Life Insurance | Ch12

Primary risks related to longevity and finances

  • risk of dying too soon

    • life insurance should be focused on the dying too soon risk

    • not having the income

  • risk of living too long

    • not having enough income in retirement

      • need to have stacked accounts that are plentiful

Usual things covered

  • final expenses (things that happen just prior to or after death

    • medical bills

    • funeral arrangements

      • required by law to give you an itemized listing of all that is required

      • will still try to get you to comparison shop, but is overall highly regulated by the government to protect people

      • veterans get a headstone from the government

    • income-replacement needs

    • readjustments-period needs

      • therapeutic needs to get back on track

      • e.g. living in hawaii for a year, going to college

        • buy a plan that will build for that through time…they exist!

Life Insurance Planning and Estate Planning

  • helps the costs and planning of a funeral to be pre-arranged so that if anything happens then it won’t be something overwhelming you have to plan for during a period of grieving

  • What needs must be met (found through a needs analysis)

    • debt repayment needs

      • mortgage

        • paid outright, or enough to help them make the payments for x amount of years

        • e.g. can afford one for 10 years of payments but not paying it all off

      • automobiles

        • be able to pay them off or not

      • credit cards and other loans

        • clean them up with the policy

    • college expense needs

      • private vs. public

    • Other special needs

      • parents support

        • custodial care for a parent you’re taking care of

      • family with special needs support

Reducing the level of Need

  • social security survivor’s benefit

  • blackout period

    • time where no SS benefits are payable to a surviving spouse

    • from time youngest child turns 16 until the spouse retires

Multiple Earnings Approach

  • asks what dollar amount you need by saying a 7 years fully salary

Needs based Approach

  • agent gets to know you, the ins and outs of your life to see how you really spend your money

Term Life (Pure) Insurance

  • is renewable no matter what

    • can go up with each renewal….however the first term can be really long

  • protects again the possibility of becoming insurable

  • they can’t cancel it until the term is up

    • has a set premium if it is truly term

  • good for chronic illnesses like cancer

  • a specific set amount for a specific set amount of time

  • not always needed after a while if net worth is big enough

Decreasing Term

  • amount given decreases after increments of time (every 5 years as child ages)

  • less expensive than a traditional one

  • can also get it on things like cars or a mortgage

Convertible Term

  • can convert from a term policy to a

Group Term Life

  • basically employees in a workplace all insured by the employer

  • usually reasonably cheap

Credit Term

  • for the life of a loan to pay it off such as for a mortgage or car

  • much more expensive than decreasing term

Cash-Value Insurance

  • permanent insurance

  • for a specific face amount

  • much more expensive than term

  • has a level premium

    • stays low, no contractual agreement

  • combines insurance with a savings element

  • represents the value of the savings element in the policy

  • sometimes pays a fixed return (or various)

Whole Life (Straight) Insurance

  • remains in effect and doesn’t have to be renewed as long as you’re making payments

Limited-Pay

  • allows premiums to cease after a certain amount of years

  • you’re making them money off of investing your money bc the cashvalue has become super high off your money

Adjustable

  • allows you to change any of the three amounts

    • premium (can lower)

    • a higher face amount

    • want more coverage

Modified

  • premium is low when you’re young, gets higher as you get older

Universal life insurance

  • Can choose what investments you want your money in

variable life insurance

variable-universal or flexible insurance

  • a part is under your control, part is under theirs

Designations in Life policies

  • who is insured

  • who is the policy holder

    • has to have an insurable relationship

      • e.g. if you have something in someone’s will

      • you’re a child so you need to be raised

      • very valuable employee in a company

      • there has to be a financial connection or dependence

  • who is the one who would pass

  • the beneficiary

    • the person who would get money from it

  • contingent beneficiary

Components of a Policy

  • Declarations

  • Insuring Agreements

  • Exclusions

  • Conditions

  • Endorsements

  • incontestability clause

    • can’t break policy no matter what, or early due to different things

How to do insurance Right

Buy term and Invest the rest

buy from a financially strong company

  • New York LIfe

  • Metropolitan life

  • they have better prices