Chapter 12

Easy method: -for a typical family (good health, both employed, and less than 4 children)

(current income)*7= Y Y*.70 = answer

Nonworking spouse method

-# of yrs before the child reaches 18 and 10,000

income from life insurance policies

-Income from life insurance policies can provide

Examining the policy

-Read the fine print -have a 10-day "free look" where you can change your mind and the company gives you back the premium without penalty.

Who to buy from

-Sources -Rating insurance companies -choosing an agent = can be a salaried ro captive agent (paid on commission)

Types of life insurance companins

-Stock life insurance (nonpar) companies, owned by shareholders and Mutual life insurance companies (par), owned by their policyholders

Common settlement options

-lump sum -proceeds left with company = left at a spesfc rate of interest. And the compnay acts like a trustee and pays the interest to the beneficiary, -limited installment payments= install payment for a certain # of years after death -life income option = made to benefit. as long as they live. An annuity is the basis. can be immediate annuity and deffered annuity

reasons to add life insurance

-pay off home mortgage by the time of death -Provide an education or income for children -provide lump-sum payments through an endowment -cover medical and funeral expenses -provide retirement income -accumulate savings -set up an estate plan -make estate and death tax payements

Factors to consider before buying life insurance

-present and future sources of income -other savings and income protection -group life insurance -group annuities -social security -the financial strength of the company

Options to choose life insurance

-renewability = It ends at the conclusion of the term but you can continue it for another term if you have renewability option. -multiyear level term (straight term) = the policyholder pays the same premium amount for the life of the policy. -conversion option= can exchange it for a whole life policy without a medical examination. The premium for the whole life policy stays the same for the rest for your life. if want cash value insurance and can't afford it now but will be able to afford it in the future. -decreasing term insurance =premiums remain constant while the payout amount of insurance decreases. pay this with a debt repayment -return on premium = money back if you outlive the time set BUT these are higher premiums

5 factors that affect the price a company charges for a life insurance policy

-the company's cost of doing business -the return on its investments -the mortality rate it expects among its policy holders -features the policy contains -competitionamanong companies with comparable policies

why people are living longer

-they are eating healthier -they are have more money to eat healthier food - Housing locations and options -education level of anscestors

Replacing the policy

-when you replace the policy becareful b/c u might have to pay more since you are older.

Parts of the application for application

1) demographics 2)medical history

Main reasons to get a financial death benefit

1) provide a financial death benefit 2) provide funds to the insured while they are still living

Grace period

28-31 days that you can pay the premium without penalty. If not the policy lapses.

Double indemnity

A benefit under which the company pays twice the face value of the policy if the insured's death results from an accident. THE ACCIDENTAL DEATH BENEFIT

Annuity

A contract that provides a regular income typically for as long as the person lives.

Rider

A document attached to a policy that modifies its coverage. -It can add or exculde spesific conditions or alter the benefits stated. -ex; whole life insurance policy can include a waiver of premium disability benefit, an accidental death benefit or both.

Chartered life underwriter (CLU)

A life insurance agent who has passed a series of college-level examinations on insurance and related subjects.

Interest-adjusted index

A method of evaluating the cost of life insurance by taking into account the time value of money -agencies will provide free what ur premium will be.

Beneficiary

A person designated to receive something, such as life insurance proceeds, from the insured. You can name more than one beneficiary incase that the primary beneificary dies before you do

Suicide clause

A provision stating that if the insured dies by suicide during the first two years the policy is in force, the death benefit will equal the amount of the premium paid. -after two years you are good to go

Incontestability clause

A provision stating that the insurer cannot dispute the validity of a policy after a specified period. -after the policy has been in force for a specific period the insurance company cannot dispute its validity during the lifetime of the insured for any reason, including fraud.

Nonforfeiture clause

A provision that allows the insured not to forfeit all accrued benefits. Is a feature of the whole life policy -prevents the forfeiture of accrued benefits of you choose to drop the policy.

