physician

In order for the member to get to see a specialist, the primary care physician
(gatekeeper) must refer the member. The referral system keeps the member away from
higher priced specialists unless it is truly necessary. In many HMOs, there is a
financial cost to the primary care physician for referring a patient to the more
expensive specialist, thus the primary care physician may be inclined to use an
alternative treatment before approving a referral. HMOs must have mechanisms to
handle complaints which sometimes result in a delay of referral, or complaints
about other patient care or coverage concerns.

Know This
IN AN HMO, A GATEKEEPER HELPS CONTROL THE COST OF HEALTHCARE BY ONLY MAKING THE
NECESSARY REFERRALS.

Hospital Services and Emergency Care

The HMO provides the member with inpatient hospital care, in or out of the service
area. The services may be limited for treatment of mental, emotional or nervous
disorders, including alcohol or drug rehabilitation or treatment.

Emergency care must be provided for the member in or out of the HMO's service area.
If emergency care is being provided for a member outside the service area, the HMO
will make an effort to get the member back into the service area so that care can
be provided by salaried member physicians.

4. Preferred Provider Organizations (PPOs)

The Preferred Provider Organizations (PPOs) could be seen as the traditional

medical systems’ answer to HMOs. In the PPO system, the physicians are paid fees
for their services rather than a salary, but the member is encouraged to visit
approved member physicians that have previously agreed upon the fees to be charged.
This encouragement comes in the form of benefits. While the members can utilize any
physician they choose, the PPO may provide 90% of the cost of a physician on their
approved list while possibly only providing for 70% of the cost if the member
chooses to utilize a physician not included on the PPO's approved list.

A PPO is a group of physicians and hospitals that contract with employers,

insurers, or third party organizations to provide medical care services at a
reduced fee. The PPOs differ from the HMOs in two ways. First, they do not provide
care on a prepaid basis, but physicians are paid a fee for service. Secondly,
subscribers are not required to use physicians or facilities that have contracts
with the PPO.

Know This
UNLIKE HMOs, PPOs ALLOW MORE FLEXIVILITY BETWEEN IN-NETWORK AND OUT-NETWORK
PROVIDERS, IN EXCHANGE FOR A HIGHER PREMIUM.

Any physician or hospital that qualifies and agrees to follow the PPO’s standards
and charge the appropriate fees that the PPO has established can be added to the
PPO’s approved list at any time. Physicians and providers may belong to several PPO
groups simultaneously.

5. Point of Service (POS) Plans

The POINT-OF-SERVICE (POS) plan is merely a combination of HMO and PPO plans.

Nature and Purpose

With the Point-Of-Service plan the employees do not have to be locked into one plan
or make a choice between the two plans. A different choice can be made every time a
need arises for medical services.

Out-of-network Provider Access

PPO plans, like HMOs, enter into contractual arrangements with health care
providers who form a provider network. However, plan members do not have to use
only in-network providers for their care.

Similarly, in a POS plan the individuals can visit an in-network provider at their
discretion. If they decide to use an out-of-network physician, they may do so.
However, the member copays, coinsurance and deductibles may be substantially
higher.

In POS plans, participants usually have access to a provider network that is

controlled by a primary care physician ("gatekeeping"). Plan members, however, have
an option to seek care outside the network, but at reduced coverage levels. POS
plans are also referred to as "open-ended HMOs."
PCP Referral (Gatekeeper PPO)
In a PPO, the insured does not have to select a primary care physician. The insured
may choose medical providers not found on the preferred list and still retain
coverage. The insured is allowed to receive care from any provider, but if the
insured selects a PPO provider, the insured will pay lower out-of-pocket costs. If
an out-of-network provider is used, the insured's out-of-pocket costs will be
higher. In a PPO, all network providers are considered "preferred," and insureds
can visit any of them, even specialists, without first seeing a primary care
physician. Certain services may require plan pre-certification, an evaluation of
the medical necessity of inpatient admissions and the number of days required to
treat a physical condition.

Know This

IN-NETWORK PROVIDER = LOWER OUT OF POCKET COSTS; OUT OF NETWORK PROVIDER = HIGHER
OUT OF POCKET COSTS.

Indemnity Plan Features

If a non-member physician is utilized under the Point-Of-Service plan, then the
attending physician will be paid a fee for service, but the member patient will
have to pay a higher coinsurance amount or percentage for the privilege.

6. Flexible Spending Accounts (FSAs)

A FLEXIBLE SPENDING ACCOUNT (FSA) is a form of cafeteria plan benefit funded by
salary reduction and employer contributions. The employees are allowed to deposit a
certain amount of their paycheck into an account before paying income taxes. Then,
during the year, the employee can be directly reimbursed from this account for
eligible health care and dependent care expenses. FSA benefits are subject to
annual maximum and "use-or-lose" rule. This plan does not provide a cumulative
benefit beyond the plan year.

There are 2 types of Flexible Spending Accounts: a Health Care Account for out-of-
pocket health care expenses, and a Dependent Care Account (subject to annual
contribution limits) to help pay for dependent's care expenses which makes it
possible for an employee and their spouse to continue to work.

An FSA is exempt from federal income taxes, Social Security (FICA) taxes and, in
most cases, state income taxes, saving 1/3 or more in taxes. If the plan favors
highly compensated employees, the benefits for the highly compensated employees are
not exempt from federal income taxes.

Know This

FSAs MAY BE USED TO PAY MEDICAL AND DENTAL EXPENSES FOR EMPLOYEES AND THEIR
DEPENDENTS.

Child and dependent care expenses must be for the care of one or more qualifying
persons:

-A dependent who was under age 13 when the care was provided and who can be claimed
as an exemption on the employee's Federal Income Tax return;

-A spouse who was physically or mentally not able to care for himself or herself;
or

-A dependent who was physically or mentally not able to care for himself or herself
and who can be claimed as an exemption (as long as the person is earning gross
income less than an IRS-specified amount).
Persons who cannot dress, clean, or feed themselves because of physical or mental
problems are considered not able to care for themselves. Also, persons who must
have constant attention to prevent them from injuring themselves or others are
considered not able to care for themselves.

The insured may change benefits during open enrollment. After that period,
generally, no other changes can be made during the plan year. However, the insured
might be able to make a change under one of the following circumstances, referred
to as qualified life event changes:

Marital status;
Number of dependents;
One of dependents becomes eligible for or no longer satisfies the coverage
requirements under the Medical Reimbursement plan for unmarried dependents due to
attained age, student status, or any similar circumstances;
The insured, the insured's spouse's or qualified dependent's employment status that
affects eligibility under the plan (at least a 31-day break in employment status to
qualify as a change in status);
Change in dependent care provider; or
Family medical leave.
The IRS limits the annual contribution for Dependent Care Accounts to a specified
amount that gets adjusted annually for cost of living. This is a family limit,
meaning that even if both parents have access to flexible care accounts, their
combined contributions cannot exceed the amount.

7. High Deductible Health Plans (HDHPs) and Related Health Savings Accounts (HSAs)
High-deductible health plans (HDHPs) are often used in coordination with Medical
Savings Accounts (MSAs), Health Savings Accounts (HSAs), or Health Reimbursement
Accounts (HRAs). The high-deductible health plan features higher annual deductibles
and out-of-pocket limits than traditional health plans, which means lower premiums.
Except for preventive care, the annual deductible must be met before the plan will
pay benefits. Preventive care services are usually first dollar coverage or paid
after copayment. The HDHP credits a portion of the health plan premium into the
coordinating MSA, HSA, or HRA on a monthly basis. The deductible of the HDHP may be
paid with funds from the coordinating account plan.

Health savings accounts (HSAs) are designed to help individuals save for qualified
health expenses that they, their spouse, or their dependents incur. An individual
who is covered by a high deductible health plan can make a tax-deductible
contribution to an HSA, and use it to pay for out-of-pocket medical expenses.
Contributions by an employer are not included in the individual's taxable income.

To be eligible for a Health Savings Account, an individual must be covered by a

high deductible health plan (HDHP), must not be covered by other health insurance
(does not apply to specific injury insurance and accident, disability, dental care,
vision care, long-term care), must not be eligible for Medicare, and cannot be
claimed as a dependent on someone else's tax return.

HSAs are linked to high deductible insurance. A person may obtain coverage under a
qualified health insurance plan with established minimum deductibles ($1,500 for
singles and $3,000 for families in 2023).

Each year eligible individuals (or their employers) are allowed to save up to
certain limits, regardless of their plan's deductible (current contribution limits
are $3,850 for singles and $7,750 for families). When opening an account, an
individual must be under the age of Medicare eligibility. For taxpayers aged 55 and
older, an additional contribution amount is allowed (up to $1,000).

An HSA holder who uses the money for a nonhealth expenditure pays tax on it, plus a
20% penalty. After age 65, a withdrawal used for a nonhealth purpose will be taxed,
but not penalized.

Know This
NONHEALTH WITHDRAWALS BEFORE AGE 65 = 20% PENALTY; NONHEALTH WITHDRAWALS AFTER AGE
65 = NO PENALTY.

8. Health Reimbursement Accounts (HRAs)

Definition

HEALTH REIMBURSEMENT ACCOUNTS (HRAs) consist of funds set aside by employers to

reimburse employees for qualified medical expenses, such as deductibles or
coinsurance amounts. Employers qualify for preferential tax treatment of funds
placed in an HRA in the same way that they qualify for tax advantages by funding an
insurance plan. Employers can deduct the cost of a health reimbursement account as
a business expense.

The following are key characteristics of HRAs:

-They are contribution healthcare plans, not defined benefit plans;

-Not a taxable employee benefit;
-Employers' contributions are tax deductible;
-Employees can roll over unused balances at the end of the year;
-Employers do not need to advance claims payments to employees or healthcare
providers during the early months of the plan year;
-Provided with employer dollars, not employee salary reductions;
-Permit the employer to reduce health plan costs by coupling the HRA with a high-
deductible (and usually lower-cost) health plan; and
-Balance the group purchasing power of larger employers and smaller employers.

Eligibility

HRAs are open to employees of companies of all sizes; however, the employer
determines eligibility and contribution limits.

Contribution Limits
An HRA has no statutory limit. Limits may be set by employer, and rollover at the
end of the year based on employer discretion. Former employees, including retirees,
can have continued access to unused HRAs, but this is done at the employer's
discretion. HRAs remain with the originating employer and do not follow an employee
to new employment.

Know This
HRAS ALLOW EMPLOYEES TO ROLL OVER UNUSED BENEFITS TO THE FOLLOWING CALENDAR YEAR,
IN ADDITION TO NEW BENEFITS.

Disability Income

1. Individual Disability Income Policy

One major risk that individuals face in their lifetime is the possibility that they
will become totally disabled and be unable to perform work duties for a period of
time. Recent statistics show that there is a 30% chance of a 25-year-old being
disabled for more than 90 days prior to age 65. It is far less likely that the same
25-year-old will suffer a premature death prior to age 65.

For most people who are unable to go to work, employment income would terminate
after a brief period of time. Consequently, most people would be forced to turn to
personal savings to pay normal living expenses such as food, rent and utilities. A
question to ask is how long a person can survive without any income.

DISABILITY INCOME INSURANCE is designed to replace lost income in the event of this
contingency, and is a vital component of a comprehensive insurance program. It may
be purchased individually or through an employer on a group basis.

ELIMINATION PERIOD is a waiting period that is imposed on the insured from the
onset of disability until benefit payments commence. It is a DEDUCTIBLE MEASURED IN
DAYS, INSTEAD OF DOLLARS. The purpose of the elimination period is to eliminate
coverage for short-term disabilities in which the insured will be able to return to
work in a relatively short period of time. The elimination periods found in most
policies range from 30 days to 180 days. Just as a higher deductible amount results
in lower premiums for medical expense insurance, a longer elimination period
translates into a lower premium for disability income insurance. An important
consideration in selecting the elimination period is that payments are made in
arrears. Therefore, if the insured selects a 90-day elimination period, the insured
will be eligible for benefits on the 91st day, but payments will not begin until
the 121st day. The insured must determine how long he or she can go without benefit
payments following disability in selecting the duration of the elimination period.

