Insurance and Annuities Frequently Asked Questions

***Note: Guarantees are based on the financial strength and claims paying ability of the issuing insurance company.

1. What is an annuity?
 It is a contractual agreement with an insurance company that guarantees a certain interest rate and payout stream in exchange for a premium.  An easy way to look at it is to break down the parts. The premium can be put into a accumulation stage where the premium earns interest tax-free.  The payout phase is when the accumulated money is paid out to the client..

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2. What is the deferral/accumulation phase?
 The premium paid into the annuity changes value based on contractual agreements with the insurance company.   There are options for withdrawals, but they can be restricted and sometimes may include surrender charges.

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3. What is the payout phase? 
The annuity pays out the accumulated amount in a lump sum or over a designated period.  The payout options vary by contract.  One of the common options is a lifetime payout.  The company sets an amount based on mortality tables and guarantees payments even if a person lives longer than the expected lifespan. The client may not get the full annuity value if they die before their expected life span.89

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4. What is a fixed annuity? 
A fixed annuity has guarantees regarding interest rates during the term of the contract.  They are structured to let the company take the risks rather than the holder of the annuity.  Crediting methods do vary and sometimes are based on stock and bond market indexes like fixed index annuities.

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5. What is a variable annuity? 
A variable annuity reduces the guarantees and lets the client invest in products that are market-related such as mutual funds.  The risk is passed to the client and the annuity changes value based on performance of the investments chosen by the client.   We do not sell variable annuities.

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6. What is a fixed index annuity? 
This is a fixed annuity that offers crediting options that are based upon the change in a market index, if any.  The most common used index is the S&P 500®.  As the index moves, the rate of change is used to calculate value changes in the annuity value.  There is always some limitation based on interest caps, index spreads, participation rates. They also have a minimum guaranteed base rate.  These annuities offer interest based on changes in the index alongside guarantees on the initial premium.

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7. What are surrender charges? 
Most annuity contracts include tables of surrender charges.  These charges are subtracted from the withdrawal amount and are meant to discourage early withdrawals. Most annuities allow a client to withdraw a limited amount of the annuity value early without surrender charge.

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8. What determines the interest and crediting rates? 
The companies buy corporate and government bonds and index options.  Rates paid are based on the rates they are receiving. Index spreads, participation rates and interest caps are based upon the price of the index options and the minimum guaranteed contract rates.

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9. What is a lifetime withdrawal rider? 
In recent years, many companies have added lifetime withdrawal riders to their products. The typical rider requires a fee during accumulation, and then sets up a payment that will extend to a specified time, or for a lifetime. The funds not paid out remain in accumulation. Unlike an annuity payment, accumulated funds are paid to the beneficiary after death. The main benefit is that the withdrawals will continue even if the accumulated funds are used up. There are many variations including guaranteed minimums, rising indexed withdrawals, and walkaway provisions.

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Health Insurance
1. What health insurance is available?
 Individual and Family coverage is easily available for healthy folks.  There are a variety of deductible and coverage limits for those wanting bare-bones to complete coverage.  Qualified high-deductible plans that qualify for Health Savings Account contributions are the newest product and are increasingly popular.  Small group policies are available and are guaranteed-issue.  Medicare supplement plans are standard products and are easy to qualify for.

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2. What determines health insurance rates? 
Rates are set by zip code, age, and health history.  Insurance companies will reject applicants if there is a health risk they do not want to take.  Some insurance companies create business blocks where their health experience dictates the rates.   Other companies set their rates based on the health experience of all of their clients.  If you are healthy, it makes sense to shop around for cheaper insurance every few years.

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3. How do I set up a small group for insurance?
Each insurance company has its own rules.  A small business can form a group of full-time employees.  Associations can also form groups.  Insurance through a small group is more expensive because the groups must insure everybody.   The health insurer does not have the option to decline unhealthy applicants.

