Life Insurance

Today’s Learning Objective How does life insurance work? Life Insurance Basics Calculating Life Insurance Needs Term Life Policies Whole Life Policies Getting a Life Insurance Policy

Life Insurance Provides money that is paid upon death of the insured to a person identified in the policy –beneficiary - person who receives payment of the life insurance Can designate multiple beneficiaries –You designate the percent of the policy amount each beneficiary gets

Purpose of Life Insurance Normally used to –Provide family members money to live desired lifestyle in case of untimely death of insured –Provide business partners money to cover potential losses due to loss of partner

Determining Life Insurance Needs Determine what you want beneficiary to be able to do –Cover funeral costs –Pay off debt (house, car, credit cards, etc.) –Replace earnings that deceased would have earned (amount per year, number of years) –Pay for college –Etc.

Determine what beneficiary will already have available –Current income –Savings –Investments –Etc. Determine what amount of life insurance you need to get to cover what already won’t be available

Assignment #1 Analyzing Financial Needs worksheet

Types of Life Insurance

Term Life Insurance Insurance protection provided for a specified period of time Payment made only if death occurs during the time the policy is in effect –example: if you have a 20-year term life policy and you die a week after the policy concludes, you get nothing If you pay on the policy for the entire 20 years and do not die, you get nothing back –this insurance is not an investment, just protection against risk

Whole Life Insurance Provides insurance coverage during the entire life of the insured, as long as premiums are being paid –Straight life – pay during entire life –Limited-pay life – pay up to specified age; policy covers until death with no additional premiums paid builds up cash value insured gets cash if policy is terminated early

Getting a Life Insurance Policy Contact an agent with a life insurance company –Local office –Online

All named insured on policy will have to get a physical exam prior to the premium being set and policy issued –Health issues will result in higher premiums –Poor family health history will result in higher premiums –Older age will result in higher premiums

Risk Management for Life Insurance Risk Reduction –Take actions to reduce chances of untimely death Maintain healthy lifestyle Minimize risk associated with potentially deadly activities Risk Transfer –Obtain insurance to pay beneficiary desired amount Risk Retention –Any expenses beyond desired amount –Death beyond end date of policy (term life only)

Assignment #2 Life Insurance Quote Activity