Know This
THE ELIINATION PERIOD IS A "TIME" DEDUCTIBLE, DESIGNED TO ELIMINATE COVERAGE FOR
SHORT-TERM DISABILITIES, AND REDUCE THE FILING OF EXCESSIVE CLAIMS.

PROBATIONARY PERIOD is another type of waiting period that is imposed under some
disability income policies. It does not replace the elimination period, but is in
addition to it. The probationary period is a waiting period, often 10 to 30 days,
from the policy issue date during which benefits will not be paid for illness-
related disabilities. The probationary period applies to only sickness, not
accidents or injury. The purpose for the probationary period is to reduce the
chances of adverse selection against the insurer. This helps the insurer guard
against those individuals who would purchase a disability income policy shortly
after developing a disease or other health condition that warrants immediate
attention.

Know This
PROBATIONARY PERIODS APPLY TO SICKNESS, NOT ACCIDENTS OR INJURY.

BENEFIT PERIOD refers to the length of time over which the monthly disability
benefit payments will last for each disability after the elimination period has
been satisfied. Most policies offer benefit periods of 1 year, 2 years, 5 years,
and to age 65. Some plans offer lifetime benefits. The longer the benefit period,
the higher the premium will be.

INJURY is defined using either the accidental bodily injury definition, or the
accidental means definition. ACCIDENTAL BODILY INJURY means the damage to the body
is unexpected and unintended. ACCIDENTAL MEANS indicates that the cause of the
accident must be unexpected and unintended. A policy that uses the accidental
bodily injury definition will provide broader coverage than a policy that uses the
accidental means definition.

SICKNESS or illness is defined as either a sickness or disease contracted after the

policy has been in force at least 30 days; or a sickness or disease that first
manifests itself after the policy is in force.
PRESUMPTIVE DISABILITY is a provision that is found in most disability income
policies which specifies the conditions that will automatically qualify the insured
for full disability benefits. Some disability policies provide a benefit when
people simply meet certain qualifications, regardless of their ability to work. The
presumptive disability benefit provides a benefit for dismemberment (the loss of
use of any two limbs), total and permanent blindness, or loss of speech or hearing.
Some policies require actual severance of limbs rather than loss of use.

BENEFIT LIMITATIONS—The amount of monthly benefit that is payable under most

disability income policies is based on a percentage of the insured's past earnings.
The benefit limits are the maximum benefits the insurer is willing to accept for an
individual risk. It is common to find policies that limit benefits to roughly 66%
of the insured's average earning for the period of two years immediately preceding
disability.

Rarely will an insurer write a disability income policy that will reimburse the
individual for 100% of lost income. The reason that insurers don't pay benefits
that are equal to the insured's prior earnings is to reduce the chance of
malingering on the part of the insured. If an insurer were to pay an insured
benefits that were as much or more than the insured earned, the individual would
have no incentive to return to work as quickly as possible. Paying the insured an
amount that is less than their prior earnings creates an incentive for the insured
to return to work after a disability, as opposed to collecting benefits when the
insured is capable of returning to work.

Most insurers will adjust benefits in accordance with any amounts that the insured
may be receiving from Social Security or Workers Compensation. If the insured is
receiving benefits from these programs, the insurer will decrease the amount of
benefit that is paid under the policy so that the insured will not be able to
profit from the disability.

SOCIAL INSURANCE SUPPLEMENT (SIS) OR SOCIAL SECURITY RIDERS are used to supplement
or replace benefits that might be payable under Social Security Disability. These
provide for the payment of income benefits generally in three different situations:

-When the insured is eligible for Social Security benefits but before the benefits
begin (usually there is a 5-month waiting period for Social Security benefits);

-If the insured has been denied coverage under Social Security (roughly 75% of the
people who apply for Social Security benefits are denied coverage because of their
rigid definition of total disability); or

-When the amount payable under Social Security is less than the amount payable
under the rider (in this case only the difference will be paid).

These riders can also be used to replace or supplement benefits payable under other
social insurance programs, such as Workers Compensation.

Generally, disability income policies do not cover losses arising from war,
military service, intentionally self-inflicted injuries, overseas residence, or
injuries suffered while committing or attempting to commit a felony.

In addition to protecting individuals against the possible loss of income due to a

disability, disability income policies are also used to protect businesses. There
are basically three types of disability income policies used for businesses:
Business Overhead Expense, Key Person Disability, and Disability Buy-sell
insurance.
2. Group Disability Income Policy
Group plans differ from individual plans in a variety of ways. Listed below are the
most common differences between group and individual disability plans:

-Group plans usually specify the benefits based on a percentage of the worker’s
income, while individual policies usually specify a flat amount.
-Short-term group plans usually provide maximum benefit periods of 13 to 52 weeks
(with 26 weeks being the most common), with weekly benefits of 50% to 100% of the
individual’s income. Individual short-term plans have maximum benefit periods of 6
months to 2 years. Short-term plans are not renewable.
-Group long-term plans provide maximum benefit periods of more than 2 years, with
monthly benefits usually limited to 60% of the individual’s income.
-Group disability plans also have minimum participation requirements. Usually, the
employee must have worked for 30 to 90 days before becoming eligible for coverage.
-Group plans usually make benefits supplemental to any benefits received under
workers compensation.
-Some group disability plans limit coverage to only nonoccupational disabilities.

Know This
GROUP DISABILITY PLAN BENEFITS ARE BASED ON A PERCENTAGE OF THE WORKER'S
INCOME;INDIVIDUAL POLICIES SPECIFY A FLAT AMOUNT.

3. Business Overhead Expense Policy

BUSINESS OVERHEAD EXPENSE (BOE) insurance is a unique type of policy that is sold
to small business owners who must continue to meet overhead expenses, such as rent,
utilities, employee salaries, installment purchases, or leased equipment, following
a disability. The business overhead expense policy reimburses the business owner
for the actual overhead expenses that are incurred while the business owner is
totally disabled. This policy does not reimburse the business owner for their
salary, compensation, or other form of income that is lost as a result of
disability. There is usually an elimination period of 15 to 30 days and benefit
payments are usually limited to one or two years. The benefits are usually limited
to covered expenses incurred or the maximum monthly benefit stated in the policy.
The premiums paid for BOE insurance are tax deductible to the business as a
business expense. However, the benefits received are taxable to the business as
received.

4. Business Disability Buyout Policy

A BUY-SELL AGREEMENT is a legal agreement prepared by an attorney. The buy-sell

agreement specifies how the business will pass between owners when one of the
owners dies or becomes disabled. It is common for the business to purchase
insurance to provide the cash to accomplish the buyout when the owner either dies
or becomes disabled. The policies that fund buy-sell agreements generally have an
extremely long elimination period, possibly one or two years. Generally, these
policies funding buy-sell agreements also provide a large lump-sum benefit to buy
out the business rather than monthly benefits.

Just as with a life insurance buy-sell agreement, the DISABILITY BUYOUT AGREEMENT
specifies who will purchase a disabled partner's interest and legally obligates
that person or party to purchase such interest upon disability. In fact, a
provision for the contingency of disability can be added to a buy-sell agreement to
eliminate the need for two separate agreements. It is common for a disability
income policy that is funding a buyout to contain an elimination period of one or
two years. The reason for such a long elimination period is that it allows time to
determine if a disabled business partner is most likely permanently disabled, or if
it is likely that he or she may be able to return to the business. With disability
buy-sell insurance, the premiums paid by the business are not tax deductible and
the benefits are received tax-free. Buyout plans usually allow for a lump-sum
payment of the benefit.

5. Key Employee Policy

KEY PERSON DISABILITY is purchased by the employer on the life of a key employee.
The key person's economic value to the business is determined in terms of the
potential loss of business income which could occur as well as the expense of
hiring and training a replacement for the key person. The contract is owned by the
business, the premium is paid by the business, and the business is the beneficiary.
The person is the insured, and the business must have the key person's consent to
be insured in writing.

Know This
IN KEY PERSON DISABILITY INSURANCE, THE BUSINESS IS THE CONTRACT OWNER, PREMIUM
PAYOR, AND THE BENEFICIARY.

Accidental Death and Dismemberment

Accidental Death and Dismemberment (AD&D) coverage can be written as a rider or as

a separate policy. It is, however, most frequently part of group life and group
health plans. It provides for the payment of a lump-sum benefit in the event that
the insured dies from an accident, as defined in the policy, or in the event of
loss of certain body parts caused by an accident.

Accidental Death and Dismemberment coverage only pays for accidental losses and is
thus considered a pure form of accident insurance. The PRINCIPAL SUM is paid for
accidental death. This amount is usually equal the amount of coverage under the
insurance contract, or the face amount. In case of loss of sight or accidental
dismemberment, a percentage of that principal sum will be paid by the policy, often
referred to as the CAPITAL SUM. The amount of the benefit will vary according to
the severity of the injury.

The policy will usually pay the full principal for the loss of sight in both eyes,
or two or more limbs; however, it may only pay 50% for the loss of one hand or one
foot. In addition, some policies will pay double or triple indemnity, meaning the
policy will pay twice or three times the face amount in the event of accidental
death.

Most policies will pay the accidental death benefit as long as the death is caused
by the accident and occurs within 90 days.

Know This
IN AD&D POLICIES, THE PRINCIPAL SUM MEANS THE FULL FACE AMOUNT (100%), AND THE
CAPTIAL SUM IS A PERCENTAGE OF THE FACE AMOUNT.

There are also 2 special policies that pay accidental death and dismemberment
benefits only under specific circumstances, Limited Risk Policies and Special Risk
Policies. TheLIMITED RISK POLICY defines the specific risk in which accidental
death or dismemberment benefits will be paid. For example, the policy may be a
Travel Accident Policy, in which the benefits are only payable if the loss occurs
as a result of travel.

The SPECIAL RISK POLICY, on the other hand, will cover unusual types of risks that
are not normally covered under AD&D policies. It covers only the specific hazard or
risk identified in the policy, such as a racecar driver test-driving a new car.

Long-Term Care
LONG-TERM CARE POLICIES, which can be marketed in the form of individual policies,
group policies, or as riders to life insurance policies, provide coverage for
individuals who are no longer able to live an independent lifestyle and require
living assistance at home or in a nursing home facility. Long-term care policies
can vary in the number of days of confinement covered, the number of home health
visits covered, the amount paid for nursing home care, and other contract
provisions. They also must provide coverage for at least 12 consecutive months in a
setting other than an acute care unit of a hospital.

Long-term care policies usually include an ELIMINATION (WAITING) PERIOD similar to

those found in disability income policies. Long-term care elimination periods may
range from 0 to 365 days (make sure to check your state-specific requirement in the
regulations section). The longer the waiting period, the lower the premium.
Insurers usually give insureds an option to select the elimination period that best
suits their needs. LTC policies also define the benefit period for how long
coverage applies, after the elimination period. The benefit period is usually 2 to
5 years, with a few policies offering lifetime coverage. The longer the benefit
period, the higher the premium will be.

The benefit amount payable under most LTC policies is usually a specific fixed
dollar amount per day, regardless of the actual cost of care. For example, if an
insured has a fixed daily coverage of $100 and the care facility only charges $90 a
day, the insurance company will pay the full amount of $100 a day. Some policies
pay the actual charge incurred per day. Most LTC policies are also GUARANTEED
RENEWABLE; however, insurers do have the right to increase the premiums.

Know This
LTC POLICIES MUST BE GUARANTEED RENEWABLE.

For an additional premium, optional benefits are available with long-term care
policies.

The following are PROHIBITED PROVISIONS or actions in long-term care policies:

-Cancel, nonrenew or otherwise terminate a LTC policy on the grounds of the

insured's age or the deterioration of mental or physical condition;
-Establish a new waiting period when coverage is converted or replaced within the
same company, except for increased benefits voluntarily selected by the insured; or
-Cover only skilled nursing care, or provide significantly more coverage for
skilled care than lower levels of care.

