1、Trieschmann, Hoyt & SommerLife, Health, and Loss of Income ExposuresChapter 42005, Thomson/South-WesternChapter ObjectivesList and describe the types of potential losses associated with the risk of premature deathDiscuss the factors influencing the need to partially or fully replace a deceaseds

2、income for his or her surviving children and/or spouseDescribe ways a business can lose money when an employee or owner dies prematurelyExplain the nature of a mortality table and give examples of how it can be used for personal risk managementDescribe several types of medical expense loss that can

3、be incurredDistinguish between types of disability loss and explain the nature of the subjective element in disabilityExplain the general principles underlying unemployment insurance that exists in all statesDescribe several factors influencing the frequency and severity of income losses due to reti

4、rementExposures Due to Premature Death Most people face a risk associated with death That of timing Death is sure to occur ultimately but the specific day and time it will strike are generally unknown for most of a persons life If death occurs suddenly when an individual is performing important and

5、unique functions for an employer The resulting financial loss to the business can be significant If death occurs during a period when an individual is a major financial provider for young children or other dependents The effects on the survivors can be devastating If the death occurs “too late” A pe

6、rson may outlive his or her financial resources Exposures Due to Premature Death Premature death Death that occurs before the life stage where death becomes increasingly accepted by society as part of the natural, expected order of life On average baby boys born in the U.S. in 2000 can expect to liv

7、e for 74.1 years Baby girls can expect to live for 79.5 years Some persons believe that for newly born children, any death that occurs prior to these ages is premature For risk management purposes, it is helpful to classify any death prior to a planned retirement age as premature Executor Fund When

8、a person dies, there are some immediate expenses associated with the funeral and burial or other disposition of the body These services can be paid for on an itemized basis or through package plans Average over $5,000.00 in addition to the cost of a cemetery plot and headstone Soon after the funeral

9、, arrangements must be made for paying the deceaseds outstanding debts And for transferring any remaining assets and personal effects to survivors Table 4-1: Services that can be Provided for or Arranged by Funeral Directors Executor Fund Sometimes used to refer to these expenses because the executo

10、r of the estate needs funds to pay for the expenses incurred as a result of the death Executor fund expenses arise no matter when death occurs Some expenses such as estate taxes may grow more burdensome as a person ages and accumulates large amounts of wealth Income Needs of Survivors If someone is

11、providing full or partial monetary support for other family members That persons death will affect the family financially as well as emotionally As a person passes through different stages of live The degree to which others are financially dependent on him or her changes Surviving Children Young chi

12、ldren are usually totally dependent on their parents for food, clothing, shelter, and other necessities A parents death has the potential for eliminating a childs primary or sole source of income The timing of a parents death will affect children differently Depending on the ages and circumstances o

13、f the children when the death occurs The parent must also decide whether or not they wish to contribute toward paying for a childs college education Surviving Spouse During the course of a couples married lives, there be maybe many situations in which people shift the degree to which they depend on

14、each other financially Leads to the dynamic rather than static analysis of potential income needs The relative degree of financial dependence of each spouse on the other is always subject to change When children enter the picture, work patterns may change Other Surviving Dependents An individual may

15、 provide some degree of financial support for persons other than a spouse or child Examples include An elderly parent living with a grown child Grandchildren living with their grandparents Siblings living together Business-Related Exposures If an employee performs services that would be especially h

16、ard to replace That person may be considered a key employee His or her death may cause plans or projects to be abandoned Or the business may seek a replacement person following the death of the key employee Costs involved may include Loss of efficiency for a period of time Increased salary to attrac

17、t someone new Training and development expenses for the replacement Business-Related Exposures A person who has ownership rights in a firm may die When a sole proprietor, partner, or a major stockholder dies That persons ownership may pass to persons unfriendly to the firm It may even result in liqu

18、idation of the firm in order to pay the persons executor fund expenses Competitors may obtain controlling ownership by purchasing shares from families of deceased stockholders Those who inherit the deceased rights may enter the business But due to inexperience may cause losses or even bankruptcy Lik

19、elihood of Premature Death Aggregate death rates in the U.S. have been declining for many years Due to advances in medical technology and improved economic status In calculating the probability of premature death, mortality tables have been developed Express the probability of living and dying at va

20、rious ages in a convenient format for a particular assumed population of persons Likelihood of Premature Death Death rates in insurance mortality tables are purposely overstated for conservativeness To reflect the possibility of unusual fluctuations in death rates in some years Figure 4-1 contains a

