Personal Finance (Chapter 10)- What Is Life Insurance?
Settlement Options
1. Lump-Sum Payment 2. Limited Installment 3. Life Income Option 4. Proceeds Left with the Company
The Easy Method
70% of your salary for 7 years will be needed by a "typical family" before they adjust to financial consequences of your death
Whole Life Insurance
A permanent policy in which you pay a specified premium each year for the rest of your life (Permanent)
Riders to Life Insurance Policies
Adding or excluding specified conditions or altering benefits 1. Waiver of Premium Disability Benefit 2. Accidental Death Benefit 3. Guaranteed Insurability Option 4. Cost of Living Protection 5. Accelerated Benefits 6. Second-to-Die Option
Suicide Clause
After 1st two years, beneficiaries receive amounts of premiums paid
Renewable Term
Allows you to renew your coverage
Other Types of Life Insurance Policies
Group Life Insurance, Credit Life Insurance, Endowment Life Insurance
The DINK Method (dual income no kid)
If you have no dependents and your spouse earns just as much or more than you, you have simple insurance needs
Do You Need Life Insurance?
If your death would cause financial issues for dependents, life insurance would be the best option
How Long Will You Live?
Life expectancy has increased over the years
the "Non-Working" Spouse Method
Multiply the number of years before youngest kid is 18 years old by 10,000
Policy Reinstatement
(lapsed policy can be reinstated) qualified as acceptable risk
Contingent Beneficiary
(usually kids)
From Who to Buy Life Insurance
Sources, Rating Insurance Companies, Choosing Your insurance agent
Types of Life Insurance
Stock Life Insurance (non-par policy) & Mutual Life Insurance (par policy)
Types of Life Insurance Policies
Temporary- can be term, renewable term, convertible term, or decreasing term insurance. Permanent- whole life, straight life, ordinary life, & cash value of life insurance
Estimating Life Requirements
The Easy Method, The DINK Method, The "Family Need" Method, The "Non-Working" Spouse Method
The "Family Need" Method
You must decide what you want your life insurance to do for you and your dependents
Beneficiary
a person named to receive the benefits from an insurance policy (usually a spouse)
The Principles of Life Insurance
a person's life span is guessed by the company and charged accordingly. The sooner a person is likely to die, the higher the premiums he/she will pay
Choosing Your Insurance Agent
agents handle technical side of insurances
The Grace Period
allows 28-31 days to elapse during which time you pay premium
Why Buy Annuities?
annuities protect you against risk of outliving your assets
Misstatement of Age Provsion
benefits payed if age incorrectly stated
Adjustable Life Insurance Policy
change coverage as your needs change
Conversion Term
change from term to permanent coverage
Limited Payment Policy
charge premiums for only a certain length of time
Rating Insurance Comapnies
check reputation, ask about them
Proceeds Left with the Company
company acts as a trustee & pays interest to beneficiary
Comparing Policy Costs
consider time value of money & interest adjusted index
Decreasing Term
coverage decreases as balance on the loan decreases
Endowment Life Insurance
coverage for a specific period and pays and agreed amount upon sum of money to policy holder at end of endowment period
Group Life Insurance
covers a large number of people under a single policy
Naming Your Beneficiary
decide who receives benefits of life insurance policy
Multi-Year Level Term
guarantees that you will pay same premium for duration of your policy
Sources
insurance companies, private groups, (employers), labor unions, prof./fraternal.org
Incontestability Clause
insurer can't cancel policy if its been in force for specified period
Second-to-Die Option
insures 2 lives (usually spouses)
Tax Considerations
interest on principal & tax compounded build ups free of current income tax
Accelerated Benefits
life insurance proceeds payed to policy holder before death
Obtaining & Examining a Policy
looks at info on application, medical exam results & inspection report
Life Income Option
payments made to beneficiary for as long as he/she lives
Lump-Sum Payment
pays the face amount of policy in 1 installment
Accidental Death Benefit
pays twice value of policy if killed in accident
Limited Installment
periodic installments for specified # of years
Policy Loan Provision
permits you to borrow any amount up to cash value of policy
Variable Life Insurance Policy
premium payments are fixed (money invested in stocks, bonds etc.)
Non-forfeiture Clause
prevents forfeiture of acquired benefits if you choose to drop policy
Cost of Living Protection
prevents inflation from eroding purchasing power of protection
Term Life insurance
provides protection against loss of life for only a specified term (Temporary)
Return-of-premium Term
return all premiums if you survive to end of your policy term
Guaranteed Insurability Option
specified additional amount of life insurance
Waiver of Premium Disability Benefit
stop paying premiums if permanently disabled before 60
Universal Life
term policy with cash value
The older you are when you buy insurance
the higher the premium
The Purpose of Life Insurance
to protect the people who depend on you from financial losses caused by your death
Credit Life Insurance
used to pay off debts (Ex. mortgages, auto loans, etc.)