Long-term care policies may have the following EXCLUSIONS:

-Pre-existing conditions or diseases;

-Mental and nervous disorders or disease (except for organic cognitive disorders
such as Alzheimer's disease, senile dementia and Parkinson's disease);
-Alcoholism and drug addiction;
-Treatment or illness caused by war, participation in criminal activities, or
attempted suicide; and
-Treatment payable by the government, Medicare, workers compensation or similar
coverage.

1. Eligibility for Benefits

Normally to be eligible for benefits from a long-term care policy, the insured must
be unable to perform some of the activities of daily living (ADLs). Activities of
daily living include bathing, dressing, toileting, transferring positions (also
called mobility), continence, and eating.
2. Levels of Care

Generally, long-term care policies will cover 3 levels of care: skilled nursing
care, intermediate care, and custodial care. In addition to these levels of care,
the long-term care policy may provide coverage for home health care, adult day
care, hospice care or respite care, all of which can be received at home.

SKILLED CARE is daily nursing and rehabilitative care that can only be provided by
medical personnel, under the direction of a physician. Skilled care is almost
always provided in an institutional setting. Examples of skilled care include
changing sterile dressing and physical therapy given in a skilled nursing care
facility. CARE THAT CAN BE GIVEN BY NONPROFESSIONAL STAFF IS NOT CONSIDERED SKILLED
CARE.

INTERMEDIATE CARE is occasional nursing or rehabilitative care provided for stable

conditions that require daily medical assistance on a less frequent basis than
skilled nursing care. It is ordered by a physician, and skilled medical personnel
would deliver or monitor this type of care. Intermediate care could be as simple as
giving medication to a group in physical therapy once a day or changing a bandage.
It may be carried out in a nursing home, an intermediate-care unit or in the
patient’s home.

CUSTODIAL CARE is care for meeting personal needs such as assistance in eating,
dressing, or bathing, which can be provided by nonmedical personnel, such as
relatives or home health care workers. Custodial care can be provided in an
institutional setting or in the patient’s home. In other words, it involves caring
for a person's activities of daily living, and not hospital or surgical needs.

Know This
SKILLED CARE AND INTERMEDIATE CARE REQUIRE THE ASSISTANCE OF MEDICALLY LICENSED
PERSONNEL. CUSTODIAL CARE MAY BE ADMINISTERED BY NONMEDICAL PERSONNEL.

HOME HEALTH CARE is care provided by a skilled nursing or other professional

services in one’s home. Home health care includes occasional visits to the person’s
home by registered nurses, licensed practical nurses, licensed vocational nurses,
or community-based organizations like hospice. Home health care might include
physical therapy, occupational therapy, speech therapy, and medical services by a
social worker.

HOME CONVALESCENT CARE is provided in the insured’s home under a planned program
established by the insured's attending physician. Such care must be provided by a
long-term care facility, a home health care agency or a hospital.

RESIDENTIAL CARE is provided while the insured resides in a retirement community or

a residential care facility for the elderly (RCFE). In some arrangements, the
degree of independence is the same as living in one's own home; however, this care
provides a physical and social environment that contributes to continued
intellectual, psychological and physical growth. These facilities are commonly for
the middle and upper classes because of the costs.

ADULT DAY CARE is care provided for functionally impaired adults on less than a 24-
hour basis. It could be provided by a neighborhood recreation center or a community
center. Care includes transportation to and from the day care center, and a variety
of health, social and related activities. Meals are usually included as a part of
the service.

Respite Care is designed to provide relief to the family caregiver, and can include
a service such as someone coming to the home while the caregiver takes a nap or
goes out for a while. Adult day care centers also provide this type of relief for
the caregiver.

3. Individual LTC Contracts

Individual long-term care insurance is the most common LTC in the private market.
The advantages to an individual long-term care policy include state regulation of
LTC plans, guaranteed renewability, and the ability to customize the plan to the
individual's own needs.

4. Group and Voluntary LTC Contracts

Group long-term care policies are gaining in popularity. Like other group health
insurance, group LTC offers lower rates and less underwriting, allowing someone who
might be denied individual coverage to enroll in open enrollment periods. Not all
states regulate group LTC, and many group plans do not offer employer contributions
to premiums. Most group LTC plans are voluntary, meaning the individual decides
whether or not to enroll in the plan.

Group Insurance

In order to qualify for group coverage, the group must be formed for a purpose
other than obtaining group health insurance. In other words, the coverage must be
incidental to the group. There are generally 2 types of groups eligible for group
insurance: employer-sponsored, and association-sponsored.

With an EMPLOYER-SPONSORED GROUP, the employer (a partnership, corporation or a

sole proprietorship) provides group coverage to its employees. Eligible employees
usually must meet certain time of service requirements and work full-time. The same
as group life insurance, group health insurance may be either contributory or
noncontributory.

An ASSOCIATION GROUP (alumni or professional) can buy group insurance for its
members. The group must have at least 100 members, be organized for a reason other
than buying insurance, have been active for at least two years, have a
constitution, by-laws, and must hold at least annual meetings. These groups
include, but are not limited to, trade associations, professional associations,
college alumni associations, veteran associations, customers of large retail
chains, and saving account depositors, to name a few. Association group plans may
be either contributory or noncontributory.

1. General Concepts
Group health insurance is similar to group life insurance in that it is provided by
an employer or other group sponsor for eligible employees or members. The actual
policy, called a master contract, is issued to the group sponsor, while the
individual insureds are issued certificates of insurance as proof of their
coverage. Group health insurance includes many of the same provisions as group life
insurance, such as the ability to provide coverage for dependents and the right to
convert to individual coverage if the group contract is terminated.

Underwriting of group policies is unique in that when a group policy is written

every eligible member of the group must be covered regardless of physical
condition, age, sex or occupation. Therefore, the underwriting of group policies
concentrates on the group as a whole. Cost of the policy will vary by ratio of
males to females and the average age of the group. Evidence of insurability
normally is not required since an annual reevaluation makes adjusting of the
premium possible based upon the group claim experience. Making the premium
retroactive for the year is often allowed. Any group replacement underwriting will
consider loss history, group stability and composition.
The underwriting process is designed to avoid adverse selection by the following
requirements:

-The insurance must be incidental to the group. In other words, the group cannot
have been formed for the sole purpose of purchasing insurance;
-There should be a steady flow of persons through the group, with the older or
unhealthy individuals being replaced by younger or healthier individuals;
-The persistency of the group: insurers do not want to write risks that frequently
change insurers;
-A method of selecting benefits that prevents the individual selection of benefits;
-How eligible participants are selected: employees are usually full-time only and
meet minimum service requirements;
-Whether the group is contributory or noncontributory;
-The size and composition of the group, as well as the industry the group is
involved in; and
-The prior claims experience of the group.

2. Individual vs. Group Contracts

Individual health insurance contracts are issued to cover the applicant and usually
dependents. Most individual health insurance policies are issued guaranteed
renewable, so the underwriting to determine insurability is completed with care.
Factors considered include the applicant's age, gender, physical condition,
occupation, and habits or lifestyle.

Group insurance underwriting can be less restrictive than with individual contracts
in part because the yearly renewable term contract under which the insurance is
written contemplates annual revaluation of the risk and adoption of remedial
measures if the initial evaluation proved to be incorrect, and also because the
underwriting is performed for the group as a whole. On each contract anniversary
date, the underwriter has the opportunity to adjust the premium rate, conditions of
the contract, and the benefits provided.

3. COBRA
The CONSOLIDATED OMNIBUES BUDGET RECONCILIATION ACT OF 1985 (COBRA) requires any
employer with 20 or more employees to extend group health coverage to terminated
employees and their families after a qualifying event. Qualifying events include
the following:

-Voluntary termination of employment;

-Termination of employment for reasons other than gross misconduct (e.g. company
downsizing); and
-Employment status change: from full time to part time.

For any of these qualifying events, coverage is extended up to 18 months. The

terminated employee must exercise extension of benefits under COBRA within 60 days
of separation from employment. The employer is permitted to collect a premium from
the terminated employee at a rate of no more than 102% of the individual’s group
premium rate. The 2% charge is to cover the employer’s administrative costs.

For events such as death of the employee, divorce or legal separation, the period
is 36 months for the dependents.

It is important to remember that COBRA benefits apply to group health insurance,

not group life insurance. In addition, unlike the conversion privilege in which the
individual converts coverage to an individual health insurance policy, COBRA
continues the same group coverage the employee had and the employee pays the group
premium that the employer paid (or employer and employee paid if the plan was
contributory).
Note that under the Patient Protection and Affordable Care Act, coverage for
children of the insured must extend until the adult child reaches the age of 26
(unless the child qualifies as a disabled dependent). The same age limit applies to
COBRA coverage for eligible children of the insured. In addition, in the event of
loss of dependent child status under the group plan, the dependent child qualifies
for a maximum period of continuation coverage of 36 months.

There are also several disqualifying events under which the COBRA benefits may be
discontinued. These include failure to make a premium payment, becoming covered
under another group plan, becoming eligible for Medicare, or if the employer
terminates all group health plans.

Know This
COVERAGE FOR DEPENDENTS UNDER COBRA MAY BE EXTENDED TO 36 MONTHS IN THE EVENT OF
THE EMPLOYEE'S DIVORCE OR DEATH.

Other Policies

There are a variety of health insurance policies providing limited coverage for
specific accidents or sickness. These contracts must specify the type of accident
or sickness covered, limited perils and amounts of coverage. Benefits may be paid
on an expense-paid (reimbursement) basis or indemnity basis.

Know This
LIMITED POLICIES COVER A SPECIFIC SICKNESS OR ACCIDENT ONLY.

1. Short-Term Medical
Short-term medical insurance plans are designed to provide temporary coverage for
people in transition (those between jobs or early retirees), and are available for
terms from one month up to 11 months, depending on the state. Unlike regular
individual major medical plans, short-term health insurance policies are not
regulated by the Affordable Care Act and their enrollment is not limited to the
open enrollment period; they also do not meet the requirements of the federally
mandated health insurance coverage.

Like traditional health plans, short-term plans may have medical provider networks,
and impose premiums, deductibles, coinsurance and benefit maximums. They also cover
physician services, surgery, outpatient and inpatient care.

2. Accident
Accident-only policies are limited policies that provide coverage for death,
dismemberment, disability or hospital and medical care resulting from an accident.
Because it is a limited medical expense policy, it will only pay for losses
resulting from accidents and not sickness.

3. Critical Illness or Specified Disease

A critical illness policy covers multiple illnesses, such as heart attack, stroke,
renal failure, and pays a lump-sum benefit to the insured upon the diagnosis (and
survival) of any of the illnesses covered by the policy. The policy usually
specified a minimum number of days the insured must survive after the illness was
first diagnosed.

4. Cancer
Cancer policies cover only one illness — cancer, and pay a lump-sum cash benefit
when the insured is first diagnosed with cancer. It is a supplemental policy
intended to fill in the gap between the insured's traditional health coverage and
the additional costs associated with being diagnosed with the illness. There are no
restrictions on how the insured spends the funds, so the benefit can be used to pay
for medical bills, experimental treatment, mortgage, personal living expenses, or
loss of income.

5. Hospital Indemnity
A hospital indemnity policy provides a specific amount on a daily, weekly or
monthly basis while the insured is confined to a hospital. Payment under this type
of policy is unrelated to the medical expense incurred, but based only on the
number of days confined in a hospital. This can also be called a hospital fixed-
rate policy.

6. Dental Plans
Dental expense insurance is a form of medical expense health insurance that covers
the treatment, care and prevention of dental disease and injury to the insured's
teeth. An important feature of a dental insurance plan which is typically not found
in a medical expense insurance plan is the inclusion of diagnostic and preventive
care (teeth cleaning, fluoride treatment, etc.). Some dental plans require periodic
examinations as a condition for continued coverage.

Dental expense may be packaged or integrated with other health insurance benefits
like major medical. In that case the integrated plan may have a common deductible.
On the other hand, some integrated plans maintain separate deductibles for the
medical and dental portions of the contract.

Pediatric dental coverage is an essential health benefit under the Affordable Care
Act that must be available as part of a health plan or as a stand-alone plan for
children 18 or younger. However, insurers do not have to offer adult dental
coverage.