21、 graph of 2001 CSO death rates on a semilogarithmic scale Death rates during the first few years of life are higher than they are following ages nine or ten Beginning at about age 60 death rates began to climb significantly At every age, the death rate is higher for males than females Figure 4-1: Th

22、e Mortality Rate, 2001 CSO Mortality Table Needs vs Human Life Values Identifying needs and resources is consistent with the overall risk management process Identified risks are analyzed and alternatives are considered and combined into a comprehensive plan for their management Human life value may

23、have relevance The sum of money that, when paid in installments of both principle and interest over the individuals remaining working life Will produce the same income as the person would have earned after deducting the assumed amounts for tax and personal maintenance expenses Exposures Due to Loss

24、of Health Losses resulting from health problems usually fall into two categories Expenses that must be paid for medical care Income that cannot be earned due to time away from work while health problems persist While loss of health can be permanent, it is more often a temporary phenomenon Medical Ca

25、re Expenses Expenditures for medical care in the U.S. have exploded in recent years Now equal about 16.7 percent of disposable personal income Factors contributing to the high cost of health care The mere fact that people are living longer Because health problems usually become more frequent and sev

26、ere with age New medical technology and the demand by patients for state-of-the-art treatment The increasing frequency and severity of liability awards for medical malpractice Doctors and hospitals must pay higher malpractice insurance premiums They may also performed extra procedures and tests in a

27、ddition to those that are probably necessary as a defensive measure Cost shifting Higher hospital charges are assessed to some patients but not to others Medical Care Expenses: Hospitalization Approximately 37 percent of personal health care expenditures in the U.S. is attributable to hospital costs

28、 Expenses are incurred for items such as room and board, lab tests, supplies, prescription drugs, services by physicians, surgeons, nurses, etc. The frequency and severity of losses vary considerably by geographic location The national average number of days for a hospital stay is 5 However, in Nebr

29、aska and Hawaii the average is 8 While in New Mexico, Oregon and Idaho the average is 4.5 Medical Care Expenses Physicians and surgeons services Fees vary according to the Geographic area Medical specialty of the provider Type of visit (initial, follow-up, or in the hospital) Dental care About five

30、percent of all personal health care expenses Some of the expenses are for major restorative work But many expenses result from procedures that are preventable Medical Care Expenses Prescription drugs and other expenses Represent over five percent of U.S. healthcare expense Mental health services Com

31、mon problems include depression, anxiety, phobias, and obsessive-compulsive behavior In recent years the use of mental health services has increased considerably as have the costs of these services Medical Care Expenses: Long Term Care Persons age 85 and over as a percentage of the population have b

32、een growing at a fast pace Diseases such as arthritis, Alzheimers and osteoporosis become more prevalent with age Persons with these ailments are less likely to be able to maintain independent living arrangements Long term care options include Skilled nursing home care Custodial nursing homes Person

33、al care homes Intermediate nursing home care Home health care Expenses depend on the level of medical services provided The cost for one year of custodial nursing home care can easily exceed $50,000 Loss of Income Disability loss When a person is unable to work because of an illness or injury Most d

34、isabilities are temporary The person eventually recovers and returns to work However some are permanent Disabilities can be further classified as Total Person is completely incapable of gainful employment during the time of the disability Partial Person experiences a decreased ability to earn a livi

35、ng but not a complete cessation of employment possibilities Causes of Disability Accidents Illnesses Most common cause There are differences between males and females regarding causes of disability Males are more likely to experience accidents Female are more prone to illnesses The risk of disabilit

36、y increases with age Length of Disability Continuance tables have been developed to gauge the likely severity of disability for personal risk management purposes Table 4-5 provides information regarding the likelihood of initial and continuing disabilities For 25-year-olds employed in generally nonh

37、azardous occupations While it is quite likely that many people will at some point suffer a disability resulting in time lost from work The probability that the disability will be permanent is rather low Table 4-5: Disability Continuance Table Effects of Disability Primary loss is the loss of income

38、that would have been earned if the person had not become disabled The length of time of the disability is the major determining factor in determining the overall size of the income loss Income losses can have varying impacts on family members Depends on the degree to which other persons rely on that

39、 income for their support In contrast to death, no significant decrease in living expenses is expected when a person is disabled Living expenses may also increase if nursing home care or other assistance is required Other Income Loss Exposures: Unemployment During peacetime years the U.S. employment

40、 rate has typically ranged between 4 and 7 percent Government unemployment insurance programs are in effect in all states Designed to alleviate the effects of short term, involuntary unemployment Only offers a floor of protection, not full wage restoration Other Income Loss Exposures: Unemployment To be able to collect unemployment insurance benefits Unemployed worker must either have Worked for some minimum