Insuring Your Life Chapter 8

Insurance Concept Protect Assets and Income

Risk Management

Risk Decisions

Risk Avoidance

Minimize Risk Loss Prevention & control

Risk Assumption – The choice to accept and bear the risk of loss

Shifting Risk

Insurance & Financial Planning

Why Life Insurance? Protect Dependents – Pay off debt & last expenses – Living expenses – Education expenses – Income replacement

How Much Do You Need? Multiple of Income – Annual gross income times an arbitrary number. Most professionals recommend from 5 to 10 times annual gross income. Needs Analysis 1.Resources needed in the event of death to cover future and current financial obligations 2.Less resources available (other life insurance, pension, social security etc.) to determine the amount of life insurance needed

Economic needs of survivors

Extra Expenses Funeral Expense Day Care Cleaning

Special Needs Education Long Term Care

Debt Liquidation & Liquidity

What Kind of Policy is Best?

Term Insurance Straight Term Level Death Benefit Renewable Conversion Decreasing Term Decreasing Death Benefit Not renewable Conversion

Whole Life Insurance Whole Life – designed to provide protection over the insured’s lifetime Continuous Premium – a level premium each year until death or exercise a non forfeiture right. Limited Payment – covered for life but the policy is paid after a specified period Single Premium – One payment pays for the policy in full

“Non-forfeiture Rights Cash Value Policy Loan Reduced Paid Up Policy Extended Term Insurance

Advantages & Disadvantages Premiums can be budgeted Builds cash value Forced Savings Cash accumulates on a tax favored basis Premiums are high Lower yields than other forms of investment

Universal Life Permanent cash-value life insurance that combines term insurance with a tax sheltered savings account at competitive rates Premiums are variable - a minimum premium to provide a death benefit to a maximum premium to build a higher cash value

Variable Life Permanent cash-value life insurance that combines term insurance with a tax sheltered investment account. Premiums are variable - a minimum premium to provide a death benefit to a maximum premium to build a higher cash value

Other Forms of Life Insurance Group Life Insurance – provided by an employer or affinity group Credit Life Insurance – issued in conjunction with installment loans Mortgage Life Insurance – designed to payoff a mortgage in the event of a borrowers death Industrial Life Insurance

Compare Cost and Features Determine the kind of policy you need Compare cost Compare fees Compare features

Select a Company and Agent

Life Insurance Features Non-forfeiture options Grace Period Policy reinstatement Multiple indemnity clause Disability clause Guaranteed Purchase Option Living benefits Viatical Settlement

Exclusions Aviation – War – Hazardous occupation or hobby - Suicide (except Missouri)

Settlement Options Lump Sum Interest Only Fixed period Fixed Amount Life Income