2ObjectivesIdentify the purpose of life insurance and the reasons for buying it.Recognize that the need for life insurance varies over the course of one’s life and identify the procedures used to calculate life insurance needs.
3ObjectivesDistinguish among the various types of term and cash-value life insurance policies.Describe and explain the purpose of the major provisions of life insurance policies.Discuss important points to consider when choosing and buying life insurance.
4What is the Purpose of Life Insurance? To protect people who depend on you from financial loss related to your death78% of all American households have itTo make charitable bequests upon your deathTo save money for retirement or children’s educationTo leave as part of your estateTo pay off a mortgage or other debts at the time of death
5The Principle of Life Insurance Mortality tables provide odds on your dying, based on your age and sexYour premium is based on the projections for the payouts for persons who die
6Determining Your Life Insurance Needs - Ask Yourself... Do you need life insurance?do you have people you need to protect financially?does your partner work?What are your objectives for life insurance?to accumulate money for retirement?to provide funds when you die?how much can you afford?
7Estimating the Amount of Life Insurance You Need The Easy Methodtypically, you will need to have enough insurance to cover 70% of your income for seven yearsThe DINK (dual income, no kids) MethodThe “Nonworking” Spouse MethodThe “Family Need” Method looks atemployer provided insuranceSocial Security benefitsincome and assets
8Determining Life Insurance Needs CALCULATING DOLLAR LOSS:Multiple-of-Earnings Approach
9Types of Life Insurance Policies Term life insuranceprotection for a specified period of timeif you don’t pay premiums, coverage stopsrenewability optionat the end of the term you can renew the policy without having a physical
10Types of Life Insurance Policies Term life insurance (continued)conversion optioncan change your policy from term to a whole life policy without a physicaldecreasing term insuranceyour premium stays the same, but the amount of coverage decreases as you age12-8
11Types of Life Insurance Policies (continued)Whole life insuranceyou pay a premium as long as you liveamount of premium depends on your age when you start the policyprovides death benefits and accumulates a cash valueyou can borrow against the cash value or draw it out at retirementlook carefully at the rate of return your money earns
12Whole Life Policy Options Nonforfeiture clauseif you stop paying premiums you can use the cash value in a variety of ways.Limited payment policypay higher premiums during your earning years only, keeping lifetime coverageVariable life policyminimum death benefit guaranteed, but can be more depending on how your premium dollars are invested
13Whole Life Policy Options (continued)Adjustableyou can change your premium amount and thus your coverageUniversal lifelets you pay premiums in almost any amountcombines term insurance and investment elements
16Types of Policies Issued in 1994* 8%Term22%Whole Life45%OtherVariable UniversalUniversal11%Variable2%Decreasing2.0%12-1210%*1997 Insurance Fact Book
17Other Types of Life Insurance Policies Group life insuranceoften through an employerno physical requiredusually term insuranceCredit life insurancedebt is paid off if you diemortgage, car, furniturealso protects lendersexpensive protection
18Life Insurance Contract Provisions Naming your beneficiary (one or more)Length of grace period for late paymentsReinstatement of a lapsed policy if it has not been turned in for cashSuicide clause during first two yearsAutomatic premium loansuses the accumulated cash value to pay the premium if you do not
19Life Insurance Contract Provisions (continued)Misstatement of age provisionPolicy loan provisioncan borrow against your cash valueRider to add or alter benefitscost of living protectionWaiver of premium disability benefitAccidental death benefitpays twice the policy face amountGuaranteed insurability optionAccelerated benefits
20Buying Your Life Insurance Look at your income, savings, group life insurance, and Social Security benefitsCompare policy costs which are affected bycost of doing businessreturn on its investmentsmortality rate among policyholdersfeatures of the policycompetition from other companies
21Buying Your Life Insurance (continued)Use the interest-adjusted index to compare policiestakes into account the time value of moneyhelps you make cost comparisons among insurance companiesDetermine from whom to buy your policyexamine both private and public sourceslook up the company’s rating
22Choosing Your Insurance Agent Ask friends, parents and neighbors for recommendationsFind out if the agent belongs to professional groups or is a CLUIs the person willing to take the time to answer your questions and find a policy that is right for you?Do they ask about your financial plan?Do you feel pressured?Are they available when needed?
23Obtaining and Examining a Policy Apply and provide medical historyRead all of the contractAfter you buy it you have ten days to change your mindGive your beneficiaries and lawyer a copy
24Choosing Settlement Options Options are the choices for how you want the money paid outOne lump-sum is most commonLimited installment planin equal installments for a specific number of years after your deathIncome for lifepayments to the beneficiary for lifeProceeds left with the companypays interest to the beneficiary
25Should You Switch Policies? If benefits exceed costs of getting another physical and paying policy set up costs.Are you still insurable?Can you get all the provisions you want?
26Financial Planning with Annuities What is an annuity?a contract where you pay money in, and at a certain date get regular payments back during your lifetimeWhy do people buy annuities?to supplement retirement income and to shelter income from taxesHow are annuities taxed?income deducted and interest earned is not taxed until you draw the money out