Universal life insurance

A whole life policy that combines term insurance and investment elements. -so basically the amount of insurance can be changed and there is an increase in the cash value of a universal life policy that indicated that it is combining term insurance and investment elements. Key distinguishing features: -charges for the insurance element -charges for company expenses (commissions and fees). -the rate of return on the investment (cash value) of the policy. This is flexible. -big differnce for between whole life and universal life is that whole life gives you less direct control. ---Whole life allow only for policy loans while universal life allows you to get your cash value by a policy loan or withdrawl. Also with universal life you control your outlay and can change your premium without changing your coverage. --Whole life make you pay the established premium or if not goodbye from the company.

Second-to-die option

AKA SURVIVORSHIP LIFE. insures two lives. The death benefoit is paid when the second spouse dies. Usually intended to pay estate taxes when both spouses die.

Whole life policy

An insurance plan in which the policyholder pays a specified premium each year for as long as he or she lives; also called a straight life policy, cash value policy, or ordinary life policy.

Term insurance

Life insurance protection for a specified period of time; sometimes called temporary life insurance. -You stop paying the premium and it also stops.

Nonparticipating (aka nonpar)

Life insurance that does not provide policy dividends; also called a nonpar policy. -this one guarantees the premiums amount

Participating (aka par)

Life insurance that provides policy dividends; also called a par policy. Has a higher premium but part is refunded to the policyholder annually (aka the refund)

Cash value

The amount received after giving up a life insurance policy also known as the surrender value

Underwriting -Who does this work?

The process that insurance companies use to determine the premiums that will be charged and whom they will insure. -uses many attributes of individuals such as age, gender, health, and even occupation to determine the appropriate premiums to charge for insurance. -this is done by actuaries.

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Limited payment policy

a type of whole life policy. With this plan you pay premiums for a stipulated period (20 to 30 years to until you reach a specific age). Then the policy is payed up and the company pays the face amount of the policy until your death. - allows you to do single-premium policy (pay in one huge lump sum)

Adjustable life insurance

a type of whole life policy. You can change the premium or period of coverage

Variable life insurance policy

a type of whole life policy. fluctuates according to the yields earned by a separate fund. This can be a stock fund, a money market fund, or a bond fund. -premium payements are fixed and the policyholders make the risk.

DINK (dual income, no kids) -need the most simple amt of life insurance

add all the expenses (other debts and funeral) and then add 1/2 of loans and personal debt.

Guaranteed insurability option

allows you the option to buy specified additional amounts of life insurance at stated intervals without proof of insurability.

Accelerated benefits

are also known as living benefits → are life insurance policy proceeds paid to the terminally ill policyholder before HE OR SHE DIES.

Accelerated benefits

are also known as living benefits → are life insurance policy proceeds paid to the terminally ill policyholder before HE OR SHE DIES. -are added benefits

The family need method -through method

b/c of inflation you need to reevaluate every two years

Way to determine health insuranbce

dink, easy method, nonworking spouse method, family need method.

which need most life insurance

households with small children

Policy reinstatment

if it has not been turned into cash you can reinstated it but you have to requalify at an acceptable risk and pay the overdue premiums.

misstatement of age provision

if your age was incorrect then it will pay the benefits your premiums would have bought if your age had been correctly stated.

Credit life insurance

is used to repay a personal debt if the borrower dies before this is paid for. Don't do this for auto loans and for home mortgages.

The policy loan provision feature

permits you to borrow any amount up to the cash value of the policy. But the death benefit is reduced by the amount of the loan plus an interest that it has acquired.

Endowment life insurance

provides coverage from the beginning of the contract to the maturity. Guarantees payment of a specified sum to the insured even if the person is still living (the one doing the payments. (kinda like a way to pay for college).

Temporary life insurance

renewable term, convertible term or decreasing term insurance

waiver of premium disability benefit

the company waives any premiums that are due after the onset of total and permanent disability. This disability must occur before the age of 60ish

accidental death benefit

the insurance company pays twice the face amount of the policy if the insured's death results from an accident. OFFTEN CALLED A DOUBLE INDEMITY

Chartered property and casualty underwriters (CPCUs)

those agents that have passed

cost-of-living protection (a special rider to prevent inflation)

which is designed to help prevent inflation from eroding the purchasing power of the protection your policy provides.

Permanent insurance

whole life, straight life, ordinary life, and cash value life insurance. - there can be limited payment, variable, adjustable, or universal life insurance