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 death Discuss the factors influencing the need to partially or fully replace a deceaseds income for his or her surviving children and/or spouse Describe ways a business can lose money when an employee or owner dies prematurely Explain the nature of a mortality table and give examples of how it can be used for personal risk management Describe several types of medical expense loss that can be incurred Distinguish between types of disability loss and explain the nature of the subjective element in disability Explain the general principles underlying unemployment insurance that exists in all states Describe several factors influencing the frequency and severity of income losses due to retirement2 2Exposures 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 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 person may outlive his or her financial resources 3 3Exposures 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 live 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 4 4Executor Fund When 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, arrangements must be made for paying the deceaseds outstanding debts And for transferring any remaining assets and personal effects to survivors 5 5Table 4-1: Services that can be Provided for or Arranged by Funeral Directors 6 6Executor Fund Sometimes used to refer to these expenses because the executor 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 7 7Income Needs of Survivors If someone is 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 8 8Surviving Children Young children 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 of 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 9 9Surviving 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 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 1010Other Surviving Dependents An individual may 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 1111Business-Related Exposures If an employee performs services that would be especially hard 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 peri