Depending on the state, pediatric dental benefits may be offered through one of the
following types of plans:

-A qualified health plan that includes dental coverage;

-A stand-alone dental plan purchased in conjunction with a qualified health plan;
or
-A contracted/bundled plan.

Know This
HEALTH INSURERS MUST OFFER PEDIATRIC DENTAL COVERAGE (FOR CHILDREN 18 OR YOUNGER)
AS AN ESSENTIAL HELATH BENEFIT UNDER A HEALTH PLAN OR AS A STAND-ALONE DENTAL PLAN.

7. Vision and Hearing

Some employers provide this form of group health insurance to their employees to
cover eye examinations and eyeglasses, or hearing aids on a limited basis. Know
that per the Affordable Care Act, pediatric vision benefits are mandatory.

It is common in most vision expense insurance plans to restrict benefits to one

exam and one pair of glasses in any 12-month period.

Chapter Recap
This chapter explained major types of health insurance policies: medical expense,
disability, long-term, and group. Let's recap the key features for each category:
MEDICAL EXPENSE INSURANCE

Basic Hospital, Medical and Surgical Policies

Basic hospital expense coverage — Covers hospital room and board, and miscellaneous
expenses, such as lab and x-ray charges and medicines while insured is confined to
a hospital.
Miscellaneous hospital expenses — Pays for other miscellaneous expenses associated
with a hospital stay; expressed either as a multiple of the room and board charge
or as a flat amount.
Basic medical expense coverage — Provides coverage for nonsurgical physician’s
services. Also can be purchased to cover emergency accident benefits, maternity
benefits, mental and nervous disorders, hospice care, home health care, outpatient
care, and nurses’ expenses.
Basic surgical expense coverage — Covers costs of surgeons' services, whether the
surgery is performed in or out of the hospital.
Major Medical Policies

Offers range of coverage (lifetime benefit per person limit) under one policy:

Comprehensive coverage for hospital expenses

Catastrophic medical expense protection
Benefits for prolonged injury or illness
Two types of Major Medical Policies:

Supplemental Major Medical Policies

Comprehensive Major Medical Policies
Health Maintenance Organizations (HMOs)

Preventive care
Limited service area
Limited choice of providers
Copayments
Prepaid basis
Primary Care Physician (PCP): serves as a gatekeeper
Referral (Specialty) Physician: PCP’s referral required
Preferred Provider Organizations (PPOs)

Group of physicians and hospitals that contract to provide medical care services at
a reduced fee
Members can use any physician they choose, but are encouraged to use approved
physicians who have previously agreed upon fees
Point-of-Service plans (POS)

Combination of HMO and PPO plans

Employees not locked into one plan; allowed to choose depending on the need for
medical services
Flexible Spending Account (FSA)

Funded by salary reduction and employer contributions

Employees deposit pre-tax funds into an account. During the year, the employee is
reimbursed from this account for eligible health care and dependent care expenses.
FSA benefits are subject to annual maximum and "use-or-lose" rule.
High Deductible Health Plans (HDHPs), Health Savings Accounts (HSAs), Health
Reimbursement Accounts (HRAs)

High-deductible health plans (HDHPs) — Used in coordination with MSAs, HSAs, or

HRAs. Features higher annual deductibles and out-of-pocket limits than traditional
health plans, which means lower premiums.
Health savings accounts (HSAs) — Individuals covered by a high deductible health
plan can make a tax-deductible contribution to an HSA, and use it to pay for out-
of-pocket medical expenses
Health Reimbursement Accounts (HRAs) — Employers set aside funds to reimburse
employees for qualified medical expenses; employers receive tax advantages and can
deduct the cost as a business expense
DISABILITY INCOME

Disability Income Insurance

Replaces lost income in the event of disability

Presumptive disability — specifies condition that qualify insured for full
disability benefits
Recurrent disability — specifies period of time during with the recurrence of an
injury or illness will be considered a continuation of a prior disability
Elimination period — waiting period that lasts from the onset of disability until
benefit payments starts
Probationary period — period after the policy starts during which benefits won’ t
be paid for illness-related disabilities
Benefit period — length of time monthly disability benefit payments last
Benefit limitations — maximum benefits an insurer is willing to accept for an
individual risk; based on percentage of insured’s past earnings
Social Insurance Supplement (SIS) or Social Security Riders — supplement or replace
benefits payable under Social Security Disability
Business Overhead Expense Policy

Reimburses small business owners for overhead expenses incurred while the business
owner is totally disabled
Business Disability Buyout Policy

Specifies who will purchase a business partner's interest in case of disability

Key Person Disability

Covers the potential loss of business income and the expense of hiring and training
a replacement for a key person
Business owns the contract, pays the premium, and is the beneficiary
ACCIDENTAL DEATH AND DISMEMBERMENT

Coverage

Only pays for accidental losses

Is considered a pure form of accident insurance
Principal sum paid for accidental death
Capital sum (percentage of the principal sum) paid for dismemberment
LONG-TERM CARE

Policies

Available as individual policies, group policies, or as riders to life insurance

policies
Coverage for individuals who require living assistance at home or in a nursing home
facility
Must provide at least 12 months of consecutive coverage in a setting other than an
acute care unit of a hospital
Guaranteed renewable, but insurers may increase premiums
Levels of Care

Skilled care — daily nursing and rehabilitative care provided by medical personnel
Intermediate care — occasional nursing or rehabilitative care provided for stable
conditions that require daily medical assistance on a less frequent basis than
skilled nursing care
Custodial care — care for a person's activities of daily living provided in an
institutional setting or in the patient's home
Home health care — provided by registered nurses, licensed practical nurses,
licensed vocational nurses, or community-based organizations like hospice in one’s
home
Home Convalescent Care — provided by LTC facility, a home health care agency, or a
hospital in the insured’s home under a planned program established by attending
physician
Residential Care — provided while the insured resides in a retirement community
Adult day care — provides for functionally impaired adults on less than a 24-hour
basis
Respite Care — provides relief to the family caregiver; adult day care centers may
also provide this type of relief
GROUP INSURANCE

Basics

Group formed for a purpose other than obtaining group health insurance
Types: employer-sponsored and association-sponsored
Underwriting

Every eligible member of group must be covered regardless of physical condition,

age, sex or occupation
Cost varies by ratio of males to females and the average age of the group
Evidence of insurability generally not required
COBRA

Qualifying Events

Voluntary termination of employment

Termination of employment for reasons other than gross misconduct (e.g., company
downsizing)
Employment status change: from full time to part time
Length of coverage

18 months — after qualifying event

36 months — for dependents after events such as death of the employee, divorce or
legal separation
LIMITED BENEFIT PLANS

Types of Plans

Accident — coverage for disability, medical care, death or dismemberment resulting

from an accident
Dread disease policy — a variety of benefits for a specific disease such as cancer
policy or heart disease policy
Critical illness — pays a lump sum to the insured upon diagnosis and survival of a
critical illness
Employer-sponsored plan — employer-provided group coverage; employees must meet
service requirements and work full-time
Hospital indemnity — provides a specific amount on a daily, weekly or monthly basis
while the insured is confined to a hospital
Dental plans — covers the treatment, care and prevention of dental disease and
injury to the insured's teeth
Short-term medical — temporary coverage for people in transition
Vision/hearing plans — type of group health insurance that covers eye examinations
and eyeglasses, or hearing aids on a limited basis
VIDEO 1

00:01
The topic we're going to cover now are medical plans.

00:05
I want to cover some of the terminology that is frequently used for these types

00:10
of plans. For example, if you see the term schedule or scheduled,

00:15
that word simply means that there is a list. For example, they may have a

00:20
specific list from A to Z of every procedure that's going to be covered on

00:25
your medical plan. So if you're going to have a particular procedure that

00:29
starts with C, go to that area, find your procedure and then there will be a

00:32
dollar amount and that's usually the maximum that the plan would cover for

00:38
that particular procedure. If it costs more, you pay the difference. If it

00:42
costs less, the insurance company pays everything up to that maximum dollar

00:48
Another way that they will refer to it as usual, customary, and reasonable.

00:52
That's usually more related to a geographic

00:57
area. Because you know if you're in a rural area, smaller towns, cost of

01:02
living, things like that, everything is a little bit less than if you live in a

01:05
large metropolitan area. So judging from

01:11
where you live geographically, can impact the cost of the benefits or the

01:16
cost of the premiums of your policies, or they're going to charge you what is

01:19
usual, customary, and reasonable for your specific geographic region.
VIDEO 2

00:00
We're going to talk about major expense insurance.

00:05
This is going to be a bit of a history lesson, if you will, on the beginnings

00:10
of what we know today as our medical benefits plan.

00:15
The very, very first attempts for this kind of coverage didn't happen until

00:19
after the Great Depression in the 1930s. And they made a first attempt. They

00:25
were called basic medical indemnity policies or programs. They were what we

00:32
would call limited coverage. They did not cover much of anything. There were

00:37
three different types. Many people would buy all three of them to at least

00:41
get some amount of coverage or you could buy whichever one you felt you

00:45
wanted to purchase, in order to get the coverage you were looking for.

00:50
So, the first type

00:52
on the basic medical insurance

00:55
is hospital expense and that's pretty much all it paid. Think of it as just

01:00
covering your room and board costs, your overnight costs of being in a

01:06
hospital. Some of them

01:09
picked up things like x-ray labs and maybe even operating room fees, but for

01:13
the most part, the basic hospital insurance covered that room and board

01:19
cost only while you were in a hospital.
01:22
The second type of these policies is called medical expenses. Again, very

01:28
limited. And they covered non-surgical services and your in hospital visits

01:34
from your physician. Some of them covered extra things that just depended

01:38
on what policy you bought, things like medical benefits, emergency room,

01:43
hospice care, home health care, things like that. But not all of them even

01:47
went that far. Usually it was the basic non-surgical services and then the

01:52
doctor's visits while you're in the hospital.

01:55
The third type of these indemnity plans was surgical expenses. So, they would

02:01
have scheduled operations. Schedule means they had a list of all the

02:06
operations that could be performed with a dollar amount and that's what the

02:09
plan would pay. If your operation costs more, you would pay the difference. If

02:14
the total was less, then the insurance company paid for all of it. They also

02:19
provided what is called relative care. Another way they looked at it is they

02:24
would look at your geographic area and basically figure out what is the

02:28
average cost, that reasonable, usual, customary charge from doctors for a

02:34
particular procedure. And they would use that average number. And that's

02:37
what the policy would pay.

02:40
A couple of things to remember about these three very simple products is

02:44
there was no such thing as a deductible, that had not been created

02:48
yet, and there was no such thing as coinsurance payments, where you split

02:52
the coverage with the insurance company paying some premium and the insured.

02:56
Those did not exist at this time. All three of these policies paid from first

03:02
dollar, or dollar one of your out-of-pocket expenses. So, first

03:07
attempt by private insurers to offer some type of medical health care.

03:15
Major medical expense policies.

03:18
This was a step up from those very simplistic hospital indemnity programs

03:24
that first were developed in the late 1930s . Customers basically went back

03:29
to the insurance providers, the private insurance companies and said we need

03:33
more, we need better coverage because it wasn't covering like your doctor

03:38
visits and and things like that. It had very low limits, very restricted on

03:42
what they covered. So the insurance companies kind of sharpen their

03:45
pencils, if you will, and they came up with major medical insurance. It's

03:50
called comprehensive coverage. When you see the word comprehensive, it means

03:55
that it offers a broad range of features or items that it would cover.

04:02
Much broader certainly than the original hospital indemnity plans.

04:07
They offered the, as I said, the comprehensive coverage for hospital

04:11
expenses. Also covered catastrophic medical expenses. Those large ticket

04:17
items like open heart surgery, that can be very, very expensive. Some of that

04:21
could be covered by these policies. They also offered benefits for
04:25
long-term injury or illness. That was unheard of until these comprehensive

04:29
policies came about. Certain policy features that became very well known

04:35
for: They had a blanket limit, which is like an overall limit if you will, and

04:40
then there's a lifetime per person limit. Now, sometimes if you had some

04:46
huge medical expenses, like maybe organ transplants or something like that, you

04:51
might reach your per person limit on the policy and that meant that you

04:55
would have no more coverage. So, had to be aware that there were limits. These

05:00
were the first policies that used deductible, meaning out of pocket paid

05:05
first by the insured, and then the coinsurance payment, which is a sharing

05:11
of the remainder of the claim by the insurance company and the insured,

05:16
usually expressed as percentages.

