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UNIT IV. MANAGING INSURANCE NEEDS Life Insurance Life Insurance Basic Insurance Concepts Kind of Policy Key Features Health Insurance Property & Automobile Insurance Others : Comprehensive Dishonesty, Disappearance & Destruction (CDDD)...

UNIT IV. MANAGING INSURANCE NEEDS Life Insurance Life Insurance Basic Insurance Concepts Kind of Policy Key Features Health Insurance Property & Automobile Insurance Others : Comprehensive Dishonesty, Disappearance & Destruction (CDDD) BUSINESS IMPLEM 1 I ENT51125 Insurance as a Concept Protection vs. Investment: investments that aim for growth, insurance is primarily about protection. It doesn’t offer a return in the same way investments do; instead, it offers peace of mind by reducing financial risks associated with specific, uncertain events. Insurance is a financial product designed to protect individuals and businesses from financial losses due to unexpected events, like accidents, health issues, or property damage. Insurance is about Risk Management—helping people prepare financially for uncertain outcomes. * the process of identifying, assessing and controlling threats to an organization's capital, earnings and operations; these risks stem from a variety of sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters. Insurance acts as a safety net, protecting savings and investments from unexpected expenses. * insurance can prevent financial setbacks that might otherwise lead to debt. Types of Insurance: Health Insurance (for medical costs) Life Insurance (for family support after a death) Auto Insurance (for vehicle accidents) Homeowners/Renters Insurance (for property damage) Disability Insurance (for income replacement if unable to work) Types of Insurance: Health Insurance: Covers medical expenses, doctor visits, hospital stays, and sometimes preventive care; health insurance helps protect individuals from high medical costs, which are a leading cause of personal debt in many countries. Life Insurance: Provides financial support to family members or dependents after an individual's death. Distinguish between term life (which offers coverage for a specific period) and whole life insurance (which can also serve as a savings vehicle). A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. Riders provide insured parties with additional coverage options, or they may even restrict or limit coverage. There is an additional cost if a party decides to purchase a rider. Types of Insurance: Property and Casualty Insurance: Includes auto, home, and renters' insurance. Disability Insurance: Replaces a portion of income if an individual cannot work due to illness or injury; individuals in high-risk jobs or those without large savings. Insurance Works: Key Concepts Premiums: The payment made to the insurance company to keep the policy active. Monthly or yearly payments to maintain coverage, are typically lower for policies with higher deductibles and vice versa. Deductibles and Copayments: Define these as out-of-pocket costs. In health insurance, copayments are usually a flat fee per service, while deductibles are annual amounts that must be paid before the insurer starts covering. Claims and Payouts: Walk through a simplified claim process—documenting a loss, submitting a claim, and receiving reimbursement (minus deductible). Some claims might be denied if not covered by the policy. Coverage Limits: Maximum Payout: Many policies have coverage limits, meaning they will only pay up to a certain amount. For instance, an auto insurance policy might cover up to Php 250,000.000 accident. If costs exceed this, the policyholder is responsible for the excess. Considerations for Higher Limits: High coverage limits are advisable for risks that could involve large expenses, like home insurance for high-value properties or health insurance for families with a history of medical needs. However, higher coverage limits typically increase the premium. “Group Insurance” Policy Exclusions and Add-ons: Exclusions: Many policies exclude specific events or conditions. For instance, home insurance might not cover flood damage unless a separate flood insurance rider is purchased. Customizing with Riders or Endorsements: Additional riders can be purchased to cover specific exclusions, such as adding earthquake coverage to home insurance. Assessing the likelihood of these exclusions is essential, particularly if someone lives in an area prone to such risks. Cost-Benefit of Policy Length: Term life insurance policies, for example, are cheaper than whole life insurance for a fixed period (e.g., 20 years) but have no cash value if the insured doesn’t pass away within that term. Whole life policies, though more expensive, have an investment component and last a lifetime. Evaluating needs and long-term financial goals helps determine which type is more beneficial.  Role of Insurance in Financial Planning Emergency Fund and Insurance Insurance complements an emergency fund. While an emergency fund covers smaller, more immediate costs, insurance helps with large, unexpected expenses, preventing a drain on savings. Insurance as Part of Financial Goals: Insurance is one of the “safety nets” in a solid financial plan, which should ideally include savings, investments, and insurance to safeguard assets and future income. Insurance and Debt: Insurance can prevent accumulating debt. For instance, health insurance helps avoid high medical bills that could lead to credit card debt. Insurance with Real-Life Scenarios Scenario 1: Health Insurance and Unexpected Medical Bills Imagine an individual without health insurance who unexpectedly needs surgery after an accident. The medical costs amount to $30,000, which they must cover entirely out of pocket, potentially leading to debt. In contrast, if they had health insurance, they might only pay a deductible (e.g., $2,000) and a co-insurance portion (say 20% of the remaining cost). This significantly reduces their financial burden and shows how health insurance prevents debt.  