2. Life Insurance Basics: Insurable Interest & Personal Uses of
what is insurable interest?
"when the policyowner faces the possibility of losing money or something of value in the event of loss"
what are personal uses of life insurance?
1. survivor protection 2. estate creation 3. cash accumulation 4. liquidity 5. estate conservation 6. debt protection
Cash Accumulation
Life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed
Debt Protection
Mortgage Protection Term Life (or Mortgage Redemption); only on personal mortgages; death of the insured (during mortgage period) results in the insurance company paying off the outstanding balance
"insurable interest is not required of _____"
beneficiaries (b/c the beneficiary's life is not the one being insured)
"the policyowner must have _____ in the life of the insured"
insurable interest
policyowner - premium - insurer
insurer - policy - insurer
Survivor Protection
life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death
Estate Creation
life insurance creates an immediate estate
what can life insurance protect against?
protects against financial loss associated with an insured's death; pays a death benefit to beneficiaries upon the death of insured
Estate Conservation
provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate
Liquidity
the ease with which an asset can be converted into the economy's medium of exchange
in the event of the insured's death...
the insurer pays the death benefit to the beneficiary
"Insurable Interest must exist at ____"
the time of application
when can a valid insurable interest exist between the policyowner and the insured?
when the policy is insuring: (1) policyowner's life (2) life of family member (3) life of a business partner
"once a life insurance policy has been issued, the insurer must pay the policy benefit, ______"
whether or not an insurable interest exists