Life Insurance: The Basics What is the one guarantee in life? You buy health insurance in case you get sick You buy automobile insurance in case you have an accident You buy homeowners insurance in case your property gets damaged You don’t buy life insurance to plan for your death

Life Insurance: The Basics Life Insurance is to protect the people who depend on you and would suffer a financial loss when you die. A beneficiary is the person or legal entity, such as a charity, designated to receive the death benefit. The death benefit is the sum paid to the beneficiary by the insurance company. Usually people buy life insurance to protect their children, a surviving spouse, a disabled relative, or elderly parents.

Life Insurance: The Basics Reasons to Buy Life Insurance To provide immediate cash to pay for a funeral, any other costs arising from the death, or pressing debtsTo provide immediate cash to pay for a funeral, any other costs arising from the death, or pressing debts To provide funds that are income tax-freeTo provide funds that are income tax-free To pay off a mortgage or other loansTo pay off a mortgage or other loans To provide housekeeping and child care services so that the surviving spouse can enter the workforceTo provide housekeeping and child care services so that the surviving spouse can enter the workforce To provide the surviving spouse sufficient funds to stay at home or reduce work hoursTo provide the surviving spouse sufficient funds to stay at home or reduce work hours To provide dependents with an emergency fundTo provide dependents with an emergency fund

How Life Insurance Works A legally binding contract between an insurance company (insurer) and an individual (insured) In exchange for payment of premiums, the insurer agrees to pay a specified death benefit The premiums collected from all policy holders are placed in an insurance pool The Insurance Company can invest the money in the pool but must have enough on hand to pay out a large number of claims

Life Insurance: The Basics Underwriting Life Insurance Underwriting is the process of assessing applicants to determine whether they are good risks An underwriter’s job is to minimize the risk the company takes Factors in underwriting: Present healthPresent health Medical historyMedical history Family medical historyFamily medical history LifestyleLifestyle OccupationOccupation

Life Insurance: The Basics Mortality Tables Sophisticated statistical averages of how long a person of a certain age, gender, ethnic background and so on can be expected to live Tables also consider your health, medical history, occupation Premium Class Insureds are placed into classes based on results from underwriting The better the class the lower the premiums

Life Insurance: Basic Policy Types Term Insurance SimplestSimplest Usually most inexpensiveUsually most inexpensive A policy that is limited to a specific length of time, or termA policy that is limited to a specific length of time, or term Does not accumulate cash valueDoes not accumulate cash value Usually term is 1,5,10,15,20,25,or 30 yearsUsually term is 1,5,10,15,20,25,or 30 years

Life Insurance: Basic Policy Types Permanent Life Insurance Covers the insured for a lifetime or until age 100 If you live to 100 insurer pays individual the death benefit Three types of Permanent Insurance: Whole lifeWhole life Universal lifeUniversal life Variable lifeVariable life

Life Insurance: Basic Policy Types Permanent Life Insurance Cash Value Cash reserves accumulate in the policyCash reserves accumulate in the policy You can take a loan out on the policyYou can take a loan out on the policy You can cash in your policyYou can cash in your policyDividends The proportion of a company’s profit that it pays to its policyholdersThe proportion of a company’s profit that it pays to its policyholders

Life Insurance: The Basics How much life insurance should a person have? Factors: Number of dependentsNumber of dependents Ages and needs of dependentsAges and needs of dependents Balance on mortgage or monthly rent paymentsBalance on mortgage or monthly rent payments Balance of loansBalance of loans Health insuranceHealth insurance TuitionTuition Basic necessitiesBasic necessities

Life Insurance: The Basics Where do you buy life insurance? Some employers offer it as a benefit Insurance companies sell insurance through experienced agents You can buy life insurance through the internet