INSURANCE Personal Finance

Insurance Protects individuals against unexpected financial loss.  Many types of insurance, each with a specific purpose.

Types of Insurance Life insurance  provides financial security for your family in the event of your death. Property Insurance  Tenant’s or homeowners  provides protection for the loss of the contents, the building, and liability related to your property.

Types of Insurance cont’d Extended Health Insurance  Basic Coverage  Prescriptions, ambulance service, and semi-private hospital rooms  Long Term Disability  Financial assistance in case of an illness or accident that prevents you from returning to your work.  Vision Care  Eye exams and corrective lenses.  Dental Care  Cleanings, check ups and dental work.

Insurance Terminology Insured or Policy Holder  Individual who contracts the policy with the insurance company. Insurer  Insurance company Policy  Contract that contains the legally enforceable agreement between the insurer and the insured. Premium  Amount of money the insured pays the insurer for the policy. Rider  Extra insurance purchased separately from the basic policy  provides additional benefits at additional cost

Life Insurance

Provides financial security for your family in event of your death.  Insurer agrees to pay an amount of money; face value of the policy, to an individual you chose; your beneficiary Amount you need depends on what expenses you will leave behind, and what assets you have. This money is not subject to income tax.

Purchasing Life Insurance Individual Life insurance  Purchased directly from an agent  Contract can’t be cancelled by the insurer  Provisions cannot be changed  Fully portable and transferable  Many optional benefits available.

Purchasing Life Insurance cont’d Group Life insurance  Purchased through membership in a group  Often your workplace or an association  Contracts can be cancelled by the insurer  Provisions can be changed at policy anniversary by individual or group  Usually not portable and not transferable  Limited selection of optional benefits

Types of Life Insurance Term Life Insurance  Purchased for a fixed and limited number of years.  Usually 1, 5, 10, 15 or 20 years  Policy may be renewed at the end of the term, depending on health, and ability to pay higher premiums.  Just like starting a new policy!  Also called temporary insurance – if you die after the term ends, there is no insurance.

Types of Life Insurance cont’d Term Life cont’d SEE Term Premiums Table p. 14 Plan  10-year renewable life insurance. All premiums and benefits are guaranteed for the term of 10 years. Issue Ages  20 – 65 (age at last birthday) Policy Fee  $75.00 per year Available Riders  Waiver of Premium (in case you become disabled)  Accidental Death Payment Modes  Semi – annual (multiply annual premium by 0.52)  Monthly (multiply annual premium by 0.09)

Types of Life Insurance cont’d Permanent Life Insurance  Provides lifetime protection  Changes in health do not affect your insurance, you are approved for life.  Whole Life Insurance  You pay set premiums for as long as you live  Limited Payment Life  You pay set premiums for a stated number of years

Types of Life Insurance cont’d See….Whole Life Insurance Premiums p. 15 Plan  Offers level coverage at guaranteed premiums payable to age 100, at which time the policy becomes paid up. Issue Ages  0 – 75 (age at last birthday) Policy Fee  $75.00 per year Available Riders  Waiver of Premiums  Accidental Death Payment Modes  Annual  Semi – annual (multiply annual premium by 0.52)  Monthly (multiply annual premium by 0.09)

Types of Life Insurance cont’d Permanent Insurance cont’d  Premiums appear to be higher than for Term Insurance  BUT no renewal needed – premiums stay the same for life.  Permanent Insurance is an investment!  The difference in the premiums are invested, and used later to offset the increasing cost of your policy as you age.  The amount in the investment fund at any given time is referred to as the cash surrender value of the policy.  After 2-3 years in the policy you can withdraw this value at any time.

Types of Life Insurance cont’d See….Cash Surrender Values p Permanent Life insurance cont’d  Amount of money invested, above and beyond the cost of the insurance.  The values depend on;  Gender  Age at which the policy was issued  Number of years the policy was in force.  You can cash out this savings… but you must repay if you wish to maintain insurance.

Life Insurance Calculations What type of Insurance?  Term or Whole Find the correct table value based on:  Age?  Gender?  Smoker or Non? Value is per $1000  multiply by # of thousands. Add $75 annual fee How are premiums to be paid  Annual, Semi-Annual or Monthly?

Example Robert is a 36 year old non-smoker. He is considering purchasing a 10 year term insurance policy in the amount of $300,000. Find his monthly premium. Value from Table – $1.27 x 300 = $ = $456 annually $456 annually x 0.09 for monthly = $41.04/month

Example Crystal bought a $100,000 whole-life policy when she turned 20. When she turned 40, she decided to cancel the policy and take the cash surrender value. How much did she receive? Value from Table – $46 x 100 = $4600 cash surrender

P. 22 #1- 8 Assignment