BMAN 341 - Ch. 12 Life Insurance Planning

Risk of dying too soon

Having an abundance of financial resources that could have gone to other entities, solved by buying term and investing the rest, retirement account will generate higher cash-value return

Risk of living to long

Not having enough retirement or investments

Life insurance is usually focused on…

the dying too soon risk

What is the primary reason to buy life insurance?

To allow family members of the deceased to continue their lives free from financial burdens that death can bring

Final Expenses

One-time expenses occurring just prior to or after death

Needs that life insurance addresses

final expenses, income replacement needs, readjustment period needs (like moving), debt-repayment needs, college expenses, other special needs

Social Security survivors benefits (reduced level of need)

Social Security blackout period (reduced level of need)

Multiple-of-Earnings Approach

Multiplies income by random factor, ignores other financial needs, other than lost income

Needs-Based Approach

Includes all of the needs that must be met not just lost income (ex. high need for parents, young single professionals might need less)

Term Life Insurance (or Pure Protection)

For a specific period and face amount, premiums go up as you get older.

Non-term Insurance

Cash-Value Insurance

Permanent, specific face amount, level premium, and has a savings element (cash-value)

Guaranteed Renewable Term Insurance

Protects you against the possibility of becoming uninsurable

Level-Premium Term insurance

Covers for five, ten or more years with the annual premiums set at the average over that time span

Decreasing Term Insurance

Has a declining term benefit as the term goes on

Convertible Term Insurance

Has the option for the insured to convert to a permanent policy

Group Term Life Insurance

Insurance provided through an employer, union and premiums may be paid by the group

Credit Term Life Insurance

Covers a particular outstanding credit balance, and the lender has to be named as the beneficiary

Mortgage Term Life Insurance

Has a defined benefit tied to the decreasing outstanding balance of a mortgage, estate is named the beneficiary

Permanent Insurance

Whole (or Straight) Life insurance

Limited-Pay Whole Life Insurance

Adjustable Life Insurance

Modified Life Insurance

Universal Life Insurance

Variable Life Insurance

Variable-Universal (or Flexible-Premium) life insurance

Why are the premiums for term insurance lower than those of cash-value life insurance?

What is the benefit of buying guaranteed renewable term insurance?

Why does the amount of “insurance” decline over time under a cash-value life insurance policy?

Difference between cash-value life insurance with a fixed return and with a variable return?

Life Insurance Policy

Written contract between the insurer and the policyholder, involves the insured, owner or policyholder, beneficiary and contingent beneficiary

Declarations (life insurance component)

Insuring Agreements

What is being insured and how

Exclusions

Conditions

Endorsements (or riders)

Life Insurance Application

First-to-die Policy

Cover more than one person but pay only when the first insured dies

Survivorship Joint Life policies

Pays when the last person covered dies

Incontestability Clause

Suicide Clause

To prevent adverse selection, the policy will not pay out, but may return a portion of the premiums

Insurance Dividends (participating Policies)

Refund of excess or overpaid premiums, will payout a portion of the overpayments

Nonparticipating Policies (dividends)

Will not payout the portion of overpaid premiums, but will quote at lower premiums

Death Benefits

Is the amount that will be paid to beneficiary when the insured dies

Face Amt + Unpaid Divi + Premium paid in advance - Outstanding cash-value loans = these benefits

Multiple Indemnity Clause

Allows higher death benefit if death if death is caused by certain specified conditions

Grace Period (Lapsed Policy)

Termination for nonpayment of premium, sometimes given reinstatement with grace period

Guaranteed Minimum Rate of Return (cash-value life insurance policy)

The amount that must be returned on the cash value of the policy

Current Rate

The rate currently being returned on the cash value of the policies

Nonforfeiture Values

Legal protections for the insured on cash value policies that state there must be one of three ways that insurance companies has to get you the cash value of the policy

Cash-Surrender Value

Automatic Premium Loan

Allows premiums to be paid out of accumulated cash values if the premiums are unpaid

Accelerated Death Benefits

Allow partial payment of a benefit prior to death in the event of terminal illness

Waiver of Premium Option

Allows waiver of premium payment if the owner becomes disabled

Guaranteed Insurability (or guaranteed purchase option)

Allows purchase of additional insurance without regard to health status

Settlement Options

Lump Sum, Interest Income, Inc of specific amount, inc for specific period, income for life

Benefits of buying term insurance and investing the rest.

Three signs of an unethical life insurance agent.