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Disability Insurance
1. What is Disability Insurance? 
Disability insurance is most basically paycheck insurance,  If a person gets disabled and is not able to work, this insurance pays out a large percentage of pay back to the insured. For small businesses, it can also cover payments of overhead expenses while diaabled.

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2. How is Disability Insurance underwritten? 
There are two main factors that influence eligibility and rates; income and health.  The health of the applicant is evaluated for risk of disability.  The coverage is limited by the amount of income.  The practical way of looking at this is the insurance company does not want to create an incentive to become disabled.

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3. When does the Disability Insurance pay out? 
If the insured is disabled and unable to perform his job, he qualifies for payments.  The payments at this time are based on own occupation.  Than means he cannot perform his current job.  Benefits at this stage are time limited. After this period, the disabled may continue to qualify for payments if he is totally disabled and unable to qualify to do any work.  There are also levels of partial payment to compensate for partial disability. There are standard tests and definitions to determine the level of
disability.

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4. What affects the premium rates? 
The amount of the payment, the length of the payment, cost-of-living riders, and elimination periods
are what affects the premium the most.  The elimination period is the time you wait before payments start.

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Accident Insurance
1. What is Accident Insurance? 
Accident insurance is meant to cover extra costs associated with an accident. There usually is a schedule of types of accidents and the payment. The payment is usually an indemnity payment which is a flat and full amount, not related to expaneses incurred. The purpose is to be coverage for costs such as lost work time, extra travel expenses, and other costs that are incurred when a person is recovering from an accident. It is not a replacement for health insurance, but an auxilliary plan.

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2. How is Accident Insurance underwritten? 
The things that impact underwriting are the occupations and hobbies of the insured. Skydiving, auto racing and other things that are physically risky are enough to disqualify a person from accident insurance. The coverage is limited to a scheduled amount per incident.

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3. When does the Accident Insurance pay out? 
If the insured is involved in one of the listed accidents, a payment is made based on the listed amount. The payment is a lump sum and is under control of the insured.

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Long Term Care Insurance
1. What is long term care insurance? 
Long term care (LTC) insurance policies pay benefits when a person has diminished capabilities that confine him to home or institutional care.  The payments can be reimbursement or indemnity based and come out of a pool of money.  The cost of being confined can be substantial and is not covered adequately by Medicare. Having this insurance can give a person much better control of their assets
and their care.

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2. How are the premiums set?  The premiums are set by age, amount of coverage, length of coverage, flexibility riders, health history and conditions, and payment waivers. Most companies offer a discount if married couples both apply.

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3. How are benefits disbursed? 
There are companies that provide reimbursements for incurred expenses, and other companies that provide an indemnity payment based on the times of services.  Some companies will mix the benefits.  There are daily or monthly policies.  The variety is great, so it is important to shop around to find the right combination of benefits for the premium dollar.

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4. What is the benefit of using an independent agent? 
I believe Long Term Care Insurance is very non-standard and it is hard to compare the benefits of the policies.  Also, the different companies will focus their marketing and pricing at different age groups.  This requires digging through quotes and product guides to find the best fit for the customers.

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Travel Insurance
1. What is Travel Insurance? 
Travel insurance has several different parts that are combined or sold separately. Trip coverage is for the costs of the trip that are lost due to cancellation for any reason. Travel health insurance is a supplement to domestic health insurance that covers medical costs while abroad. The expenses covered include the cost of evacuation and care in foreign hospitals.

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2. How is Travel Insurance underwritten? 
The trip coverage is limited to the cost of the trip. The travel health coverage is limited, so the underwriting is very light. Pre-existing conditions are generally not covered. Because the policies are limited, the underwriting is light.

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3. When does the Travel Insurance pay out? 
The trip coverage part pays out if the trip is cancelled for almost any reason. The health coverage pays out upon use of medical facilities. Some companies have their own international network that will submit bills directly to the company for coverage. Most companies require submission of bills for reimbursement..

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4. What affects the premium rates? 
The deductible, the trip cost, and the maximum coverage affect the rates. Also, there is a difference if the client has existing domestic insurance.

