1 Life Insurance Basics Continuing Education Course Course #COM-593-9, Part A

2 Life Insurance Defined §Life insurance is a contract that pays a death benefit to a beneficiary upon the demise of the insured insured person §Death benefits are common to all types of life insurance

3 Life Insurance Defined §The insuring of a life is termed life insurance §The loss of life initiates the death benefit

4 Life Insurance §The purpose of life insurance is to provide income replacement to beneficiaries §The risk of premature death motivates most purchases of life insurance

5 Life Insurance §Term Life Life l Defined as temporary insurance §Whole Life l Defined as permanent insurance

6 Life Insurance §Universal Life l Provides flexible benefits §Variable Life l The amount of coverage varies

7 Term Insurance §There are four variations of term insurance l Annual renewable l Level term l Decreasing term l Increasing term

8 Term Insurance §Death benefit is paid to the beneficiary upon the insured’s demise during the term of the policy §Term policies contain an expiration date terminating all coverage

9 Annual Renewable Term §Issued for a period of one year §Has limited applications for individuals because the premium rises with age §Appropriate for immediate short-term insurance protection

10 Level Term §Provides a level death benefit through out the policy term §Provides a fixed amount of temporary insurance §Appropriate for known obligations or contingencies

11 Level Term §Often issued as renewable and convertible policies §All coverage ceases if it is not renewed after the expiration of the policy §The premium will be based on the insured’s age at the time or renewal

12 $100, Year Level Term Policy $100,000 Year 0 Year 5 Year 10 Year 15 Year 20 Amount of Protection Policy Inception Policy Expiration

13 Decreasing Term Insurance §Provides coverage for a specified period of time §The death benefit decreases to zero at the expiration of the policy

14 $100, Year Decreasing Term Policy $0 $25,000 $50,000 $75,000 $100,000 Year 0 Year 5 Year 10 Year 15 Year 20 Amount of Protection Policy Inception Policy Expiration

15 Term Insurance Advantages §Term insurance provides the lowest premium cost per unit of protection §Low premiums allow greater coverage for younger persons when their needs are the greatest

16 Increasing Term Insurance §Premiums remain level §Death benefit starts small and increases over the term of the policy §Increasing term is used less than other types of policies

17 $100, Year Increasing Term Insurance $0 $25,000 $50,000 $100,000 Year 0Year 5Year 10Year 20 Amount of Protection Policy Inception Policy Expiration

18 Term Insurance Advantages §Allows people with low incomes to buy adequate amounts of protection §It is used to cover temporary obligations, such as the balance remaining on long term debts

19 Term Insurance Advantages §It is a low-cost option to provide for future insurability for a person whose future insurance needs may change. §It allows people with lower incomes to purchase adequate amounts of immediate protection

20 Term Insurance Disadvantages §It is temporary protection only. §Coverage may terminate or become too expensive to continue a the end of the term.

21 Term Insurance Disadvantages §Generally premiums increase at periodic intervals, such as every five or ten years

22 Whole Life Advantages §Provides insurance for the insured - until death or age 100 §The death benefit remains the same throughout the life of the insured §The premium remains level

23 Whole Life Advantages §Builds cash value §The maturity date is age 100 §The insurance will not terminate as long as the premiums are paid on time

24 Whole Life Advantages §Protection is guaranteed for life as long as the premium is paid §Premiums do not increase because the insured grows older §Policy owner always knows exactly the cost of the insurance

25 Whole Life Disadvantages §The amount of premiums may make it difficult to buy required protection §It may be more expensive than term insurance if it is terminated early

26 Whole Life Disadvantages §Premiums may continue longer than the insured’s income-producing years §The cash value at retirement age may be much less than the face value of the policy

27 Whole Life Disadvantages §It is conservative producing lower interest income than other investments §Protection per dollar is less than term insurance

28 Universal Life §Designed for flexibility §Premiums are often lower than whole life insurance §You have more control over the amounts of the face value and premiums

29 Variable Life §Variable death benefit and premiums are based upon performance of investments §Cash value accumulates through investment in bonds, stocks and real estate funds offered through the insuror

30 Life Insurance Policy Riders §Multiple Indemnity (Accidental Death) §Accidental Death and Dismemberment (AD&D) §Waiver of Premium (if insured is unable to pay)

31 Life Insurance Policy Riders §Waiver of Premium with Disability Income §Guaranteed Insurability §Return of Premium

32 Life Insurance Policy Riders §Return of Cash Value §Cost of Living §Additional Insureds

33 Life Insurance Policy Riders §Living Need (partial advance payment of insurance amount) §Long Term Care (LTC)

34 Summary Once you have an idea of what you are looking for, shopping for the right policy or combination of policies gets a lot simpler.

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