05:19
For example, one of the most popular percentages still used today is an 80

05:23
/20 plan . 80%, that first number, is what the insurance company pays of the

05:29
remainder of the claim after you, the insured have paid your deductible, your

05:34
out of pocket, and then the second number, that 20%, that's the additional

05:39
amount then of the claim that the insured picks up as well. So the

05:43
insurance has two parts of a claim with a major medical plan. They're going to

05:48
have their deductible that they have to meet first and then their portion of

05:52
the coinsurance on the 80/20 plan for example, that would be 20% of the

05:58
remainder of the claim.
06:00
These major medical policies did have large benefit maximums which

06:07
was very kind of mind boggling for the time because those old original

06:13
hospital indemnity plans had very low limits and very very restricted limited

06:18
coverages. So this was kind of revolutionary in the history of

06:23
medical healthcare. care

VIDEO 3

00:00
Over the years,

00:02
medical costs have always continued to rise. And by the late 1960s, early

00:09
1970s, the medical care costs were rising, you know, astronomically to the

00:16
point that the federal government was even concerned about what could be done.

00:20
You know, what's going to happen if the costs continue to rise? People are not

00:25
going to be able to afford the care that they need. And it was almost a

00:30
desperation kind of feeling.

00:32
So there were a group of like minded physicians who came together and

00:38
proposed a totally new radical approach to presenting providing care to their

00:47
patients, and they called it an HMO. A health maintenance organization.

00:55
The federal government was so kind of impressed by what these plans were

00:59
going to do, the steps that they took. They were all about preventative care,

01:04
which was a radical form of thinking at the time. In the past, insurance

01:09
companies basically just waited for you to file a claim. They didn't do

01:12
anything to really help you stay healthy. Well, the HMOs figured it out

01:17
that if we can help our patients stay healthy, do preventative care like

01:23
immunizations for children, mammograms for women, smoking cessation programs,

01:30
if you're diabetic, we're going to help you learn how to properly use your

01:33
medication so you can be healthier

01:36
because the healthier the person is, the more diseases you can prevent and

01:41
conditions you can prevent, which means less claims. It's going to keep costs

01:46
down, because that was kind of the benchmark for HMOs. It was all about

01:52
cost containment with preventative care being a huge factor in that. So, the

01:58
HMOs were very successful. And in fact, the federal government was so impressed

02:03
that they actually subsidized some of the first HMOs that were created in

02:07
this country, because they believe that it could really help keep health care

02:14
affordable for more people in this country.

02:17
So, the preventative care standards for HMOs, those annual physicals,

02:23
that's another thing. They also would always research. Is there maybe

02:28
another procedure that could be done instead of major surgery that would get

02:33
the same result and end up with a healthy patient, but at a lower cost?

02:37
So they were always looking for those kind of combinations of things they
02:40
could do.

02:42
Another thing that we all take advantage of today, you may not know,

02:45
came from

02:48
health maintenance organizations and that is outpatient surgical centers.

02:53
Almost every hospital or provider has them now. They realized back in the

02:58
early 70s that there were probably quite a number of surgical procedures

03:03
that could be done and you could go home that day. You didn't have to stay

03:08
in a hospital overnight or multiple nights. That's a big part of hospital

03:12
costs are those overnight stays in 24-hour nursing and all of that. So,

03:18
the surgical outpatient surgery units became very, very popular and we're a

03:25
huge cost saver, and that's all because of the HMOs.

03:31
Alternative care was another feature that HMOs kind of pioneered. They

03:38
always still look at the standard traditional medicine,

03:42
but they were more open to looking at other processes, procedures, things

03:46
like maybe something a little homeopathic, naturopathic, lower cost,

03:50
but combined with traditional medicine, could provide an excellent benefit for

03:56
the patient and sometimes at a reduced cost. So again, all about cost

04:01
containment. So it was great for the insureds of the HMO. They were able

04:06
to take advantage of that. Also, just as

04:11
a bit of additional information, persons who are covered by an HMO
04:16
usually are not referred to as insureds . They're really called subscribers. So

04:23
if you have an exam question that is talking about a subscriber, more than

04:27
likely you're going to have to find the right answer have something to do with

04:32
an HMO . So, subscriber goes with HMO . Insured goes with the more traditional

04:37
types of medical benefits plan..

VIDEO 4

00:00
Let's talk about some more terms and concepts that relate to HMOs. For

00:05
example, we have mentioned preventative care. This is what they stressed. It

00:10
helped to reduce the overall cost of their care and preventative care is set

00:16
up for basically early detection of conditions or diseases, and /or you

00:23
start with a well person and with preventative care you try to keep them

00:28
well. So they have less claims, keeps that cost contained.

00:34
Annual physicals, mammograms and immunizations are three of the major

00:39
things that HMOs pioneered for preventative care.

00:47
Cost containment. Another term you hear all the time with HMOs and it is also

00:54
sometimes now applied to PPOs. We'll talk about PPOs more shortly.

01:00
With cost containment being focused on HMOs, you have to use your primary care

01:06
physician, your PCP, for all referrals to specialists. That's why they
01:11
sometimes call the primary care physician your gatekeeper. The reason

01:16
HMOs were set up this way is

01:19
patients, subscribers were used to just going off to a specialist whenever they

01:24
felt like it and maybe they didn't really need to see a specialist. Their

01:27
primary care physician could perfectly well take care of them. So again, it

01:31
was just a way to control costs. Make sure that they weren't kind of jumping

01:36
into the deep end of the pool right off the bat if they didn't need to be.

01:40
It helps to have a large claim management because they're very much

01:47
always aware, like if you're in the hospital for any amount of time,

01:51
they're going to be watching your day-to-day care and make sure that

01:54
you're not kept in the hospital longer than you need to be, and also make sure

01:57
they don't release you too soon. They want you to be well enough to go home

02:00
and recover there. But it's all part of that cost containment. We've already

02:05
mentioned, you know, preventative care was a big part of the HMOs. And then

02:10
the hospitalization alternatives, like the surgical outpatient units. Almost

02:16
everywhere you go now you can utilize those, where you walk in, you have your

02:21
procedure, you recover and they send you home the same day. You don't have

02:25
all the added costs of hospital stays. That was a big new radical thing that

02:30
every pretty much insurance company has now kind of adopted because it makes

02:35
perfect sense.
02:37
They always stressed high quality care but containing the cost at the same

02:42
time. One of the practices that they followed is called utilization

02:49
And that's where, for example, you having to go through your primary care

02:53
physician to get a referral to a specialist. That is called prospective

02:59
review. So you've got to get that certification done by your primary care

03:05
physician to make sure you really do need to see a specialist.

03:08
Keeps the cost down, because if you don't need to go to a specialist, they

03:11
wouldn't refer you. Okay? The other type of utilization management is

03:16
called concurrent review. That's when you're in the hospital. They're going

03:20
to check on you. They're going to make sure that you're getting the care you

03:23
need but that you're not being held in the hospital longer than you need to,

03:27
again, to keep the cost down for your hospital stay.

03:31
The last type of utilization management with an HMO is called retrospective

03:37
Retro, anything that is called retro or retrospective means they're looking

03:41
back. So what happens is there is an area within the HMO. They will sit

03:47
down with all of the doctors, you know, one by one and they'll pull case files

03:51
and say, "Okay, well you did this, this, and this and this was the result

03:56
for this subscriber?" Well, had you thought about if you had tried this

03:59
procedure, but instead of this one, you inserted a different choice, still

04:04
would have gotten them the same net result, but it would have cost less. So

04:09
they're always reviewing what their doctors are doing, again, as a way of

04:13
keeping them aware and mindful of the costs that are being accrued and to

04:19
always kind of strive for that cost containment. All features of an HMO.

04:27
The primary care physician, your gatekeeper. Those terms are very unique

04:33
to HMOs. It describes your doctor that you go to for everything first and then

04:39
if they need to make a referral to a specialist, the gatekeepers, the person

04:43
who is responsible for that. These primary care physicians were regularly

04:49
compensated for being responsible for the care of the HMOs subscribers,

04:53
whether they saw you or not. So every month, they were going to get paid a

04:57
fee of per capita, per head fee for each subscriber in the plan.

05:04
The word they oftentimes use is capitation, which again means per head

05:10
fee. That term always goes with an HMO, because the doctors were paid

05:16
every month for all the people in the HMO that they see or that are listed on

05:21
the roles. They may not even see you that month, but they're still going to

05:24
get paid, regardless of if you come in or not. Or if you come in 30 times in a

05:29
month, they're gonna get the same fee, the capitation dollar amount.

05:37
An interesting feature about HMOs is what they call the service area.

05:43
That is the geographic region or area where your HMO is going to be taking

05:50
care of their subscribers.
05:52
It is the boundaries of any particular HMO. So you have to live in the

05:58
correct geographic area, in order to be a member a subscriber of that

06:03
particular HMO.

06:06
Let me give you an example of the geographic area. So, you have to be

06:11
located in the same geographic area or region that the HMO covers. Okay.

06:17
There's only one exception where you would not have to see your primary care

06:23
physician and that's if you're not in your geographic area or you are but

06:29
you're so sick you can't get to your primary care physician and you go to an

06:35
So any time you come in through an ER, an emergency room of a hospital, that

06:40
is the only exception to you not seeing your primary care physician. Otherwise,

06:47
you'd have to go to your gatekeeper. So, you're even in another state

06:52
and maybe you have a car accident. They're going to take you to the

06:54
closest emergency room. That's okay. If you're out you're outside of your

06:58
region with your HMO, you're still going to be covered. They'll figure out

07:01
who owes what money later on. So remember on an exam question, the

07:07
exception to the primary care physician rule is emergencies only.

07:16
Here you can see the word capitation,

07:19
again that per head charge. It's a fixed monthly amount that is paid per

07:26
subscriber of an HMO.

07:30
Of course the HMO, if you think about it, if you're getting paid for every
07:35
person, whether they come in or not, if you've got lower utilization, you're

07:41
not actually seeing as many patients, you're still getting paid, the group

07:47
is going to have profits because , if they're seeing every patient every day,

07:52
you know, of the whole month, the costs to do that are going to be higher. So,

07:57
this type of organization with the capitation payment can help to lower

08:06
the costs overall.

08:08
And then of course the emergency care or hospital services emergencies are

08:13
the only things where you can go outside of your network or outside of

08:18
your geographic area for care..

VIDEO 5

00:00
HMOs became very popular, as I said in the late 60s, early 70s. They certainly

00:06
are still in existence today, but there were some aspects of an HMO that some

00:12
subscribers just did not like.

00:15
The insurance companies, the private insurers, realized we probably need to

00:20
create kind of a similar bit of coverage and maybe we can attract some

00:25
people from the HMOs to come over to our side. So they created what is

00:30
called the preferred provider organization, the PPO. What happens

00:36
in a situation like this
00:38
is the doctors, clinics , even the drug stores, they will contract with the

00:47
particular private insurance company to accept or take

00:52
any of their members that are covered through their particular insurance

00:57
policy.

00:59
So that's where you get into, you'll have someone call the doctor and say,

01:02
"Hey, do you accept ABC insurance company?" It means are you a PPO.

01:07
Are you a preferred provider of ABC insurance companies,

01:11
because you will have less to pay on a claim if you use a preferred provider

01:18
of your medical plan. So

01:23
they would contract, the insurance companies would contract with various

01:26
hospitals, doctor's offices, drug stores, you know, all over the area.

