Insurance Concepts Quiz

Managing Insurance Needs - Life Insurance

• Life insurance is about protection, not investment. It aims to reduce financial risks from uncertain events.
• Life insurance replaces lost income if premature death occurs. It provides funds for the family to maintain their home, lifestyle, education, and other needs.
• Benefits of life insurance include financial protection for dependents, protection against creditors, tax benefits on proceeds, and serves as a vehicle for savings.
• Insurance is a financial product to protect individuals from financial loss.
• Key types of insurance include property and casualty, health, life, disability, auto etc.
• Risks are inherent in all financial matters.
• The simplest way to deal with risk is avoidance.
• Various types of insurance policies include term life, whole life, health, property and auto, disability and more.

Insurance as a Concept

• Insurance is a financial product designed to safeguard against unexpected events, impacting individuals and businesses.

Key Concepts

• Premiums are payments to maintain insurance policies, while deductibles are out-of-pocket costs before coverage begins.
• Claims processes involves documenting losses, submitting claims, getting reimbursements (minus the deductible), possible claims denial.
• Policies have maximum payout limits. Higher limits are advisable for significant financial risk, such as high-value properties or pre-existing medical conditions.
• Policies frequently contain exclusions for specific events or conditions (e.g., flood damage). Riders or endorsements, are additional options for coverage. Policies should be reviewed regularly for these exclusions.
• Term life insurance is cheaper but has no cash value if you don't pass away during the term. Whole life insurance, while more expensive, has a lifetime investment component.

Types of Insurance

• Health Insurance: Covers medical expenses, doctor visits, hospital stays, and preventive care; protects against high medical costs.
• Life Insurance: Provides financial support to family members or dependents after death.
• Auto Insurance: Covers accidents, theft, and damage.
• Homeowners/Renters Insurance: Covers property damage from various perils.
• Disability Insurance: Replaces income if an individual cannot work due to illness or injury.
• Property and Casualty Insurance: Includes auto, home, and renters' insurance. -Comprehensive Dishonesty Disappearance and Destruction (CDDD) insurance covers losses due to employee dishonesty, loss inside/outside the premises, counterfeit currency, and forgeries.

Types of Coverage (Optional, add-on or limited)

• Maternity Benefits: Covers prenatal, delivery, and postnatal care (often limited to childbirth)
• Critical Illness: Addresses life-threatening conditions (like cancer, heart disease, and stroke)
• Mental Health: Includes consultations with licensed mental health professionals.
• Dental and Vision: Covers dental procedures, eye exams, and prescription glasses..

Role of Insurance in Financial Planning

• Insurance complements emergency funds. It addresses unexpected large expenses that emergency funds might not cover.
• Insurance is a key component within a holistic financial plan. It safeguards assets and future income.
• Insurance helps to prevent accumulating debt.

Insurance with Real-Life Scenarios

• Health Insurance: Preventing unexpected medical bills that lead to debt, if an unexpected surgery needs to happen.
• Auto Insurance: Covering the costs from an accident where you are at fault or not.
• Homeowners Insurance: Preventing the loss of a home or significant costs to repair damages, to substantial loss.

Maintaining and Reviewing Insurance Policies

• Annual Policy Review: Re-evaluating needs and increasing life insurance for example, and adding policies after having children or buying properties.
• Potential Discounts: Bundling or combining insurance policies (home and auto) to lower costs without sacrificing other benefits.

Life Changes and Insurance Update

• Significant life events like getting married, having children, or buying a home trigger the need to review and update insurance policies.
• Insurance to support a partner, cover a more valuable property, or support children as parents

Understanding Policy Terms & Limitations

• Understanding the fine print (policy terms) is crucial for avoiding unpleasant surprises.
• Misunderstandings can cause problems during a claim.
• Some policies only cover replacement costs, while others cover depreciated value..

Considerations for Financial Planning

Assess needs

• How much insurance do I need?
• Affordability

Investment Planning

• Investment planning identifies financial goals and selects appropriate strategies for achieving them.
• Builds wealth while managing risks, and aligns investments with life objectives (like buying a house, funding education, or retirement).
• Different goals have varying timeframes (short-term, medium-term, long-term).

Investment Strategies

• Growth Investing: Aims for stock appreciation (e.g., Ayala Land, PLDT).
• Income Investing: Seeks passive income from dividends or interest-bearing investments (e.g., Meralco, Globe).
• Dollar-Cost Averaging: Regularly investing a fixed amount to offset market volatility.
• Tax-Efficient Investing: Utilize tax-advantaged accounts (e.g., PERA) to minimize tax liabilities.

Different Ways to Invest

• Stocks
• Bonds
• Preferred stock & convertible bonds
• Mutual funds & exchange traded funds (ETFs)
• Real estate

Capital Gains

• Capital gains are when a stockholder sells a stock for a profit.
• Conversely, there is a capital loss when a stock price decreases below the original price, and is sold for less than the original purchase.

What is a Bond?

• Bonds are fixed-income instruments where individuals lend money to the government or companies at a fixed interest rate for a set period of time.
• The issuing entity repays the principal and interest according to the terms of the bond.

Bond Components

• Coupon rate: Interest rate paid by the bond issuer to the bond holder.
• Maturity date: The date the bond issuer returns the principal amount of the bond.
• Par value: The principal that is repaid to the bondholder at maturity.

Types of Bonds

• Government bonds: Debt securities issued by the government.
• Corporate bonds : Debt securities issued by a corporation.

Mutual Funds/ Exchange Traded Funds (ETFs), and Notes

• Mutual Funds: Professionally managed portfolios of various investments (stocks, bonds) offering diversification
• Mutual Funds & ETFs offer diversification.

Real Estate

• Real Estate Investing: Can generate steady returns and asset appreciation, acting as a hedge against inflation.
• Pre-selling condos, rental income, or resale are options for investors.

Other / Update

• Comprehensive Dishonesty Disappearance and Destruction (CDDD) insurance is an optional coverage
• Startup or small businesses can protect themselves from employee dishonesty, rivals, thieves, and similar issues.
• Insurance options are becoming more diverse.
• Basic coverage is a great starting point.

Test your knowledge on various insurance concepts and types, such as health, disability, and life insurance. This quiz explores the primary purposes of insurance compared to investments, coverage for medical costs, and important policy features. Perfect for anyone looking to enhance their understanding of insurance fundamentals.