Personal Finance (Chapter 10)- What Is Life Insurance?

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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.)


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