Scenario 2: Auto Insurance and Car Accidents Picture a driver involved in an accident where they’re at fault. Without auto insurance, they’re responsible for all repair costs for both their own and the other party’s car, which could be thousands of dollars. However, with auto insurance, they may only pay a deductible (e.g., $500), and the insurance covers the remaining damages. In this scenario, liability coverage (for the other party’s damages) versus collision coverage (for their own vehicle) can help learners understand how different types of auto insurance apply in an accident. Scenario 3: Homeowners Insurance and Natural Disasters Suppose a family’s home is damaged in a fire. Without insurance, they face substantial repair costs, potentially requiring loans or depleting savings. Homeowners insurance, however, would cover the damage, allowing the family to restore their home without financial ruin. Additionally, the importance of specific riders (like flood insurance in flood- prone areas) emphasizes evaluating geographic risks when choosing insurance. Maintaining and Reviewing Insurance Policies Steps in Reviewing and Maintaining Policies Annual Review of Coverage Encouraging individuals to review their policies yearly (or upon renewal) allows them to reassess needs. For instance, a family might increase life insurance coverage after having children or add an umbrella policy for extra liability protection if they acquire new assets. Checking for potential discounts, such as bundling multiple policies with one insurer (home and auto), can also reduce costs without sacrificing coverage.  Life Changes That Require Insurance Updates Significant life events should trigger a policy review: Marriage: Couples often update their life insurance to ensure financial support for a partner. Home Purchase: Buying a home necessitates homeowners' insurance, and if it’s a valuable property, considering higher coverage limits is important. Children: Parents may increase life insurance coverage to secure future financial support for their children. Career Changes: A new job with different benefits may offer or require new types of insurance, like disability or health insurance.  Understanding Policy Terms and Limitations: It’s crucial to read the fine print and fully understand policy terms. Misunderstandings about coverage can lead to unpleasant surprises during a claim. * For example, some policies only cover replacement costs for a loss, while others offer the depreciated value, which can lead to lower payouts. Educating individuals to ask questions about exclusions, waiting periods, and payout timelines encourages proactive management of their policies. Adjusting Coverage as Financial Situations Change: If someone’s financial situation improves, they might increase coverage limits for additional security. Conversely, if finances become tight, they may look at adjusting policies to save on premiums, such as by increasing deductibles. MANAGING INSURANCE NEEDS  Topics: Health Insurance Private and Government Insurance Plans Property and Automobile Insurance Basic Principles and Limitations BUSINESS IMPLEM 1 I ENT51125 Health Insurance Health insurance provides financial protection against the high cost of healthcare services, covering part or all of the expenses for medical treatment (present), consultations, hospitalization, and preventive care (future) 1. Government Insurance (PhilHealth). https://www.philhealth.gov.ph/services/ 2. HMO and Health Services Government Health Insurance PhilHealth is the government’s national health insurance program, for all Filipinos. “Essential” healthcare services available, especially to lower-income individuals and communities. https://www.philhealth.gov.ph/ https://www.philhealth.gov.ph/ Private Health Insurance Private health insurance offered by non-government entities such as HMOs (Health Maintenance Organizations) and private insurance companies. Popular Providers, but not limited to: HMO - Maxicare, MediCard, and Intellicare Health Insurance plans with medical coverage. Sun Life, AXA, and PhilamLife offer https://www.maxicare.com.ph/ https://www.medicardphils.com/ https://site.intellicare.com.ph/  Types of Coverage 1. Inpatient or Hospitalization Coverage Medical expenses incurred during a hospital stay, medications, and medical procedures while admitted. Rooms(e.g., ward or semi-private), physician fees, surgical expenses, and the use of hospital facilities. 2. Outpatient Coverage Consultations, diagnostic tests, minor surgical procedures, and treatments that do not require hospitalization. Doctor’s consultation fees, laboratory tests, X-rays, and other diagnostics. * Basic health insurance plans may limit outpatient benefits, or they may only be included as optional add-ons. 3. Emergency Care Emergency room visits, urgent care treatments, and ambulance services in case of sudden illness or accident. Basic plans often cover emergency treatment in accredited hospitals, with some offering partial reimbursement for non-network emergency care. Types of coverage (optional / add-on / limited) 1. Maternity Benefits Some offers maternity coverage. This includes prenatal care, delivery expenses, and postnatal care. Typically limited to regular childbirth, with coverage varying by plan; often excludes complications or cesarean delivery unless specified. 2. Critical Illness Benefits Coverage for life-threatening conditions such as cancer, heart disease, and stroke. 