Pooling of Risk Lloyds of London What is Insurance? Contract – If you pay premiums the insurance company will pay a benefit Why Learn about Life Insurance? MOST offered investment Highest undisclosed commissions of any investment – by far Most Americans should have MORE life insurance LIFE INSURANCE

Parties to the Contract Owner Insured (example: Father) 82% husbands pass away before wife Beneficiary Primary (example: Mother) Secondary (example: the children to share equally) LIFE INSURANCE

Life Insurance Contract Provisions Insurability Preferred, Standard, Substandard Preferred, Standard, Substandard Pre-existing Conditions Pre-existing Conditions Need to Take a Medical Examination Need to Take a Medical Examination MIB – Medical Information Bureau MIB – Medical Information Bureau Insurable Interest – In a position to lose something of value Indemnify – Pay for but not profit from a loss Non-Cancellable – Except for nonpayment of premiums No Waiting Period Settlement Options – Ways to receive death benefits Riders – Additonal coverage Contract – Only the insurance company is bound by contract LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections Deaths as a result of illegal activities Deaths as a result of illegal activities LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections Deaths as a result of illegal activities Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections Deaths as a result of illegal activities Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Suicide – for two years after policy inception Suicide – for two years after policy inception LIFE INSURANCE

Life Insurance Contract Provisions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections Deaths as a result of illegal activities Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Suicide – for two years after policy inception Suicide – for two years after policy inception Aviation Accidents Aviation Accidents LIFE INSURANCE

Aviation Exclusion A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities Policy only pays if: Fare paying passenger Fare paying passenger Regularly Scheduled Commercial Airline Regularly Scheduled Commercial Airline LIFE INSURANCE

Aviation Exclusion – Example A Insurance Company claimed the man was airborne -- no death benefit because of the Aviation Exclusion. Court ruled the man never intended to be airborne -- the insurance company had to pay the death claim. LIFE INSURANCE

Aviation Exclusion – Example B LIFE INSURANCE

Aviation Exclusion – Example C Insurance company claimed they didnt need to pay because the person had completed the commercial air flight. Court ruled didnt intend to be in flight LIFE INSURANCE

Riders Waiver of Premium – requires no premium while disabled Accelerated Death Benefit – some or all of benefit if terminally ill Guaranteed Insurability – purchase future additional coverage without medical Family Income – income in addition to initial death benefit Long-term Care – Long-term care benefits prior to death Accidental Death & Dismemberment – additional benefit if death results from an accident Automatic Premium Loan – company loans money from cash value to pay premiums Disability Income – Disability income benefits prior to death Mortgage Redemptions – Mortgage payoff in addition to death benefit Child term insurance – term insurance coverage for children LIFE INSURANCE

Types of Life Insurance Group – Inexpensive if not a preferred risk Individual (Ordinary) – If a preferred risk – least expensive LIFE INSURANCE

Individual (Ordinary) Term = Death Benefit Cash Value = Death Benefit + Investment Whole Life Variable Life Adjustable Life Indexed Life Universal Life Variable Universal Life Universal Adjustable Life LIFE INSURANCE

Cash Value Chart Time Endow Age 100 Face Value Life Insurance Death Benefit Cash Value Investment LIFE INSURANCE $ 1,000,000 Year 5 Time

Cash Value Chart Time Age 100 Face Value Life Insurance Death Benefit Cash Value Investment LIFE INSURANCE $ 1,000,000 Year 5 Year 25 Investment Surrender Penalty Time Endow

Individual (Ordinary) Advantages of Investment Life Insurance Fixed premiums do not increase Permanent Coverage – Insurance for Life Investment Can be used to pay premiums Grows tax deferred Can be borrowed – no tax consequence Does not increase death benefit LIFE INSURANCE

Why to Avoid Cash Value 1.Large Lapse Rates – Behaviorally Inefficient 80% Cancelled in the first 5 Years 80% Cancelled in the first 5 Years A cancelled policy loses generally all investment value if cancelled within 3 years of purchase A cancelled policy loses generally all investment value if cancelled within 3 years of purchase Year Surrender Penalties 3.Affordability – High Cost Most Americans are underinsured – and its getting worse 4.Objective Advisors Avoid Clark Howard, Jonathon Pond, Jane Bryant Quinn LIFE INSURANCE

Why to Avoid Cash Value – Cont. 5.High Expenses – Life insurance investments tend to grow at a slower rate than an equivalent mutual fund investment 6.Rarely does actual investment experience match projected investment values 7.Very Confusing Language 8.Highest undisclosed commissions relative to dollars invested – by far LIFE INSURANCE

Why to Avoid Cash Value – Cont. "As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company,... is likely to die before he reaches a conclusion. New York State Insurance Commissioner April 1, 1870 LIFE INSURANCE

Life Insurance Purchase Solution 1.Purchase full coverage Term Life 2.Purchase enough for pre-mature Point-of-Choice 3.Invest additional money in 401(k) 4.Invest taxes saved

How Much Face Value 2 ways to calculate 1.14 times primary breadwinners income (easiest) 2.Point of Choice TM Required Assets / Immediate Death Generally $1,250,000 per $50,000 income Required POC Assets - Existing Net Financial Assets LIFE INSURANCE

Insurance to Avoid LIFE INSURANCE Accidental Death and Dismemberment Example $100 per month for $500,000 coverage for any death $ 40 per month for $500,000 coverage for accidental death 4.4% of all deaths occur by accident Insurance premium should be $ 4.40 for deaths that occur by accident You pay 952% too much for premiums

CAUSES OF DEATH, USA 2002 National Vital Statistics Report FORMAL NAMEINFORMAL NAME % ALL DEATHS (1) Diseases of the heartheart attack (mainly)28.5% (2) Malignant neoplasmscancer22.8% (3) Cerebrovascular diseasestroke6.7% (4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1% (5) Unintentional injuriesaccidents4.4% (6) Diabetes mellitusdiabetes3.0% (7) Influenza and pneumoniaflu & pneumonia2.7% (8) Alzheimer's DiseaseAlzheimer's senility2.4% (9) Nephritis and Nephrosiskidney disease1.7% (10) Septicemiasystemic infection1.4% (11) Intentional self-harmsuicide1.3% (12) Chronic Liver/Cirrhosisliver disease1.1% (13) Essential Hypertensionhigh blood pressure0.8% (14) Assaulthomicide0.7% (15) All other causesother17.4% LIFE INSURANCE

Accidental Death and Dismemberment Example No suicide coverage Trip Insurance Cancer Coverage Pre-Need Funeral Expenses LIFE INSURANCE Insurance to Avoid $ 6,120 premiums for a $ 2,400 funeral $ 10,447 with 10% interest Kathryn Anderson of Dallas

Accidental Death and Dismemberment Example No suicide coverage Trip Insurance Cancer Coverage Pre-Need Funeral Expenses Credit Life Very expensive per $1,000 of coverage 66% of deaths go unreported Consumers often told purchase is a condition of loan Children Life Insurance LIFE INSURANCE Insurance to Avoid