Frequently Asked Questions
These two types of insurance coverage differ most importantly in terms of the length of the elimination (waiting) period, the length of the maximum benefit period, coordination of the benefits payable under the policy with benefits payable under social insurance programs (e.g., Social Security and Workers' Compensation), and the "definition of disability" incorporated into the contract language.
Assuming that only one of these types of disability income insurance products will be purchased, sound risk management principles would suggest the purchase of long-term disability (LTD) insurance. LTD insurance protects the insured against disabilities that may last many years, or even a lifetime, and thus provides protection against large losses of potentially catastrophic magnitude. Although long-term disabilities occur less frequently than disabilities of a relatively short duration (e.g., several weeks or even a few months), the loss of income for a short duration can be more easily absorbed by the family unit than can an income loss that lasts for several years or longer.
The recommended amount of disability income insurance generally ranges from 60-70 percent of pretax income. The applicable percentage for higher-income persons is usually somewhat lower than the percentage recommended for lower-income individuals, due primarily to differences in income taxes. Amounts considerably less than full replacement of earnings are recommended due to a reduction in income taxes and decreases in commuting and other work-related costs that are likely to occur in the event of disability. On the other hand, medical, rehabilitation and certain other expenses are often higher for disabled individuals creating a need for larger amounts of replacement income. In determining how much disability income insurance to buy, any benefits payable under Workers' Compensation, Social Security, and employer-provided disability benefits under pension or group insurance plans should also be considered. Whether the disability benefits themselves are subject to income taxation should also be factored into this determination. The assistance of a professional insurance adviser normally should be sought in making this determination.
A primary reason is the uncertainty that exists currently as to the federal income tax treatment accorded employer-provided LTC insurance. Although considerable debate has taken place, Congress has yet to clarify the tax treatment surrounding employer-provided LTC insurance. A second reason may relate to the premium cost for this coverage. Because it is expected that as much as 40 percent of the over-65 population will need care in a nursing home, the premium for LTC insurance can be relatively high.
Long term care (LTC) insurance provides coverage for the cost of custodial and other types of extended care provided in a nursing home. Coverage also is frequently provided for selected medical care and personal services delivered in the insured's home. LTC policies provide important protection to the insured because, currently, neither Medicare nor the typical medical expense insurance policy covers custodial-type care. The aging of the U.S. population, coupled with continuing medical advances, will likely lead to significant growth in the demand for custodial and related care. This increased demand, together with costly nursing home stays (now estimated at $35,000-plus per year), will likely create an environment where much publicity and attention remain focused on the need for LTC insurance.
Generally, that should not be done in lieu of buying appropriate amounts of life insurance on the family breadwinner(s). It is extremely important that you protect the earning capacity of the primary breadwinner, if possible, with the right amount of life insurance before considering life insurance on children or spouse. In a dual-income household, it is important to protect the earning capacity of both spouses. Life insurance for a non-wage earning spouse is often recommended for help in paying for household services lost if that spouse dies.
Rough rules of thumb suggest an amount equal to 6 to 8 times your annual earnings. However, there are other things to consider when determining how much life insurance you need. Important factors include: income sources (and amounts) other than salary/earnings; whether or not you're married and, if so, your spouse's earning capacity; the number of people who are financially dependent on you; the amount of death benefits payable from Social Security and from an employer-sponsored life insurance plan, whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc. Talk to an insurance agent for a precise calculation of how much life insurance you need.
A preexisting condition is often defined as a medical condition (i.e., an injury or illness) that required treatment during a prescribed period of time, e.g., 3 or 6 months, prior to the insured's effective date of coverage under the major medical expense plan. Sometimes, a preexisting condition is defined to include medical conditions that were known to the insured, even though no treatment was provided during the prescribed period. A preexisting conditions clause excludes coverage for preexisting conditions for possibly as long as 12 months after the effective date of coverage. Because the definition of a preexisting condition, and the provisions of the clause itself, may differ considerably from one plan to another, it is recommended that newly insured individuals (and prospective insureds) completely familiarize themselves with this policy provision.
On occasion, these terms have been used interchangeably. However, it is preferable to define the two terms differently, despite their similarity of purpose. Under a copayment or copay provision, the insured usually is required to pay a set or fixed dollar amount (e.g., $3, $5, or $10) each time a particular medical service is used. Copay provisions are frequently found in medical plans offered by health maintenance organizations (HMOs) where a nominal copayment is applied to each office visit and to each prescription that is filled.
An insured's "out-of-pocket" costs under major medical expense plans include the deductible, cost-sharing amounts arising from the operation of the coinsurance clause, and medical expenditures that are deemed by the plan to be in excess of "reasonable and customary" charges. Only charges that are "reasonable and customary" for a specific type of service, in a particular location or geographic area, are eligible for reimbursement under medical expense plans. The definition of "reasonable and customary" may vary somewhat from one medical expense plan to another.
A home can require a tremendous investment of money, time, and energy. Homeowners insurance is designed to protect that investment by insuring the actual structure or structures and the personal possessions in and around them, as well as providing liability protection for the residents. Through homeowner's insurance, you can protect yourself and your family from enormous loss in the event of damage or destruction to your home and property. Most likely, if you have a mortgage on your home, you are required to carry homeowner's insurance.
If you want to lower your monthly premium, or buy more coverage for less money, one way is to carry a higher deductible. A higher deductible also may make sense if you believe that your chances of making a claim are remote enough to warrant assuming extra financial risk.
It depends on the type of policy you own. But in general, unless you buy additional coverage, you won't be compensated for losses due to floods, earthquakes, nuclear accidents, wars, intentional damage, and normal wear and tear. Other exclusions may also apply.
You can purchase additional coverage, through an endorsement to your existing policy or with a separate policy, to extend the limits of coverage for specific items.
After an accident or theft recovery, if the insurance company decides your car is "totaled," it means the estimate of repairs exceeds the car's value. At this point, the insurance company will likely send you a check for your car's value. It gets to keep your car unless you make arrangements to buy it back "as is".
If you were not at fault in the accident, you will make a third-party claim to the at-fault driver's insurance company. Because you are the claimant, the insurance company typically will issue the check directly to you. It's your responsibility to pay the repair shop, and the lender if you have a car loan. If the other driver doesn't have insurance, your uninsured motorist coverage will take effect.
Medical expense insurance is broadly classified into two principal types of coverage: base (or basic) plans and major medical plans. Base plans generally consist of either hospital expense coverage, surgical expense coverage, or both. Basic hospital and surgical expense plans generally provide coverage on a first-dollar basis (i.e., no deductible) and provide 100 percent reimbursement of covered expenses, up to a relatively low maximum of $10,000, $25,000, $50,000 or $100,000. Major medical plans, in contrast, apply a deductible to initial expenses, generally ranging from $100 to $500 per calendar year. After the deductible is satisfied, major medical plans typically reimburse 80 percent of eligible expenses up to a relatively high maximum, e.g., $500,000 or $1,000,000.
If your car was stolen, be prepared to wait. Most insurance companies will impose a waiting period to see if the police recover your car. If your car is still missing after the waiting period, usually 21 days, you should receive a settlement soon after. If your car is recovered during the waiting period, the insurance company will want to see a repair estimate before deciding how to proceed.
Content provided by the Insurance Information Institute (I.I.I.)