LIFE INSURANCE

Pooling of Risk Pooling of Risk Lloyds of London Lloyds of London What is Insurance? Contract – If you pay premiums the insurance company will pay a benefit Contract – If you pay premiums the insurance company will pay a benefit Why Learn about Life Insurance? Why Learn about Life Insurance? ‘MOST offered ‘investment’ ‘MOST offered ‘investment’ Highest commissions of any investment – by far Highest commissions of any investment – by far Most Americans should have MORE life insurance Most Americans should have MORE life insurance LIFE INSURANCE

Parties to the Contract Owner Owner Insured (example: Father) Insured (example: Father) 82% husbands pass away before wife 82% husbands pass away before wife Beneficiary Beneficiary Primary (example: Mother) Primary (example: Mother) Secondary (example: the children to share equally) Secondary (example: the children to share equally) LIFE INSURANCE

Life Insurance Contract Provisions Insurability Insurability Preferred, Standard, Substandard Preferred, Standard, Substandard Pre-existing Conditions Pre-existing Conditions Need to Take a Medical Examination Need to Take a Medical Examination MIB – Medical Information Bureau MIB – Medical Information Bureau Insurable Interest – In a position to lose something of value Insurable Interest – In a position to lose something of value Indemnify – Pay for but not ‘profit’ from a loss Indemnify – Pay for but not ‘profit’ from a loss Non-Cancellable – Except for nonpayment of premiums Non-Cancellable – Except for nonpayment of premiums No Waiting Period No Waiting Period Settlement Options – Ways to receive death benefits Settlement Options – Ways to receive death benefits Riders – Add coverage Riders – Add coverage Contract – Only the insurance company is ‘bound’ by contract Contract – Only the insurance company is ‘bound’ by contract LIFE INSURANCE

Life Insurance Contract Provisions Exclusions Exclusions War, either declared or undeclared War, either declared or undeclared Military Activity Military Activity Nuclear Related Activity Nuclear Related Activity Riots or Insurrections Riots or Insurrections Deaths as a result of illegal activities Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Suicide – for two years after policy inception Suicide – for two years after policy inception Aviation Accidents Aviation Accidents LIFE INSURANCE

Aviation Exclusion A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities Policy only pays if: Policy only pays if: Fare paying passenger Fare paying passenger Regularly Scheduled Commercial Airline Regularly Scheduled Commercial Airline LIFE INSURANCE

Aviation Exclusion – Example A Insurance Company claimed the man was ‘airborne’ -- no death benefit because of the Aviation Exclusion. Court ruled the man never intended to be ‘airborne’ -- the insurance company had to pay the death claim. LIFE INSURANCE

Aviation Exclusion – Example B LIFE INSURANCE

Aviation Exclusion – Example C Insurance company claimed they didn’t need to pay because the person had completed the commercial air flight. Court ruled didn’t intend to be in flight LIFE INSURANCE

Riders Waiver of Premium Waiver of Premium Accidental Death & Dismemberment Accidental Death & Dismemberment Disability Income Disability Income Automatic Premium Loan Automatic Premium Loan Family Income Family Income Mortgage Redemption Mortgage Redemption Guaranteed Insurability Guaranteed Insurability LIFE INSURANCE

Types of Life Insurance Group – Inexpensive if not a preferred risk Group – Inexpensive if not a preferred risk Individual (Ordinary) – If a preferred risk – least expensive Individual (Ordinary) – If a preferred risk – least expensive LIFE INSURANCE

Individual (Ordinary) Term = Death Benefit Cash Value = Death Benefit + Investment Whole Life Variable Life Adjustable Life Indexed Life Universal Life Variable Universal Life Universal Adjustable Life LIFE INSURANCE

Cash Value Chart Time Endow Age 100 Face Value Life Insurance Death Benefit Cash Value ‘Investment’ LIFE INSURANCE

Why to Avoid Cash Value 1. Large Lapse Rates – Behaviorally Inefficient A. 80% Cancelled in the first 5 Years B. A cancelled policy loses generally all ‘investment’ value if cancelled within 3 years of purchase Year Surrender Penalties 3. Affordability – High Cost A. Most Americans are underinsured 4. Objective Advisors Avoid A. Clark Howard, Jonathon Pond, Jane Bryant Quinn LIFE INSURANCE

Why to Avoid Cash Value – Cont. 5. High Expenses – Life insurance investments tend to grow at a slower rate than an equivalent mutual fund investment 6. Rarely does actual investment experience match projected investment values 7. Very Confusing Language 8. Highest commissions relative to dollars invested – by far LIFE INSURANCE

Why to Avoid Cash Value – Cont. "As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company,... is likely to die before he reaches a conclusion.“ New York State Insurance Commissioner April 1, 1870 LIFE INSURANCE

Insurance to Avoid Accidental Death and Dismemberment Accidental Death and Dismemberment LIFE INSURANCE

CAUSES OF DEATH, USA 2002 National Vital Statistics Report FORMAL NAMEINFORMAL NAME % ALL DEATHS (1) Diseases of the heartheart attack (mainly)28.5% (1) Diseases of the heartheart attack (mainly)28.5% (2) Malignant neoplasmscancer22.8% (2) Malignant neoplasmscancer22.8% (3) Cerebrovascular diseasestroke6.7% (3) Cerebrovascular diseasestroke6.7% (4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1% (4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1% (5) Unintentional injuriesaccidents4.4% (5) Unintentional injuriesaccidents4.4% (6) Diabetes mellitusdiabetes3.0% (6) Diabetes mellitusdiabetes3.0% (7) Influenza and pneumoniaflu & pneumonia2.7% (7) Influenza and pneumoniaflu & pneumonia2.7% (8) Alzheimer's DiseaseAlzheimer's senility2.4% (8) Alzheimer's DiseaseAlzheimer's senility2.4% (9) Nephritis and Nephrosiskidney disease1.7% (9) Nephritis and Nephrosiskidney disease1.7% (10) Septicemiasystemic infection1.4% (10) Septicemiasystemic infection1.4% (11) Intentional self-harmsuicide1.3% (11) Intentional self-harmsuicide1.3% (12) Chronic Liver/Cirrhosisliver disease1.1% (12) Chronic Liver/Cirrhosisliver disease1.1% (13) Essential Hypertensionhigh blood pressure0.8% (13) Essential Hypertensionhigh blood pressure0.8% (14) Assaulthomicide0.7% (14) Assaulthomicide0.7% (15) All other causesother17.4% (15) All other causesother17.4% LIFE INSURANCE

Insurance to Avoid Accidental Death and Dismemberment Accidental Death and Dismemberment Example Example No suicide coverage No suicide coverage Trip Insurance Trip Insurance Cancer Coverage Cancer Coverage Pre-Need Funeral Expenses Pre-Need Funeral Expenses Credit Life Credit Life Very expensive per $1,000 of coverage Very expensive per $1,000 of coverage 66% of deaths go unreported 66% of deaths go unreported LIFE INSURANCE

How Much Face Value 2 ways to calculate times primary breadwinner’s income (easiest) 2. Point of Choice TM Required Assets / Immediate Death Required Assets / Immediate Death Generally $1,250,000 per $50,000 income Generally $1,250,000 per $50,000 income Required POC Assets - Existing Net Financial Assets Required POC Assets - Existing Net Financial Assets LIFE INSURANCE