01:31
And you have usually a much larger selection of , you know, providers that

01:37
would join in and sign on to this contract. You do not have to have a

01:42
gatekeeper. That was deliberately done because there had been a number of

01:48
disgruntled subscribers from the HMO that just did not like that concept. So

01:53
you could go to any doctor you want, but

01:56
you can, if you go outside of the network of doctors that are contracted

02:02
with your insurance company, then you as the insured will pay more on the

02:07
claim. But it's your choice. So people felt they had, you know, a bit more

02:12
reasonable choice of who they wanted to see. Some people were able to stay with
02:16
their maybe favorite doctor of many, many years and it just gave them a

02:20
better comfort level.

02:22
So you have the in-network and the out-of-network providers. Always if you

02:28
use an in-network provider on a PPO, your portion of the claims is going to

02:33
be less than if you go outside of the network. You're gonna pay a larger

02:38
percentage of the coinsurance. for example, if you use someone who is not

02:43
contracted with your particular insurance carrier.

02:47
And remember, you did not, you can see any doctor you want. You do not have to

02:51
have a PCP, a preferred provider referral. You could go to any

02:57
specialist at any time..

VIDEO 6

00:00
Let's kind of compare and contrast HMOs and PPOs.

00:06
So we know that HMOs are health maintenance organizations.

00:10
They are a service plan. They provide service.

00:14
Preferred provider organizations. Same thing. They provide a service to the

00:19
people that they insure.

00:21
An HMO uses a network of physicians who are actually salary employees of

00:27
the HMO, whereas on the PPO side, the physicians and hospitals contract

00:33
with the insurance company to take care of their people.

00:37
On an HMO, the services are prepaid, and on a PPO,. they are charged as a

00:44
fee for services. So your bill depends on what you have done, and so it's kind

00:50
of itemized out, if you will.

00:53
Members in an HMO have to select a primary care physician or gatekeeper

00:58
and get all their referrals to any specialist or anything through that

01:03
gatekeeper. None of that happens on a PPO. You do not have to have a

01:09
primary care physician. You can go to a specialist at any time, whichever you

01:14
One of the big things again on HMOs, their whole main core was to stress

01:19
preventative care, keep people healthy so that there are less claims. With

01:26
in-network and out-of-network providers with the PPL, again, that's

01:31
unique. If you see the terms in-network or out-of-network, you

01:35
know you have a question that is dealing with something to do with a PPO.

VIDEO 7

00:00
Let's talk about some plans that are referred to as consumer driven plans:

00:06
FSA, HRA, and HSA. So read those carefully, okay? An FSA—

00:13
a flexible spending account.

00:16
Usually these are offered through the employer. So it's employer/employee

00:20
kind of connection. The employer or the employee can contribute in.

00:26
With an FSA, the money that the employee puts into the plan every month

00:31
comes out of their paycheck pretax, meaning they take your gross amount of

00:37
your paycheck, they take out the money you want to put in your FSA first,

00:41
then they calculate your payroll taxes. So you get an immediate tax break. Your

00:45
payroll taxes are going to be less because it's a smaller dollar amount,

00:49
and it means that you're using that money, that pretax money, to pay for

00:53
things like deductibles and coinsurance. You can also use FSA monies to pay

01:00
child care costs. So they're kind of unique for that.

01:06
There's no statutory limits. When they say statutory, they mean by law.

01:11
There's no state law that says this is the limit as to how much you can put in

01:15
on these plans. Usually, the limits on an FSA are set by the employer, because

01:20
the employer is the one who offers this particular kind of plan.

01:24
One other thing to remember about FSAs. It's a use it or lose it type of

01:30
situation. So you want to be careful that you, when you decide how much

01:35
money you are putting aside every month because you want to spend every cent

01:40
you've got in your FSA account by the end of the year,

01:45
by January 31. You want to get it empty out, because if you don't, any

01:49
money left in does not roll over into the next year. It goes back to the

01:53
employer.

01:55
So, you want to make sure that you don't put so much money in that you
01:59
can't get it all spent down by the end of the year. That's FSA.

02:04
HRAs. They're offered to all employees. You do not have to be covered by the

02:10
company health plan, nor do you need to be covered by the company health plan

02:13
for an [HRA]. You can have the accounts without having to be a member

02:18
of the health plan. The contributor though on an HRA is the employer

02:22
only, as opposed to you putting some money aside. Again, no statutory limit

02:28
on the HRA either.

02:30
The limits are usually again set by the employer. These funds do carry over

02:35
into the next year, if you don't get them all used. So that's a nice feature.

02:40
And then the last consumer driven plan. This is one of the newer phenomenons,

02:46
if you will, and they're called an HSA, a health savings account.

02:52
They are directly connected to an HDHP,

02:58
a high-deductible health plan. You have to be a member of your company's

03:05
high-deductible health plan. What the insurance companies have done is

03:10
they've created these high-deductible plans because they realized there are a

03:14
lot of employees that are covered through the employer health plan at

03:20
medical benefits plan, and they never go through their deductible. So they're

03:26
always paying out-of-pocket and they don't get beyond that. They're

03:30
typically younger, healthier employees. They just don't have a lot of health

03:35
issues, nor do they go to the hospital. They don't get sick very often. So they
03:39
created this high-deductible plan. So, because the theory is the higher the

03:44
deductible that an insured is willing to pay out of their pocket first,

03:50
they'll have a lower premium. So for those folks who never, you know, got

03:56
beyond having to pay out-of-pocket anyway because of the deductible, they

04:00
just created an even higher deductible with an even lower premium. So it's

04:03
very attractive for those folks. So these HSA accounts though, you have

04:10
to be a member of the high-deductible health plan in order to open up one of

04:17
Now, you can put money in or the employer can put money into these

04:20
accounts. There are limits. They're going to be specifically, you know,

04:25
determined every year. So instead of no statutory limits, there are limits that

04:30
are going to be set each year, regardless of what the plan's

04:34
deductible is. And again, with the HSAs, you can roll any money that you

04:40
don't spend that year, it can roll forward into the next year. These

04:45
accounts are also almost more like an investment, because it's your account.

04:51
You can leave the company. You can leave that health plan and keep your

04:54
HSA account and continue to use it for things like your deductibles or, you

04:59
know, whatever your out-of-pocket medical costs are. And also, you get

05:03
to choose where you want the money to be invested. Well, you're putting it

05:07
away, kind of saving it. You can decide what kind of investments you want to

05:12
put it in to kind of help grow it a little bit. So they're very unique and

05:17
they are directly created because of the high-deductible health plans..

VIDEO 8

00:01
Group health insurance basics.

00:04
First of all, you cannot form a group just because you want to get some group

00:08
health insurance. It's not allowed. The group has to have another reason to be

00:12
in existence first. Then you can see about getting some group health

00:18
When an employer, for example, decides to cover their employees, that's a very

00:23
common group by the way, employer/employee, the employer sits

00:28
down with the insurance provider and they decide, you know, how they're

00:31
going to structure the policy and then the actual master policy. There's only

00:36
one policy. It's called the master policy. Could be a test question.

00:40
The employer hangs onto the master policy. All of the employees that are

00:46
covered through the group health plan get what are called certificates of

00:51
insurance. They're like a one page document that gives you all the basic

00:55
information that shows your proof that you're insured. It lists the insurance

00:59
company, you as the insured, your employer, if you're covering spouse and

01:04
children. They would include the dollar amounts, the limits of the

01:07
policy, the length of time the policy is good for, all of those kinds of

01:11
things, on a one page certificate of insurance for everybody, each

01:16
individual that is covered through the group plan.

01:20
The group experiences group underwriting rules and regulations,

01:25
much less stringent than if you are applying for an individual policy

01:30
because you've got the group. You're spreading that risk among all the

01:34
people in the group. Basically the theory behind the insurance company's

01:40
reasoning, if you're in a group, you're there as an employee, you're well

01:46
enough to work, you're going to be well enough to be insured. So usually you

01:50
don't have to go through physicals of any kind or even answer any medical

01:55
questions, for example. So it's very, very easy and for many people that do

02:00
have health conditions, it's maybe the only way they can get some type of

02:04
coverages. So it's a benefit. So, group underwriting. Very liberal. Very

02:10
non-complicated.

02:12
Plans can be described as contributory or noncontributory. A noncontributory

02:19
plan is one that the employer pays 100% of the premiums and therefore must

02:25
cover 100% of all eligible, and that's a key word, eligible employees.

02:32
Usually the biggest eligibility requirement on group coverage is you

02:36
have to be a full-time employee, as opposed to a part-time, for

02:39
example.

02:41
Another way a plan is described is contributory. That's when the employer
02:46
and the employee share in the cost of the premiums. So if the plan is

02:52
contributory, then at least 75% of all those employees who are eligible for

02:58
the coverage say they want to take the coverage. So if the employer can't get

03:03
basically 75% of eligible employees who are willing to participate in the group

03:08
coverage, then they can't put it in place at all. You will need to know

03:12
contributory and noncontributory and what they mean.

03:17
Let's talk about some examples of eligible groups. As I said, the

03:22
employer/employee, that's a big number of groups that are written are

03:27
employer sponsored plans that cover the employees. There's also METs,

03:34
multiple-employer trusts, because remember you can't form a group just

03:37
because you want to get insurance. The thing about a MET, multiple-employer

03:41
trust, a group of several or multiple small employers, for example. The key

03:49
is they all have to be in the same industry, like five bakeries in town.

03:54
They're independent bakeries. They've got a couple of employees, each of them.

03:58
They could join with other bakeries, create this multiple-employer trust

04:03
and then the trust

04:05
applies for the insurance. So that's how they meet that requirement of not

04:09
forming a group just to get insurance. Thing to remember with METs is they

04:14
have to be in the same line of work. All bakeries, all printing shops,

04:19
something like that.
04:21
Creditor groups. If someone loans you money, they may suggest that you would

04:26
take out a group disability policy on yourself. So should you become disabled,

04:33
have no wages, you wouldn't be able to pay your loan off. But if you had a

04:38
group disability policy, the policy would pay the benefit to the creditor

04:44
that you owe the money to and pay off your loan on your behalf. Not a bad

VIDEO 9

00:00
Let's talk about some details that are involved with the underwriting process

00:05
with a group.

00:07
First of all, we know the group has to exist for some other reason like

00:11
employer/employee for example. Also when you have a group, you're supposed

00:16
to maintain certain participation levels. For example, if it's a 100%

00:22
noncontributory plan, then that means that the employer has to cover every

00:26
eligible employee. So you have to make certain that the proper people are

00:30
covered as they become eligible.

00:33
They're going to look at turnover flow of new members. Oftentimes, they'll be

00:37
younger and have a lower risk, so that, kind of, lowers the overall risk of the

00:41
group, as well. They're always going to look at that mix of the older, maybe

00:45
less healthy, with the younger, more healthy to make sure that the rates are

00:50
in the proper alignment. Of course the benefits cannot discriminate. Benefits
00:54
are paid equally to everybody that are in the group. Nobody gets special

00:57
treatment or gets singled out to not get a benefit. Whatever the benefits

01:01
are of the group, everybody in the group gets those benefits; otherwise,

01:05
it's discrimination.

01:07
Premium determination. Age and gender are two of the big considerations. Also

01:14
the occupation of the entire group. You might be in an industry or in a working

01:19
environment that is maybe a little riskier than someone who works in an

01:22
air conditioned office all day long. So that could increase a premium,

01:27
depending upon the riskiness of your work environment. And then the

01:32
certificates of insurance. That's what each person who is covered by the group

01:37
plan. Every individual who is insured gets that certificate of insurance.

01:42
It's kind of a one page recap that's proof that they've got the coverage and

01:46
in what amounts and who's covered..

VIDEO 10

Coordination of benefits.

00:02
First of all, that term only relates to group

00:06
health products,

00:08
and what it is, if you have two or more policies covering you for the same

00:14
thing, maybe you have two disability income policies for example, they're

00:19
not both going to pay off fully if you have a claim. One policy is always

00:24
going to be determined to be the primary policy. The other policy is

00:27
then considered secondary. Primary policy pays first based on the limits

00:32
of the policy. Then if there's anything left over that wasn't paid, then the

00:36
second policy would be brought into play to see if it's able to cover any

00:40
of the benefit that was not covered by the first policy. They both cannot

00:45
fully pay off because of the principle of indemnity, which means you cannot be

00:51
made more than whole. If you were here when you financially, when you had the

00:55
claim, once the claims are paid, you can't be up here. You can't have made

01:00
money by filing claims. You can only be brought back to the place where you

01:04
were at the time you had the loss. So that's the principle of indemnity. If

01:10
you have a loss, they're submitted to both companies, but the primary policy

01:14
pays first. Secondary picks up anything that might not have been covered by the

01:19
first policy.