3. Mental Health Coverage A relatively new offering, mental health coverage may include consultations with licensed psychologists or psychiatrists, with a capped number of consultations or sessions per year. 4. Dental and Vision Care Dental procedures (e.g., cleanings, fillings) and Eye exams or prescription glasses.  Things to ponder What do I need? ✓Philheatlh ✓HMO ✓Health Insurance How much coverage do I need? How much can I afford? Real Life Scenario PhilHealth P500/month Real Life Scenario P 45, 201 / 12 = P3,766.75 https://www.maxicare.com.ph/maxicare-plans/sme-healthcare-plans/maxicare-plus-sme-hmo-plans/ Property Insurance Protects the insured’s property (e.g., homes, commercial buildings) against specific risks like fire, theft, natural disasters, and accidents. Types: Homeowners Insurance: Covers residential properties against common perils like fire, typhoons, and theft. Optional coverage may include protection for earthquake and flood damage, given the Philippines’ vulnerability to natural disasters. Commercial Property Insurance: Protects businesses against losses due to property damage, interruption of operations, and inventory loss.  Automobile Insurance Provides financial protection for vehicle-related losses, including liability, damage, and injuries from accidents. 1) Compulsory Third-Party Liability (CTPL): Required by Law: All vehicles in the Philippines must have CTPL, which covers liability for injuries or death of a third party in an accident. Limitations: CTPL does not cover damage to the insured's own vehicle or the driver’s medical expenses. 2) Comprehensive Automobile Insurance: Covers a range of risks, including vehicle damage from accidents, theft, fire, natural disasters, and vandalism. It may also include personal accident insurance for the driver and passengers. Types of Coverage: Own Damage and Theft: Covers repairs or replacement of the insured’s vehicle in case of accidents or theft. Acts of Nature: Covers damage from natural events like typhoons, floods, and earthquakes, which are common in the Philippines. Others / Update Comprehensive Dishonesty Disappearance and Destruction Insurance (CDDD) Employee Dishonesty Coverage Loss Inside the Premises Coverage Loss Outside the Premises Coverage Money Orders and Counterfeit Paper Currency Coverage Depositors Forgery Coverage Others / Update Takeaways on availing insurance – Start Up Companies * Policies can protect you from employees, rivals, thieves and more * Insurance options are improving - Start with Basic Coverage Investment Planning Investment planning is a process of identifying financial goals and selecting appropriate investment strategies to achieve them over a specific period. Why It’s Important: Financial Security: Helps manage risks and build wealth over time. Goal Achievement: Aligns investments with life objectives like buying a house, funding education, or retiring comfortably. Financial Goals SHORT TERM - 1 - 3 years MEDIUM TERM - 3 - 10 years LONG TERM - 10+ years Guidance To Investment Planning Investment Objectives Current Income: Common for retired people Major Expenditures: Build a college education fund, down payment on a home, or start a new business Retirement: Invest so you can live comfortably in retirement Shelter from Tax: Use tax strategies to preserve more of your pre-tax earnings  Investment Strategy Growth Investing - Focus on high-potential stocks aiming for capital appreciation. Ex. Ayala Land or PLDT Income Investing - focus on generating passive income through dividends or interest - bearing investments. Ex. Dividend paying stocks such as Meralco, or Globe telecoms Dollar-cost Averaging - invest a fixed amount of money regularly, reducing the impact of market volatility. Ex. Monthly investment in BDO Equity Fund Tax Efficient Investing - use tax-advantaged accounts and strategies to minimize tax liabilities. Ex. PERA Account [Personal Equity and Retirement Account] https://www.insurance.gov.ph/pera/ Different ways to invest 1. Stock - Common / Preferred 2. Bonds 3. Preferred Stock and Convertible Bonds 4. Mutual Funds, Exchange Traded Funds, and Notes 5. Real Estate https://www.pse.com.ph/ Preferred Stock and Convertible Bonds Preferred stocks have stated (fixed) dividend rate that must be paid before any common stock dividend is paid. Taxed at capital gains rates. Preferred stock could be convertible to common stock Return on stock in two forms: https://main.pldt.com/investor-relations/shareholder-information/dividend-info#related- disclosures-on-dividend-declarations Bonds Componets 1) Coupon rate - interest rate, the bond issuer to the bond holder 2) Maturity date - time in which payment is due 3) Par value amout - amount to be paid by the bond issuer to the bond holder https://www2.bpi.com.ph/invest/basics/bonds Mutual Funds, Exchange Traded Funds, and Notes Mutual Funds: Professionally managed portfolio of stocks, bonds, and other investments. Return varies based upon the market and the type of investments selected by manager. Mutual Funds and Unit Investment Trust Funds(UTFs) - offer diversification by pooling together various assets to invest in stocks, bonds and other assets. Real Estate - can provide steady returns and asset appreciation ex. Pre- selling condo units for rental income or resale develop by Ayala Land or SMDC Pag-ibig MP2 Program - A popular government-backed savings program with an average annual dividend rate of 6%-7%. - -a medium term investment can save a minimum of P500 a month for 5 years Retirement Accounts - tax advantaged accounts designed for retirement savings. Ex. PERA Account provides a tax-efficient retirement savings option with potential annual tax credits of up to P2,000 making it beneficial for self- employed individuals or those without employer-provided retirement plan.