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Critical Illness & Cancer Insurance
1. What is Critical Illness Insurance? 
Critical Illness Insurance pays an indemnity when the insured gets one of the covered illnesses. Cancer Insurance is a critical illness policy that only pays for cancer. The payments is not related to expenses, but is based on a schedule of payments for the kind of illness. The purpose of the policy is to provide money to cover ancillary costs associated with an illness. This can mean lost work time, travel, family care, meals, or other expenses not covered by the medical plan

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2. How is Critical Illness Insurance underwritten? 
Critical Illness insurance is generally available to anybody, but people that already have had the illness are usually restricted from either purchasing the insurance or coverage for the repeat illness. Family history is also considered for eligibility.

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3. When does the Critical Illness Insurance pay out? 
The insurance pays out upon diagnosis of one of the covered critical illnesses. The amount paid is based on a schedule. The insurance is an indemnity payment, meaning it is a lump some paid out completely, not based on expense reimbursement.

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4. What affects the premium rates? 
The premiums are affected by age, and possibly by underwriting issues. Basically, the amount of coverage drives the rates.

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Medicare
1. What are Medicare Supplement plans? 
Medicare parts A & B pay for certain expenses with deductibles and limits on payments. Medicare Supplement plans, or Medigap, pay for costs that are not covered by Medicare. There are several standardized plans, which are identical between companies. The most generous plan, which covers all expenses outside of Medicare, has the highest premium. There are other plans that offer lower premiums with copays and lesser coverage. The Medicare agency has standardized plan information.

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2. What are Medicare Part D Drug Plans? 
Medicare Part D plans use federal money to subsidize prescription drugs for those on Medicare. The plans have a premium paid for by the enrollee, and coverage limits and levels that are partially paid for by the subsidized plan. The basisc struction is a reduced copay up to a certain level of drug costs, a gap with no coverage, and then an extremely low copay at higher overall drug cost levels to cover catastrophic prescription drug costs.

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3. How are Medicare Supplement plans underwritten? 
When a Medicare participant is first eligible for Medicare, all supplement plans are available to the participant without underwrting. This also is the case if the current plan is discontinued for the participant. At other times, the insurance companies are allowed to underwrite based on the health status of the participant.

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4. How do Medicare Supplement plans pay out? 
Medicare supplement plans work in conjunction with Medicare. Whe a participant goes to a health care provider, he shows his Medicare card. The provider then bills Medicare. Medicare then passes any non-paid costs to the Medicare supplement company to pay the rest. The participant only gets billed for what is not covered by the supplement plan. There is no need to file claims with the Medicare supplement plan company.

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5. How do Medicare Part D Plans pay out? 
Medicare Part D plans work in conjunction with Medicare. The participant will get a electronic card to use at pharmacies. The pharmacist will access the Part D database and ask for the proper payment from the participant. Drug purchases outside of authorized pharmacies can be handled by reiumbursement through the insurance company.

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6. What affects the premium rates? 
The premiums are affected by age, and zip code. Underwritten Medicare Supplement policies may also have different rates for Preferred and Standard applicants. Some plans will provide a discount for using a preferred network of hospitals. Medicare Part D plans are very standard and the rates are usually based on the state of issue.

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Dental
1. What are Dental plans? 
Dental plans offer limited coverage for dental procedures. There are either fixed dollar payments for procedures, or payments based on percentage of the costs of types of proceduress. There is usually a deductible and a maximum amount per year. One of the attractive features is that there are lower procudure prices for dentists within a network.

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2.How do Dental Plans Pay Out? 
Dental Plans will pay the dentists directly if the client wants that. In network dentists will also adjust their rates to the negotiated rate with the insurance carrier. The client can also submit bills and get reimbursed. For major dental work, the dentist will submit a proposal to the insurance carrier to get pre-approval and an agreement on the costs.

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3. What affects the premium rates? 
Since the plans have limited benefits, there is little variation in rates. The rates are based on the state of issue and the amount of coverage.

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