life insurance basic

Adverse selection

tendency of individuals with higher probability of loss to purchase insurance more often than those who present a lower risk

Death benefits

the amount paid upon the death of the insured in a life insured in a life insurance policy

Cash value

equity amount accumulated in permanent life insurance

Estate

a person’s net worth

illustrationions

presentation or depiction of nonguarateed elements of a life insurance policy

Life insurance

coverage on human lives

Liquidation

selling assets in order to raise capital

Minor

a person under legal age

Solvency

ability to meet financial obligations

Survivor Protection

planning for survivor protection requires careful examination of current assets and liabilities as well as well sd determining what survivors needs may be

Estate Creation

The purchase of life insurance create an immediate estate

Cash accumulation

Life insurance may be used to accumulate specific amounts of monies for specifc needs with guarantees that the money will be available when needed

Liquidity

To the policy owner, that means the policy’s cash values can be borrowed. That means the policy’s can be borrowed against at any time and used for immediate needs.

Estate Conservation

Life insurance proceeds may be used to pay inheritance taxes and federal estate taxes so that it is not necessary for the beneficiaries to sell off the assets.

Human life value approach

(HLVA) gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual’s life value by looking at the insured’s wages, inflation the number of years until retirement and the time value of money.

Needs Approach

After the premature death of the insured. Some of the factors considered by the needs approach are income, the amount of debt(including) investments, and other ongoing expenses.

Cost Associated with Death (postmortem)

taking into account the final medical expenses of the insured, funeral expenses, and day-to-day expenses family maintenance.

Debt Cancellation (as an alternative to Estate Liquidation)

paying off debts of the insured such as home mortgage or auto loans

Emergency Reserve Funds

paying for unexpected expenses following the death of the insured, such as travel expenses and lodging for family members

Education Funds

paying for children‘s education expenses so they can remain in school or for a surviving spouse who may need additional education or training in order to re-enter the job market.

Replacing insured’s salary or lost services

the surviving spouse who was the caregiver of the children may have to train to enter to enter the job market. if the spouse works outside the home a new expense for f=day care must be considered

Social Security Income “ blackout” Period

Social security blackout period is the time during which the surviving spouse and/or children do not receive any social security survivor benefits.

Liquidation vs. Retention of Capital

Under the retention of capital approach enough insurance is purchased so that when added to other liquid assets, there is enough insurance is purchased so that when added to other liquid assets, there is enough to pay income benefits without jeopardizing the insured’s principal asset

Key person

Insurance may be issued as term or permanent life, with whole life and universal life policies being used most often.

key employee is the insured, and the business is all of the following

Applicant

Policyowner

Premium pay or; and

Beneficiary

Buy-sell

An agreement is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled . This is also referred to as a business continuation agreement

Cross Purchase

used in partnerships when each partner buys a policy on the other

Entity Purchase

used when the partnership buys the policies on the partners

Stock Purchase

used by privately owned corporation when each stockholder buys a policy on each of the others; and

Stock Redemption

used when the corporation buys one policy on each shareholder

Business Continuation

plan is an arrangement between business owners that provides for shares owned by any one of them who dies