VIDEO 11

00:00
There is a way to continue group benefits

00:06
and it's called COBRA. What COBRA is, it is allowing a former employee of a

00:15
who was covered by, say group disability or group health insurance,

00:19
you know, either one or both, they're allowed to stay in those plans, those
00:24
health plans, even though they are no longer with the company.

00:28
So, you have 60 days from leaving the employer to make up your mind if you're

00:35
going to utilize COBRA or not. So if you get beyond the 60 days, you haven't

00:39
made a decision, it's too late. You have to make the choice within 60 days

00:43
and then you're allowed to have the benefits for 18 months. Now there is an

00:47
exception to that benefit amount time and that's if you are the spouse

00:53
and/or children of an employee who has, you've either divorced the person who

00:59
is the employee who had you covered through their plan at this employer or

01:04
that employee has passed away, if that's the case, the surviving spouse

01:09
and children can use the COBRA benefits for 36 months. So they get double the

01:14
amount of time that they can use those benefits if they need them.

01:19
Now, the thing is, people think COBRA is very, very expensive, when in

01:24
actuality it's only 2% more than the cost of the insurance was when you were

01:30
an employee. The reason it feels so much more is because you are now paying

01:36
the employer portion, which is usually the lion's share of that cost and then

01:41
you're also covering the amount, you're paying the amount that you paid before

01:44
as an employee. So you pay both the employer and the employee portion, plus

01:49
a 2% fee for keeping you in the plan, even though you no longer are in the

01:54
plan. So that's why COBRA is sometimes misunderstood. Everybody says it's so

01:59
expensive. It's really only 2% more. You just haven't seen the total amount
02:03
of premium that was being paid on your behalf.

02:08
There are some situations that would cause you to give up COBRA benefits.

02:14
For example, if you don't pay your premium, you, you know, you lapse the

02:19
policy for failure to pay the premium, it's done. It's gone. If you were to

02:25
get coverage by another group plan, say you get hired at another employer and

02:29
they have a plan. So why would you want to pay 102% that your old employer,

02:33
when you most likely, you're only going to pay a small portion of the premium

02:38
just yourself and the employer at their new place is going to, you know, pick

02:41
up the largest amount of the cost, so you wouldn't want to not take advantage

02:46
of that. If you become eligible for Medicare, you, they want you to take

02:52
Medicare and come off the COBRA benefits.

02:55
If the employer, while you're, you know, invoking COBRA and you're staying

03:00
in the health plan, the employer decides to cancel the health plans.

03:05
Well, they're going to cancel it on all employees and they're going to cancel

03:08
it on you also because you are still a member of the group and the group

03:11
coverage is going away. So you would lose coverage that way.

03:15
And also you would never be able to utilize COBRA benefits if you were

03:21
terminated for cause for misconduct from the employer. Like for example,

03:25
you were found to have embezzled money from the company. You know, that's an

03:29
illegal act. They would not have to even offer you the chance to take

03:34
advantage of COBRA. It's just not allowed.

03:38
When you're covered

03:40
in a group situation, let's say through your employer, and you leave that

03:47
you need to be offered, as long as you meet the criteria, you need to be given

03:52
the ability to convert your group insurance to an individually owned

03:58
policy.

04:00
So you, your employer will let you know that, hey, you've got a certain amount

04:06
of time. It's actually for group conversion. Group gets 31 days. So you

04:12
were a member of the group, so you're gonna have 31 days from your date of

04:15
termination to decide if you want to convert the group coverage you had into

04:21
an individual contract. Think about that.

04:25
You're going to go from group

04:27
to individual.

04:29
What do you think that does to your premium? Is it going to go up, stay the

04:32
same, or go down?

04:34
You're going from group to individual.

04:37
Individual coverage is always going to be more expensive.

04:42
So you're going to have a higher cost. That's one of the reasons, oftentimes,

04:46
why a former employee chooses to not convert to individual because the cost
04:51
could be quite significantly higher.

04:55
When you are covered

04:57
by a group policy, you get group rates. Group underwriting, much more favorable,

05:04
and the premiums are much lower because the risk is spread out among

05:08
the whole group. So if you convert to an individual policy, remember your

05:15
premium is always going to go up. It's going to be higher because individual

05:20
rates, there's only you. That's the only risk they can focus on, right? So

05:25
your premium is always, always going to be higher with an individual plan

05:30
versus a group plan..

VIDEO 12

Disability income insurance. First of all, what exactly is that?

00:06
Well, you can buy a policy either

00:09
individually or through a group to replace your lost income if you become

00:15
disabled and can no longer work, and therefore, you would have no more wages

00:20
coming in to support yourself. So you can buy

00:24
a disability income policy to help replace some, but not all, of your lost

00:29
income because you are disabled. Now there are going to of course be

00:33
exclusions that are going to apply because there's exclusions on any types

00:37
of policies. Be aware of that.

00:40
Usually on an individual policy for disability income, the benefits that
00:46
you would be allowed to collect are going to be based on a percentage of

00:51
your past income. Normally what they do, they will look back from the date of

00:56
the event that caused you to become disabled. They will look back for 24

01:01
months and take an average wage for that 24 months. And then of that

01:06
average wage amount they will pay you a percentage. They never pay you 100% of

01:13
what you would be making if you were still able to be at work, because you

01:17
would have no incentive to go back to work. Right? So they pay you a

01:20
percentage. It's going to be less than

01:23
the total amount that you would make if you were still able to earn your wage.

VIDEO 13

00:00
Total disability.

00:02
Understand that total disability is going to be slightly different or have

00:08
slight variations company to company. So if you are going to be selling

00:13
multiple company's disability policies, you want to make sure that you

00:17
understand what they feel is the definition for total disability.

00:23
Generally speaking, it's defined as the inability to perform either any gainful

00:29
occupation or the major duties of your regular occupation

00:35
or an occupation for which you have been qualified to do because you have

00:40
the education and/or experience to do that particular job.

00:45
Also, total disability may be defined by insurers, by the insurance company,

00:49
as any occupation or own occupation.

00:55
If you have a disability income policy that is defined as an own occupation

01:01
policy, the benefits and the way the policy is applied to you is more

01:08
favorable to the insured. If you have a policy that is written as any

01:13
occupation,

01:15
that is more favorable to the insurance company because it's got more limits or

01:20
restrictions on it for the liability that the insurance company would have

01:25
to pay.

01:27
Let's use an example. We've got Robert who is a personal trainer at a gym. He

01:32
is injured because a client dropped a weight on him and he can now no longer

01:37
do his personal training duties. So, if he is covered by an own occupation, it

01:45
means that he would be considered totally disabled with this injury

01:49
because he can't do the duties of his regular occupation, which is personal

01:56
But if he was covered by in any occupation form of disability income

02:01
policy,

02:03
he would not be considered totally disabled. He might be partially

02:07
disabled for awhile but not totally disabled because he can still work at

02:12
the gym. He could work at the desk. He could work at any number of jobs around
02:16
the gym. So again, that type of policy is not going to pay out as much and so

02:21
it's more favorable toward the insurance company providing the

02:26
Let's talk about partial disability. It is a person's inability to perform one

02:32
or more of the regular duties of their occupation or the inability to do their

02:37
occupation on a full-time basis. So it's going to be not a total complete

02:43
disability but a partial disability. Benefits typically are 50% of the

02:49
disability benefit.

02:51
There's usually a limit to how long you can make these kinds of claims. So be

02:55
aware of that. Benefits are paid in a flat or residual amount. Benefits are

03:02
limited to give the employee incentive to go back to work. Again, they're not

03:07
ever going to fully reimburse you because you would have no incentive to

03:12
go back to work. You would malinger, meaning you're well enough to go back

03:17
to work but you don't have any inclination to do that because your

03:20
policy is paying you exactly what you were making when you were working. So

03:24
these policies are never going to pay you fully. The insurer gives you, with

03:29
a partial disability, half of your benefit to encourage you to go back to

03:35
and start earning some wage, and then eventually you're well enough that you

03:38
could be working full-time and the disability policy would stop payment..

VIDEO 14

There's something called a presumptive disability.

00:04
It provides benefits for things such as dismemberment, the loss of any two

00:09
limbs, that's kind of the definition for that, if you become totally and

00:13
permanently blind, if you lose your speech or lose hearing. With this type

00:19
of presumptive disability, it is assumed that you're not going to get

00:24
these things back, the things that you've lost. This is permanent for sure.

00:29
And they wave

00:32
the responsibility of you having to go and be seen by a doctor every 6 months

00:37
to examine you and say, yep, absolutely, you still can't hear. It's a permanent

00:43
loss. So they waive that requirement of you having to be reviewed or or looked

00:47
at by a doctor every 6 months or so to see if you're fully disabled yet. This

00:52
assumption with these types of disabilities, you will always be,

00:56
you're permanently disabled. So it specifies conditions that will

01:01
automatically qualify the insured for full disability benefits without having

01:07
to keep going through those medical exams periodically.

01:11
Recurrent disability specifies a period of time

01:16
during which the recurrence of an illness or an injury will be considered

01:20
to be a continuation of the previous injury, and you don't have to go

01:25
through a new elimination period. Usually, the waiting period or the time

01:29
period on this is 3-6 months. For example, let's say if you have an

01:35
accident and you break your right femur.

01:38
So you go through the process. You're totally disabled. Your policy pays.

01:42
Finally, you know, you're well. The bone is healed and you're back at work

01:47
and you're no longer on your disability income policy's benefits.

01:50
You're back making your wage. But somewhere between 3 to 6 months of you

01:56
coming back to work, you break that exact right femur again. That would be

02:02
a recurrent disability. You would not have to go through a new elimination

02:06
period with the second break, because you broke the exact same bone on the

02:12
same leg. Now if you, second time, broke your left femur, that would be a

02:16
whole new incident. You would have to go through a whole new waiting period

02:20
and start all over. It would not be

02:23
a recurrent disability.

02:26
Residual disability. Let's take a look at that definition. Provides benefits

02:31
for the loss of your income when you return to work after you've had a total

02:36
disability, but you're unable to work as long or as many hours as you used

02:44
to before you became disabled. And usually with the residual benefit, you

02:48
start back to work, maybe you're working just a few hours a couple of

02:53
days a week. So as you start working a little bit, your benefits on the

02:57
policy pay less, because now you're earning a little bit more. So the more

03:01
you are able to earn, the less the policy pays until finally you're back
03:06
at work completely and the benefits stopped paying completely and you're

03:09
fully back to your salary or wages before you became. disabled

VIDEO 15

00:00
Disability income policy periods. Going to give you a few definitions and

00:06
concepts here that you will want to make sure that you're comfortable with,

00:09
understand. Could have test questions on them, as it relates to disability

00:14
income. First of all, the disability starts on the day of the event or

00:21
occurrence that causes you to become disabled and no longer able to work.

00:27
So, the very start of everything is the day of that event. Okay, so from the

00:32
date of that event to a certain period of time, you have to wait before the

00:37
benefits start to pay you. It's called a waiting period or an elimination

00:43
period. You have to get through that time. Benefits are not being paid to

00:47
you. You're disabled. You can't work. So you have no income coming in but

00:50
your policy is not paying either, until you get through the elimination period.

00:57
So you want to understand the concept of the elimination period. The longer

01:03
you're in your elimination period, you as the insured, it means you're paying

01:07
for everything out of your pocket,

01:10
the insurance company is not paying any of the claim, not paying you any money

01:13
right now. So the longer you're willing to be in that elimination period, 14
01:19
days, 30 days, the longer you wait, the cheaper your premium is going to be,

01:24
because the insurance company doesn't have to start paying claims on your

01:28
behalf for a longer period of time. They can wait. So, they like

01:34
a longer elimination period because you're paying for all of your expenses

01:39
during that elimination period. So the longer the insured is paying everything

01:43
out of their pocket, the insurance company will give them a lower premium.

