Chapter 13 review questions

Why is premium of whole life higher than term? What alternative approach to purchasing life insurance might provide the same benefits as whole?

-because you are also building up savings -purchase term and invest the difference

Some of term insurance options

-decreasing term insurance -mortgage life insurance -group term insurance

Why do some people postpone life insurance even when they need it?

-don't want to focus on death -no immediate benefit

Why should you evaluate financial condition of a life insurance company?

-if company fails, wont pay beneficiary

Settlement options and why each one

-lump sum: all at once, beneficiary good at money -installment: stream of equal payments over a specified number of years, beneficiary not trusted with money -interest payment: company retains amount owned for a specified number of years and pays interest to beneficiary, don't spend all at once

What are living benefits? When would someone use this?

-policyholders get a portion of benefits before they die -if terminal illnesses or need long term care

What is mortgage life insurance? good buy?

Life insurance that pays off a mortgage in the event of policy holders death. Bad purchase, just get larger term insurance that would cover this save money

What is term insurance? What factors determine the premium for term insurance? What is decreasing term insurance?

Term insurance is life insurance that is provided over a specified time period and does not build a cash value. Premiums based on length of policy, age of policy holder, amount of coverage, gender (male higher), and if you smoke (higher), history of medical problems. Basically, will you die. Decreasing term insurance is a form of term insurance in which benefits are reduced but premium constant.

What is the purpose of life insurance? Do you think everyone needs life insurance? Explain.

The purpose is to maintain financial support for your dependents. Necessary if people rely on your income.

What is the income method and its disadvantages?

a method that determines how much life insurance based on policyholder's annual income. However, it does not consider your specific circumstances.

Why life insurance should be based on needs not dreams

because its not a means for you to suddenly become rich but a way to continue current way of life

Describe the budget method and what must be considered

budget method is a method that determines how much life insurance is needed based on households expected future expenses -annual living expenses, special future expenses, debt, job marketability of your spouse, value of existing savings

What is a conversion option and its benefits

covert term to whole life -so can be insured for life

What is universal life insurance? How does it differ?

life insurance that provides insurance over a specified term and accumulates savings for the policy holder over this time -mix of both

What is a beneficiary? Why should you periodically review your beneficiaries?

person named to receive benefits of an insurance policy -in case you want it to go somewhere else

What is variable life insurance? Pro and cons? How can you avoid the high fees?

provides life insurance over a specified term and allows policy holders to invest residual funds, after the premium on the term portion is paid, in various types of investments. -more flexibility -super expensive -buy term and invest the difference in what you want

Describe nonforfeiture clause of loan clauses of whole life insurance premiums.

-nonforfeiture clause allows you to use the accumulated cash value if you terminate your whole life policy -can also borrow cash from your whole life policy with lower rates and interest paid back into whole life insurance

Factors that make estimating life insurance hard?

-someone gets major illness or disability -income of household goes down or stays same -inflation -need more coverage later (ie more debt)

What is group term insurance? Advantages?

-term insurance available to a group -lower premiums

What is Whole Life insurance? What benefits does it provide that term life insurance does not?

Whole life insurance (permanent insurance) that continues to provide insurance as long as premiums are paid and builds cash value. -accumulates savings -whole life