1 Personal Finance: Another Perspective Insurance 2: Life Insurance Tyler J Vongsawad, CLU, ChFC, CFP® 02/10/2011

2 Objectives A.Understand Benefits of Life Insurance B.Understand 5 Key Questions about Life Insurance C.Understand different types of Term Insurance D.Understand different types of Permanent Insurance E.Understand which type of insurance is best for you and the steps to buying Life Insurance

3 A.Understand Benefits of Life Insurance What are some benefits of Life Insurance?

4 A.Understand Benefits of Life Insurance Death Benefit Secure Insurability Cash Value Tax-deferred Growth Estate Planning

5 B. Understand 5 Key Questions about Life Insurance 1.Why Have Life Insurance? 2.How Does Life Insurance work? 3.Who Needs Life Insurance? 4.How Much Life Insurance is Needed? 5.Which Type of Life Insurance is Suitable?

6 1. Why Have Life Insurance

7 B. Understand 5 Key Questions about Life Insurance 1.Why Have Life Insurance? 2.How Does Life Insurance work? 3.Who Needs Life Insurance? 4.How Much Life Insurance is Needed? 5.Which Type of Life Insurance is Suitable?

8 4. How Much Life Insurance is Needed? From the old LDS Handbook for Families it states: Insure the family’s breadwinner first, then others, if desired, as income permits. At a minimum, get enough life insurance to pay for such things as a funeral, taxes, mortgage on the home, car payments, and other debts. The next priority should be to get enough insurance that, supplemented by any government retirement benefits the surviving spouse may be entitled to, there will be sufficient to provide for the family and to make provisions for the children’s education and missions. “Handbook for Families: Preparing for Emergencies,” Ensign, Dec. 1990, 59.

9 Customized Needs Approach Immediate Expenses Mortgage Debt Funeral Costs Other Final Expenses Future Expenses Education Missions Weddings Ongoing Expenses How much is needed to be comfortable and for how long?

10 B. Understand 5 Key Questions about Life Insurance 1.Why Have Life Insurance? 2.How Does Life Insurance work? 3.Who Needs Life Insurance? 4.How Much Life Insurance is Needed? 5.Which Type of Life Insurance is Suitable?

11 5. Which Type of Life Insurance is Suitable? Permanent Own Term Lease

12 5. Which Type of Life Insurance is Suitable? Own Permanent More Expensive per Month Equity More Control Payments Will Stop Tax Benefits Lease Temporary Less Expensive per Month No Equity Less Control Payment Will Continue No Tax Benefits

13 5. Which Type of Life Insurance is Suitable? Which Type is Better? It Depends on Goals and Situations Goal – Financial Security is the goal, not just having Life Insurance Goal – Death benefit 1 st, other benefits 2 nd Situation – Duration Situation – Ability to pay premiums

14 Types of Life Insurance Products (continued) The differences in life insurance products relate to: Mortality Risk (for insurer): The risk that the insured dies during the contract period. Investment Risk: The risk of who takes responsibility for the outcome of the investments Policy Cost: What are the costs of the policy compared to other policies Investment Choice: The types of investment vehicles the non-mortality portion of the premiums are invested in, i.e., bonds, stock, etc. Policy Flexibility: The ability to change the types of investments, monthly premium amounts, or the face value amount during the life of the contract. 14

15 C. Understand the Different Types of Term Insurance + Premium Payments Your Term Life Insurance Policy - Mortality Costs - (Low) Expense Costs

16 C. Understand the Different Types of Term Insurance

17 Term Insurance Comparisons

18 Term Insurance Comparisons

19 Term Insurance Comparisons

20 Term Insurance Comparisons

21 C. Understand the Different Types of Term Insurance Level +/- Fixed Cost + Potential Long-term Savings - Coverage May End Sooner than Needed Annually Renewable +/- Increasing Cost (starts smaller finishes larger) + Potential Short Term Savings + Coverage May Continue Without Evidence of Insurability Can it be Converted to Permanent?

22 D. Understand the Different Types of Permanent Insurance + Premium Payments + Investment Income + Dividends (if participating) Your Permanent Insurance Policy - Mortality Costs - (high) Expense Costs A major benefit is to be able to borrow against your cash value portion of your policy tax-free Policy Cash Value

23 D. Understand the Different Types of Permanent Insurance Whole Universal Variable Equity Indexed

24 E. Understand which type of insurance is best and the steps to buying Life Insurance

25 E. Understand which type of insurance is best and the steps to buying Life Insurance Things to watch out for “Why do I need to know this, isn’t it the life insurance agents job to know this stuff?” “I’ll have life insurance coverage through work” “I can get $500,000 of life insurance for $13.56/month. Why would I pay more?” “Why do I have to get a medical to open an investment account?” “Only buy permanent insurance, if you don’t you’ll be throwing away your money!” “Only buy term and invest the difference, if you don’t you’ll get ripped off!” “I’ll self insure when I’m 48, so I won’t need more than a 20 year policy”

26 E. Understand which type of insurance is best and the steps to buying Life Insurance Steps to Buying Know what you want to achieve and maintain financial security and find a life insurance policy that fits it Understand the financial institution – Fortune does a survey every year on “America’s Most Admired” companies in each industry – Insurance: Life and Health Understand the companies Financial strength ratings

27 E. Understand which type of insurance is best for you and the steps to buying Life Insurance Ratings Companies: A.M. Best Fitch Ratings Moody’s Standard & Poor’s Weiss Research Aggregate Consumer Complaint Reports National Association of Insurance Commissioners - Consumer Information Source

28 E. Understand which type of insurance is best for you and the steps to buying Life Insurance Steps to Buying Know what you want to achieve and maintain financial security and find a life insurance policy that fits it Understand the financial institution – Fortune does a survey every year on “America’s Most Admired” companies in each industry – Insurance: Life and Health Understand the companies Financial strength ratings Find a licensed professional you are comfortable with

29 E. Understand which type of insurance is best for you and the steps to buying Life Insurance First Presidency Message – March 2008 “Consideration should also be given to investing wisely with responsible and established financial institutions. We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes. While all investments carry an element of risk, that risk can be managed by following sound and proven financial principles: first, avoid unnecessary debt, especially consumer debt; second, before investing, seek advice from a qualified and licensed financial advisor; and third, be wise.”

30 E. Understand which type of insurance is best for you and the steps to buying Life Insurance Steps to Buying Know what you want to achieve for financial security and find a life insurance policy that fits Understand financial institutions – Fortune does a survey every year on “America’s Most Admired” companies in each industry – Life and Health Understand the companies Financial strength ratings Find a licensed professional you are comfortable with Compare policies – Not just on price but on benefits

31 E. Understand which type of insurance is best for you and the steps to buying Life Insurance

32 Tyler Vongsawad, CLU, ChFC, CFP® Questions?