LIFE MODULE - I Introduction to Life

Module I - Objectives Term Insurance Introduction to Life Whole Life Insurance Universal Life Insurance Annuities Life Insurance Needs Proposal Introduction to Life What is life insurance? Premiums and Death Benefit Assumed Mortality/Interest 5/3/2019

Introduction to Life The objective of this module is to provide a basic understanding of life insurance, annuities and related financial products. You as a professional Farmers Insurance agent have a tremendous responsibility to provide your customers with the knowledge and understanding of the benefits of planning for their financial future. You should be able to: Show them how to develop a financial plan Explain the resources available Offer alternatives for increasing personal savings Describe how they can protect their estate. 5/3/2019

Introduction to Life Buy selling life insurance, you accomplish several things: 1) You provide your customer a valuable service 2) You increase your commissions 3) You increase your chances to qualify for bonus’ and Company promotions 4) You turn your customer into a client as they are far less likely to leave you if they are offered a cheaper rate on their auto or homeowners policy. 5/3/2019

What is life insurance? Life Insurance is MONEY !!! Money for emergencies, opportunities, education expenses, early mortgage payoff or retirement 5/3/2019

What is life insurance? One or more of these three things will happen to everyone: We will live to retirement age, requiring substantial funds to live comfortably Financial hardships or unexpected disability which can deplete your savings. Premature death which would require substantial amounts of money to maintain your family’s lifestyle. 5/3/2019

Premiums and Death Benefit Two of the most primary elements of a life insurance policy are premiums and death benefit. PREMIUMS: What the policyholder will pay to keep the policy in force. DEATH BENEFIT: What the Company will pay the beneficiary at the death of the insured. Several assumptions determine why a plan provides a certain death benefit and costs what it does. They include assumed mortality, assumed interest and assumed expenses. 5/3/2019

Assumed Mortality Assumed mortality is an estimate of when a policyholder is likely to die. This is calculation is based primarily on age but can be influenced by health. Mortality tables have been developed to help insurance companies determine the average number of people of any age who will die within a certain year. Mortality assumptions are critical to life insurance because they predict the premium amount and how long it must be paid. 5/3/2019

Assumed Interest Assumed interest, the second element, is an estimate of how much a company will earn on the money it receives from policyholders. Insurers do not just hold the premiums, they put the money to work in the investment portfolio. This provides assistance to policyholders because the interest earned from investment premiums is used to offset the actual cost of their coverage. 5/3/2019

Assumed Expense Assumed expense, the final factor, refers to the amount of money that will be spent to get a policy into the hands of the policyholder. These costs include commissions, underwriting expenses, salaries, state filing fees and product development costs. Although it varies from plan to plan, it may take six years or more before premium payments and earnings above those credited to policyholders outweigh the initial expenses. 5/3/2019

Term Insurance Term (temporary) insurance provides a death benefit with no living benefits. There are two types of term insurance: Level Decreasing 5/3/2019

Level Term Coverage Cost Outlived Convertible 5/3/2019

Decreasing Term Cost Coverage Served Purpose Too Costly 5/3/2019

Whole Life (Permanent) Insurance (optional) Coverage Cost Cash Value Safe way to accumulate funds on a tax-deferred basis. 5/3/2019

Universal Life Insurance (optional) Coverage Cost Cash Value Combination of whole life and term. Because of the increasing cost of insurance, if not funded properly, the policy could lapse before maturity. 5/3/2019

Annuities An annuity is a legal binding contract that encourages individuals to save a portion of income or compensation for retirement. It guaranties to pay an income for a specified period of time or for a person’s entire life. A deferred annuity is very similar to a bank CD. Like a CD, the consumer’s principle is safe and a return on the money is guaranteed. The life of an annuity has two phases, accumulation and payout. Annuities offer advantages in both phases. 5/3/2019

Annuities In the accumulation phase: Principle grows and compounds inside an annuity free from federal income tax. As a result, funds accumulate faster and larger than a CD where interest compounded is taxed as ordinary income every year. Both CD’s and annuities carry penalties for early withdrawals, however the surrender charge for an annuity decreases to zero after a few years. Every time a CD funds are rolled over, a new penalty period begins. 5/3/2019

Annuities In the payout (or annuitization) phase: Annuities guarantee a payout stream and offer a variety of payout options, including lifetime income. Although deferred annuities accumulate money free from current income tax, they do not eliminate the tax liability on interest earnings. They do, however allow the annuity owner to pay the taxes at a later date when tax costs could be minimized. Annuitization permits the annuitant to spread the tax liability over the number of years the income is to be received. 5/3/2019

Annuities In the payout (or annuitization) phase: Unlike an IRA or other retirement accounts, there is no requirement to begin distributions at age 70 1/2. For Estate planning purposes, an annuity bypasses probate when left to a designated beneficiary. A spousal beneficiary can maintain the tax-deferred status for up to the lifetime of the beneficiary. 5/3/2019

Needs Analysis In order to provide Premier Service to your policyholders, you must first determine their needs and goals before you recommend a policy or amount of insurance needed. Future income, debt reduction, mortgage payoff, education fund, adjustment fund, final expenses and current life insurance in force should all be considered when determining the amount of coverage needed. 5/3/2019

Needs Analysis EXAMPLE: Male 30, Female 28, H/W, 2 children 3 & 5 yrs old. Current Annual Income: $ 50,000 a. Readjustment Fund: (a X 5) $ 250,000 b. Mortgage Debt: $ 100,000 c. Insurance. (Car, Home, Life, Health) $ 2,500 d. Other Debt: $ 15,000 e. Education Fund: $ 40,000 f. Final Expenses: $ 20,000 g. Total Insurance In-Force: $ 100,000 h. Liquid Assets: $ 30,000 BALANCE NEEDED: $ 297,500 Final Expenses: Education Fund: 5/3/2019

Review 1. Why is it important to make the solicitation of life insurance a common practice in your agency? 2. What is the difference between whole life and term life insurance? 3. What is Universal Life Insurance? 4. What is an Annuity? 5/3/2019

Quote of the Day.. “Most people who fail in their dream fail not from lack of ability but from lack of commitment.” Zig Ziglar 5/3/2019

Questions for Carl 1. What is it called when an agent makes a derogatory statement about the financial condition of an insurer, which is intended to cause injury? 2. What type of policy is intended to protect a business from the loss of an important employee? 3. The likelihood of an applicant to misrepresent his or herself to the insurance company with reference to health, occupation, or other pertinent info is called what? 5/3/2019