Life Insurance

Chapter 40

Why Life Insurance?

Life Insurance protects survivors against the financial loss associated with death. Loss of income for family members.

Means of saving and investing. Anyone with dependents needs life insurance

Dependent-a person who must rely on another for financial support.

Types of Life Insurance

Term Life Insurance Provides financial protection from losses resulting

from loss of life during a definite period of time. Least expensive form of life insurance and purely

life insurance. Other forms of life insurance have savings features added

to them. May run for a term of 1 year to more than 20 years. If insured dies during this time amount of policy is paid to

the beneficiary. Beneficiary is the person named in the policy to

receive the insurance benefits.

Types of Insurance-(term cont.)

Renewable policy-allows the policy holder to continue insurance for one of more terms without taking another physical exam.

Level term-the amount of protection and the premiums remain the same while the insurance is in effect.

Decreasing term-the amount of protection gradually becomes smaller, but premiums remain the same during the term. Need for insurance normally declines as children grow up and

become and other savings and investments grow.

Types of Insurance-(Permanent)

Permanent Insurance-has cash value and an investment feature as its common characteristics. Part of the premium is for the insurance another part of the

premium is invested for you and becomes part of the cash value of the policy.

Cash Value-the amount of money received should a policyholder decide to surrender the policy.

The cash value will increase by a higher percentage the longer you keep your policy.

You can borrow against the cash value of the policy. Face Value-is the amount of insurance that was originally

purchased and that will be paid upon the death of the insured.

Types of Insurance-(Permanent)

3 Types of Permanent Insurance. Each accumulates cash value. Whole Life-extends over the lifetime of the insured.

Ordinary Life-premiums remain the same each year as long as the policyholder lives.

Limited Payment policies-premiums are paid over an agreed upon amount of years.

Frees the insured from paying premiums during retirement when income is typically lower.

Types of Insurance-(Permanent)

Variable Life-is a type of life insurance plan that resembles an investment portfolio. This plan lets the policyholder choose among a broad range of

investments including stocks, bonds, and mutual funds. Death benefits vary based according to the yield on the investments

the policyholder selects. Insurance company designates an amount of premium to cover

the insurance the rest goes to investments Death benefit and the cash value rise and fall with the success of

the investment account. Minimum death benefit is guaranteed, no guaranteed cash value. Minimum death benefit is well below other types of life

insurance.

Types of Insurance-(Permanent)

Universal Life-provides both insurance protection and a substantial savings plan. Premium is divided three ways.

One portion pays insurance. Another portion is taken for it’s expenses. Third portion is place in interest-earning investments.

The most important feature of universal life insurance is that the savings portion of the policy earns a variable interest rate.

The interest rate is usually higher than is paid on other cash value insurance.

Buying Life InsuranceVirtually everyone needs life insurance.

Answers to the following questions will help to determine the suitability of a life insurance program

How much money is required for your dependents survival?

How much income will you need when you retire?

What can you afford to pay for your life insurance needs.

Applying for Life Insurance

Meet with an insurance agent. Required to take a physical exam.

If you are in poor health or work in a dangerous oocupation you may be considered a poor risk.

This doesn’t mean you can’t obtain insurance, however you will probably pay higher premiums.

Designate a beneficiary. Most often a spouse or child.

You may insure yourself or any other person in whom you have an insurable interest. You must have some kind of financial benefits from that

person’s continued life. Pay the premium.

More about Insurance.

Group Life Insurance. Some Individuals have an employer or some other

group offer the opportunity to buy group life insurance. Group Life Insurance-the group acts as a single

unit in buying the insurance. The cost of group life insurance is less than the cost of

a similar amount of protection bought individually because insurance covering many people can be handled economically in one policy.

Some group policies are available through professional associations, unions and companies.

What is an advantage/disadvantage of group insurance?