IMch04 - CHAPTER 4 Life, Health, and Loss of Income...

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CHAPTER 4 Life, Health, and Loss of Income Exposures EXPOSURES DUE TO PREMATURE DEATH Executor Fund Income Needs of Survivors Surviving Children Surviving Spouse Other Surviving Dependents Business-Related Exposures Likelihood of Premature Death Needs versus Human Life Values Medical Care Expenses Hospitalization Physicians’ and Surgeons’ Services Dental Care Prescription Drugs and Other Expenses Mental Health Services Long-Term Care Loss of Income Causes of Disability Length of Disability Effects of Disability OTHER INCOME LOSS EXPOSURES Unemployment Retirement KEY TERMS AND CONCEPTS Continuance tables Experience rating Partial disability Cost shifting Home health care Permanent disability Custodial nursing homes Human life value Personal care homes Defensive medicine Intermediate nursing home care Premature death Disability loss Key employee Skilled nursing home care Executor Long-term care Temporary disabilities Executor fund Mortality table Total disability ANSWERS TO QUESTIONS FOR REVIEW AND DISCUSSION 1. The executor fund is designed to pay for the expenses associated with the funeral and burial of the decedent, estate and inheritance taxes, estate distribution and administration costs, and the outstanding debts of the decedent. 2. One form of business-related premature death exposure involves the death of a key employee. The death of an employee who performs services that would be particularly hard to replace may cause the delay or abandonment of some of the firm’s projects. The death of a key employee may also cause extra costs for replacement and training and might result in the loss of customers. Another business-related exposure involves the death of a person with an ownership interest in the business. This death could cause ownership to pass to undesirable beneficiaries who could harm the value of the ownership interests of the surviving owners and the estate of the deceased owner. 3. The answers will differ, but each answer should reflect a change in circumstances that would cause a change in income need for the survivor. 1
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a. Surviving children: As children age, the time that they will be dependent on their parents shortens. Further, a child could become sick or disabled and need special health care, or a child could start college. b. Surviving spouse: The spouse could become sick or disabled or develop a marketable skill that decreases dependence on the other, or the children may attain an age that would allow the spouse to switch to full-time employment. c. Surviving parents: A parent could become disabled or sick and require medical or convalescent care. 4. a. Age 4 or 5 years for males, age 5 or 6 for females b. 6.8 c. 0.99753, calculated as: 1 – [(0.47 + 0.48 + 0.50 + 0.50 + 0.52)/1,000] 5. $689,787, calculated as: $824,849 – ($26,507 + $26,758 + $27,010 + $27,265 + $27,522) 6. The five major categories of medical expenses are hospitalization, physicians’ and surgeons’ services, dental care, mental health services, and long-term care.
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IMch04 - CHAPTER 4 Life, Health, and Loss of Income...

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