1. Personal Finance Garman/Forgue Ninth Edition
Chapter 12: Life Insurance Planning
PPT slide program prepared by Amy Forgue and Ray Forgue.

2. Learning Objectives
Understand the reasons why you might need life insurance and calculate the appropriate amount of coverage.
Distinguish among the types of life insurance.
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3. Learning Objectives
Explain the major provisions of life insurance policies.
Apply a step-by-step strategy for implementing a life insurance plan.
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4. Introduction Risk of dying too soon Risk of living too long
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5. How Much Life Insurance Do You Need?
The primary reason for buying life insurance is to allow the family members of the deceased to continue with their lives free from the financial burdens that death can bring.
Beneficiary: The person named in the policy to receive the funds.
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6. What Needs Must Be Met?
Final expenses: One-time expenses occurring just prior to or after a death.
Income-replacement needs
Readjustment-period needs
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7. What Needs Must Be Met? Debt-repayment needs College expense needs
Other special needs
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8. What Needs Must Be Met?
Government benefits can reduce the level of need.
Social Security survivor’s benefits
Social Security blackout period
Existing insurance and assets reduce the level of need.
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9. What Dollar Amount Do You Need?
The Multiple-of-Earnings Approach: easy but flawed.
The Needs-Based Approach: a better method
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10. Two Basic Types of Life Insurance
Term Life Insurance (or Pure Protection)
Face amount
Cash-Value Life Insurance
Cash-Value: Represents the value of the investment element in the life insurance policy.
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11. Term Life Insurance Guaranteed Renewable Term Insurance
Protects you against the possibility of becoming uninsurable.
Level-Premium Term Insurance
Reenter Provision
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12. Term Life Insurance Decreasing Term Insurance
Convertible Term Insurance
Group Term Life Insurance
Credit Term Life Insurance
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13. Cash-Value Life Insurance
Some forms of cash-value life insurance pay a fixed return:
Cash-Value Life
Permanent Insurance
Whole (or Straight) Life Insurance
Limited-Pay Whole Life Insurance
Adjustable Life Insurance
Modified Life Insurance
Endowment Life Insurance
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14. Cash-Value Life Insurance
Some forms of cash-value life insurance pay a variable return:
Universal life insurance
Variable life insurance
Variable-Universal (or Flexible-Premium) life insurance
Don’t be fooled by vanishing-premium or return-of-premium policies.
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15. Understanding Your Life Insurance Policy
Owner (or Policyholder)
Insured
Contingent Beneficiary
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16. Policy Terms and Provisions Unique to Life Insurance
Life Insurance Application: The policyholder’s offer to purchase a policy.
Lives Covered
First-to-Die Policies: Cover more than one person but pay only when the first insured dies.
Survivorship Joint Life Policy: Pays when the last person covered dies.
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17. Policy Terms and Provisions Unique to Life Insurance
The Incontestability Clause
The Suicide Clause
Cash Dividends
Insurance Dividends
Participating Policies
Nonparticipating Policies
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18. Policy Terms and Provisions Unique to Life Insurance
Death Benefit: Amount that will be paid to beneficiary when the insured dies.
Grace Period
Lapsed policy
Multiple Indemnity
Multiple Indemnity Clause
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19. Settlement Options Lump sum Interest income
Income of a specific amount
Income for a specific period
Income for life
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20. Policy Features Unique to Cash-Value Life Insurance
The Policy Illustration
Guaranteed Minimum Rate of Return
Current Rate
Nonforfeiture Values
Cash-Surrender Value
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21. Policy Features Unique to Cash-Value Life Insurance
Policy loans
Automatic Premium Loan
Living Benefit Clause
Viatical Companies
Waiver of premium
Guaranteed Insurability (or Guaranteed Purchase Option)
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22. Step-by-Step Strategy for Buying Life Insurance
First ask whether or not, and for how much, your life should be insured.
Then properly integrate your life insurance into your overall financial planning.
Buy term and invest the rest.
Layering term insurance policies
Before my rewrite, #6 was completely different than on p 326.
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23. Where and How to Buy Your Life Insurance
You can easily buy life insurance online.
Premium Quote Service: Offers computer-generated comparisons among 20 to 80 different companies.
Or you can use a local insurance agent.
Before my rewrite, #6 was completely different than on p 326.
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24. Where and How to Buy Your Life Insurance
Compare costs among policies
Net Cost Method
Interest-Adjusted Cost Index Method
Interest-Adjusted Net Payment Index Method
Before my rewrite, #6 was completely different than on p 326.
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25. The Top 3 Financial Missteps in Life Insurance Planning
People slip up in when they do the following:
1. Let their life insurance agent convince them how much and what type to buy.
2. Buy their life insurance during their childbearing years through cash-value life insurance.
3. Ignore their changing need for life insurance as their life progresses.
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26. Good Money Habits in Life Insurance Planning
Calculate your life insurance needs every three years or when major life events occur, such as the birth of a child.
Avoid being talked into buying types and amounts of life insurance that you do not need.
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27. Good Money Habits in Life Insurance Planning
Shop for term life insurance on the internet to obtain the lowest possible rates.
Employ the principle of “buy term life insurance and invest the rest” with guaranteed renewable or level-premium term life insurance.
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28. Good Money Habits in Life Insurance Planning
Contribute the money saved by purchasing term rather than cash-value insurance into your retirement plan.
If you decide that you need a cash-value life insurance policy, get one with a guaranteed insurability option.
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