01:48
All right. So then, the next thing that follows, once you get through that

01:53
elimination period, is the benefit period. Here's another concept. The

01:57
longer the insurance company has to pay you a benefit, the longer the benefit

02:02
period, the more expensive the premium is going to be. Say they have to pay

02:07
me 6 months of the benefit.

02:10
Somebody else says, well you're gonna pay me a year. Person that's going to

02:14
take benefits for a whole year is going to pay a higher premium than I am,

02:19
because I'm only going to take the benefits for 6 months. The insurance

02:23
company isn't going to have to pay out as much money in 6 months as they would

02:27
in a year's time. So that's a concept you need to understand about how these

02:33
policies function.

02:35
Typically on disability income, there are no benefits for short-term

02:41
and usually the longest time period that they will pay out to is a

02:46
specified number of years or at a max up to age 65.
VIDEO 16

Waiver of premium with a disability income policy.

00:04
So if you have a permanent and total disability and you have a disability

00:10
income policy, the premiums will be waived by the insurance company for the

00:16
duration of the disability. As long as you're taking money from the policy,

00:20
the policy is paying you those premiums during that time are going to be waived

00:25
by the insurance company.

00:27
You must be disabled for a specified period of time, usually somewhere

00:31
between 3-6 months. It could vary by the type of policy or by the insurance

00:35
provider. Waiver is retroactive if necessary. What that means is, if

00:42
you're in that waiting period, that elimination period, you, the premium

00:48
hasn't been waived yet. So if a premium would come due during that time, you

00:53
would need to pay it out of your pocket, but then once you get through the

00:56
waiting period, the insurance company would then retroactively make the

01:02
policy effective and it would pay the premium. It basically reimburses you

01:06
for the premium that you had to pay while you're going through the

01:08
elimination period. So that's a good feature. And also with waiver of

01:12
premium, it's included with guaranteed renewable and noncancellable types of

01:18
policies. So it's a great feature if you buy the particular type of

01:24
disability income policies that offer it. Great thing to take advantage of.

VIDEO 17

Disability income.

00:02
Generally, you either buy it as an individual or you get it through

00:07
perhaps your employer at work, through some type of group coverage. So let's

00:12
take a look at who pays premiums and taxation and things like that. So

00:16
you've got a disability income policy through your employer. That's your

00:20
group coverage.

00:22
Usually, the employer pays premium, all of it or it may be set up where the

00:27
employer pays some and the employee pay some. It just depends on the plan. Of

00:31
course if you have an individual policy, you're paying your own premium,

00:35
right? Okay. Now, benefit amounts. They're different. If you have

00:40
disability income through a group plan, they're going to take the benefit, to

00:46
figure out what your benefit would be. It's gonna be a percentage of your

00:50
Income from the past 24 months. They're gonna look at your wages for the last

00:54
24 months, before the disability happened, and find out what that

00:58
average wage is

01:00
and then they'll take a percentage of that average wage and that's what

01:03
they'll pay you in benefits.

01:05
On an individual policy, it is a flat, set, determined dollar amount only. No

01:11
percentages. Short-term maximum period on group is 13 to 26 weeks. On

01:18
an individual, there really isn't short-term . Usually the benefits go

01:22
from 6 months to 2 years. It's more of a long-term type benefit.

01:27
And then participation requirements. You have to have, if the employer is

01:31
the only one paying the premium, then they have to cover all the eligible

01:35
employees 100%. But if it's a situation where you're paying some of the premium

01:39
and the employer is paying some of the premium, then they have to get at least

01:43
75% of eligible employees to sign up for it.

01:48
And again, it's the eligible employees. And with an individual, of course,

01:52
there is no participation requirement. You're the only one, you know, in on

01:56
the policy. It's your policy only.

02:00
Just some comparing and contrasting of the differences between group and

02:04
individual disability income.

VIDEO 18

Did you know that one of the benefits offered to people through Social

00:05
Security is Social Security disability income benefits?

00:11
There are a lot of requirements that you have to meet in order to qualify or

00:17
be eligible for Social Security disability benefits. Many people apply

00:22
multiple times. They get rejected time and again.

00:26
So it is somewhat of a complicated process, but let's talk about some of

00:30
the high points of it. First of all, the biggest requirement, the main

00:34
reason a lot of people get excluded from these benefits, you have to have

00:38
what is called 40 work credits or you have to have 40 quarters of

00:46
you paying FICA taxes, which is your FICA tax on your payroll. That is what

00:52
goes to Social Security, because it then helps pay your retirement benefit.

00:56
It pays Social Security disability income benefits, if you qualify.

01:00
You get Medicare through Social Security. So there's lots of things,

01:03
even a death benefit that Social Security covers. So you have to pay

01:08
into Social Security basically for 40

01:13
quarters. Do the math. 40 quarters is 10 years. There's four quarters in a

01:17
year. So 40 quarters are going to be 10 years. Now, you don't have to pay 10

01:22
years in a row, but you have to have at least a total of 40 quarters that

01:27
you've paid from your payroll taxes money into Social Security. That's a

01:31
big, big requirement. If you do qualify,

01:36
you go through all the process and they do qualifyyou, you have a 5 month

01:40
waiting period. So remember, you do not have coverage. You're not being paid

01:45
benefits when you're in the waiting or elimination period. You have to just

01:49
get through it. Okay? The benefit is based on your, it's the PIA, the
01:56
Principal Insurance Amount. There's a formula. If it is in your material,

02:01
make sure you read through that. But that's what they based the benefit off

02:06
of. It's an average of a large number of your working year's income and goes

02:10
from there. It's called the PIA. And then the benefits on Social Security

02:16
disability income would cease when your retirement starts, or if your

02:23
disability were to end, or of course if you were to pass away. Benefits of

02:28
course would then stop..

VIDEO 19

You may not be aware of this, but there are

00:04
business uses of disability income policies. For example you, may have a

00:11
key person. Maybe your only salesperson brings in all the sales

00:16
that your company does.

00:18
It could be detrimental to the company if that key employee were to become

00:23
disabled and could no longer work. You've just lost your entire sales

00:27
force. So as an employer, a business, you might want to cover this key person

00:33
with a disability income policy. So the company would apply on behalf of the

00:39
key person. They would pay the premium. They own the policy and the benefit

00:44
gets paid to the business. This is insurance that is put in place to

00:49
protect the business, not the employee. It doesn't pay the employee. It doesn't

00:54
pay the family members of the employee.
00:58
So it covers the money that's paid with a disability income key person. The

01:04
money can be used to cover the expenses of going out and finding, hiring, and

01:08
training a replacement for your lost key employee. Always remember with

01:14
business insurance, they're the owner, they're the premium payer, and the

01:18
benefit gets paid to the company, because you're setting this situation

01:22
up to protect the business, should you lose this key person.

01:28
Another type of disability income policy use on the business side

01:34
would be through a buy-sell or business continuation agreement. Now,

01:39
a buy-sell or business continuation agreement is not the insurance. It is a

01:44
legal agreement or contract

01:47
drawn up by an attorney firm.

01:50
buy-sell situations or disability buy-sell , they are set up for business

01:55
partners. Let's say you have two business partners. And so the business

01:59
covers both partners. So what happens if one of the two business partners who

02:06
created the company and are running the company, one of them doesn't die but

02:11
becomes totally disabled and can't work, they're still totally lost to the

02:15
business? So again, the business would have paid the premium on this policy.

02:22
You know, they would be the owner of the policy, actually the buy-sell

02:25
agreement. It's all connected with that. What happens is these disability income

02:30
policies, it specifies how the business is going to pass to say the remaining
02:36
and the disability policy payout, that lump sum benefit that's going pay out

02:43
through this buy-sell or business continuation agreement is used by the

02:47
company, the remaining partner to buy out the disabled partner. It gives the

02:53
business the money that they need to buy out the now disabled partner so

02:58
they can keep the business running.

03:01
There's one more type of business use for disability insurance, and it's

03:07
called business overhead expense. This is specifically designed for single or

03:16
small employers, and maybe single individual like a doctor's or dentist's

03:21
office. Works perfectly

03:24
because, let's say you are that small businessowner and oftentimes the small

03:28
business owner does everything. They do the sales. They do the admin. They

03:32
do everything. So if they become disabled, first of all they would need

03:36
to have a personal individual disability income to help them replace

03:41
their lost wages.

03:43
But what about the business if the owner, that small businessowner is

03:47
down and out because he or she is disabled?

03:50
What about the employees? What about paying the rent? The lights, the heat,

03:55
the salaries, the wages of the employees? You want to keep the doors

03:59
open. You want to keep people employed right? That's what this business

04:03
overhead expense policy does. It pays the wages of the employees. It pays the

04:09
rent. It pays all the utilities. It keeps the expenses covered for day to

04:15
day costs of keeping the doors open, until that small businessowner or that

04:20
individual doctor or dentist can recover from the disability and come

04:24
back into the practice or come back into the business. It's a great

04:28
protective tool for small businesses, especially.

FLASH CARDS

1.What is a fee-for-service health plan?

Under a fee-for-service plan, providers receive payments for each service
provided
2.Why do HMOs encourage members to get regular checkups?
To help catch health problems early when treatment has the greatest chance
for
success (i.e., preventive care)
3. In order to be eligible for coverage by an HSA, an individual must also be
covered by what type of health plan?
High Deductible Health Plan (HDHP)
4.What is the primary purpose of disability income insurance?
To replace income lost due to a disability
5.Who are the parties in a group health contract?
The employer and the insurer
6.What types of groups are eligible for group health insurance?
Employer-sponsored and association-sponsored groups
7.What is the main principle of an HMO plan?
Preventive care
8.What do individual insureds receive as proof of their group health coverage?
Certificate of Insurance
9. What is the purpose of COBRA?
To allow continuation of health insurance coverage for terminated employees
10.What is the term for a period of time immediately following a disability during
which benefits are not payable?
Elimination period
11.What are the two types of Flexible Spending Accounts?
Health care accounts and dependent care accounts
12.In health insurance, what is considered a sickness?
An illness that first arises while the policy is in force
13.With key person disability insurance, who pays the policy premiums?
The business (employer)
14.What does the amount of disability benefit that an insured can receive depend
on?
The insured's income at the time of policy application
15.How can an HMO member see a specialist?
Referral by the primary care physician
16.What type of hospital policy pays a fixed amount each day that the insured is in
the hospital?
 Hospital indemnity
17.Can an insured who belongs to a POS plan use an out-of-network physician?
Yes, but the copays and deductibles may be higher
18.What are the three types of basic medical expense insurance?
Hospital, surgical and medical
19.Can Alzheimer's disease be excluded from coverage under a long-term care policy?
No, organic cognitive disorders, such as Alzheimer's or Parkinson's must be
covered
20. What is the purpose of respite care in long-term care insurance?
To provide relief for a major caregiver (usually a family member)
21.Under what type of care do insurers negotiate contracts with health care
providers to allow subscribers access to health care services at a favorable cost?
Preferred Provider Organization (PPO)
22.How are HMO territories typically divided?
Geographic areas
23.In group insurance, what is the name of the policy?
Master policy
24.What is the capital sum in Accidental Death and Dismemberment (AD&D) coverage?
A percentage of the principal sum
25.What types of injuries and services will be excluded from major medical
coverage?
Injuries caused by war, intentionally self-inflicted injuries, injuries
covered by workers compensation, regular dental/vision/hearing care, custodial
care, and elective cosmetic surgery
26.Who chooses a primary care physician in an HMO plan?
The individual member
27.What is the role of the gatekeeper in an HMO plan?
To control costs for the services of specialists
28. What type of health insurance would pay for hiring a replacement for an
important employee who becomes disabled?
Key-person disability insurance
29.What is the purpose of a buy-sell agreement for health insurance policies?
To specify how the business will pass between owners when one of them dies or
becomes disabled
30.In what type of health plans are providers paid for services in advance,
regardless of the services provided?
Prepaid plans