Trevor Wilson is 27 years old. He works for a company with a good health insurance plan. Indeed, Trevor has heard it's priced better than most plans and has consequently taken out the optional expanded dental and vision plans. While he doesn't currently wear glasses or contact lenses, he does go for an annual eye exam and wants the extra vision plan in case he ends up needing corrective lens or has any eye problems. His plan has a $40 co-payment for an annual eye exam and pays $100 toward eyeglass frames, plus 20 percent of the rest of the cost. Contacts lenses have similar coverage. Trevor pays just an additional $15 monthly premium for the vision plan. He feels more comfortable having expanded health insurance coverage.

While Trevor feels better having expanded health insurance coverage in general and vision coverage in particular, it isn't currently a cost-effective decision. He makes a $40 co-payment for an annual eye exam, which is probably cheaper than the full cost of an eye exam. But Trevor doesn't wear glasses or contacts. His $15 monthly premium costs him $180 per year. It's extremely unlikely that he saves anywhere near that much on the cost of his exam under the vision plans. And if Trevor has a significant medical problem with his eyes, his major medical insurance plan should over the cost well. It could make sense for him to have expanded vision coverage in the future, if corrective lenses are needed, but for now it appears that Trevor's comfort in having expanded vision coverage is costly.

Questions:

1.Discuss the term 'co-payment.'

2.Discuss all the advantages and disadvantages of 'co-payment'.

Case 6: Rob Saves on His Car Insurance

Rob McDowell is a frugal and careful financial planner. One of his money-saving decisions is to continue driving his nine-year old car, which is now worth about $7,500. In order to save money on his car insurance, Rob increased his deductible from $500 to $1,000, which reduced his annual premium by $200. He has just decided that he no longer needs the collision coverage on his policy, which pays for the repair and replacement of his low-value car rather than to continue taking the certain loss of the higher-priced insurance coverage. This decision will save him hundred dollars a year.

Questions:

1.Does Rob's decision that he no longer needs the collision coverage help him save more insurance money? Support your answer.

2.Discuss the importance of car insurance.