1. Money Management II
Life Insurance

2. What We’re Covering Today
What is life insurance?
What is the purpose of life insurance and who needs it the most?
Types of life insurance policies
Term Life
Whole Life
Other types of life insurance

3. What is Life Insurance?
When a person buys life insurance, he or she is making a contract with the company issuing the policy.
He/she agrees to pay a certain amount of money – the premium – periodically.
In return, the company agrees to pay a death benefit, or a stated sum of money upon his or her death, to his or her beneficiary.
A beneficiary is a person named to receive the benefits from an insurance policy.

4. Purpose of Life Insurance?
Buying life insurance can help you protect the people who depend on you from financial losses caused by your death.
Those people could include a spouse, children, an aging parent, or a business partner.
Lessons learned:
Video Link – Brittney Lacombe
Video Link – Ebony and Shana Blanchard

5. Some Ways Life Insurance is Used…
Purpose of Life Insurance
Pay off home mortgage and debts
Provide retirement income
Endowment for children
Accumulate savings
Education for children
Income for survivors
Uncovered medical expenses
Estate planning
Charitable donations
Estate and death taxes

6. The Principle of Life Insurance
None of us know how long we have!
However, insurance companies can make some pretty educated guesses based on statistical realities.
They look at your age and your overall health and do an analysis. Then they offer you a policy with a premium. The younger and healthier you are the cheaper the insurance will be!
For example, life insurance will be more expensive for a 65-year-old woman than for a 25-year-old woman.

7. Life Expectancy
Life expectancy is going up! If history is any guide, you will live longer than your ancestors lived!
In 1900, the life expectancy of an American male was 46.3 years (M) and 48.3 years (F).
By the year 2000, those numbers were 74 (M) and 80 (F).

8. Do You Need Life Insurance?
Before you buy life insurance, you will have to decide whether you need it at all.
WHAT IS THE TEST?
Generally, if your death would cause financial HARDSHIP, or suffering, for somebody, then life insurance is a wise purchase!
Households with children, generally, have the greatest need for life insurance. Although ANYBODY can have people that depend on them for support!
Single people who live alone (or with their parents) usually have little or no need for life insurance unless they have a great deal of debt or want to provide for their parents, a friend, other relatives, or a charity. Oftentimes, having a small policy just to cover funeral expenses is enough.

9. Who Needs Life Insurance?
REALLY THINK ABOUT HARDSHIP! Who depends on me financially? If the answer is ANYBODY, you should have coverage!
Tracy Basden -- (her father died when she was a senior in high school, leaving her to raise her younger brother on her own.)
Looking back, Tracy sometimes thinks of how things might have been different if her father had more life insurance. “I could have grieved,” she reflects. “Life insurance leaves you with the comfort to not have to worry so much about money. It’s one of those bills you have to pay. It should be right up there with your mortgage or rent.” 

10. Types of Life Insurance Policies
Temporary Insurance – Term Life
Term Life – insurance that provides protection against loss of life for only a specified term, or period of time.
Term insurance only pays if you die during the period for which it covers. (For example: 1 year, 5 years, 20 years)
Example: “I have kids so I want term life for the next twenty years in case something happens to me while I’m raising them.”
If you stop paying the premiums, your coverage stops.
Term life is often the best value. It’s CHEAPER! Premiums for younger people (20’s and 30’s) are less expensive than those for whole life insurance.

11. Types of Insurance – Term Life
Types of Term Life Policies
Renewable Term – can renew at end of each term. Prices change
Multiyear Level Term – Guarantees
that you will pay the same premium the entire policy
Conversion Term – Allows you to change from term life to whole life without a medical exam.
Decreasing Term – pays less to the beneficiary as time passes. (kids, house)

12. Types of Life Insurance Policies
Permanent Insurance – Whole Life
More common even though it’s is a bit more expensive!
Whole life insurance is a permanent policy for which you pay a specified premium each year for the rest of your life.
The insurance company pays your beneficiary a stated sum when you die.
The earlier you commit and buy the policy the less expensive it is! The amount of your premium depends mostly on your age when you make the purchase!
Whole life can also be an INVESTMENT. Part of each premium you pay is set aside in a savings account. When and if you cancel the policy, you are entitled to the accumulated savings. This is known as the CASH VALUE.
This is another reason these plans are more popular!

13. Types of Insurance - Whole Life
Types of Whole Life Policies
Limited Payment Policy – pay for a certain number of years but covered for life
Variable Life Policy – premium is fixed. Part of premium is invested. Payouts can fluctuate
Adjustable Life Policy – allows you to change your policy as your needs change
Universal Life – part of your premium goes into an investment account.

14. Other Types of Insurance
Group Life – variation of term insurance.
Usually offered by employers.
Covers a large group under a single policy.
The people in the group do not need a medical exam to get coverage.
Credit Life – Pays off debts!
In the event you pass away, these types of policies pay off things like auto loans or mortgages for your family that is left behind.
Usually NOT A GOOD DEAL! A decreasing term insurance is usually cheaper!

15. Key Provisions in a Life Insurance Policy
Why should you consider adding provisions to your policy?
Always study the provisions, or conditions, in your policy and be sure to update the necessary information as changes in your life occur.
The following are common provisions:
Beneficiary Designation – you decide who receives the benefits. Make sure they are up to date!
Incontestability Clause – says that the insurer cannot cancel the policy if it has been in force for the specified period (usually two years). An important protection!

16. More Provisions
The Grace Period – usually days. Allows you to pay a bit late without a lapse in coverage. After the grace period, the policy lapses. It’s really important to know if your policy has a grace period or not!
Reinstatement policy – if your policy lapses, know how to get it reactivated! There is a time limit to get it back and you usually have to pay overdue premiums and interest.
Suicide Clause – know what your policy says about these payouts in the event of suicide. It can range from full payment to zero payment depending on the policy.

17. Riders to Life Insurance Policies
An insurance company can change a policy by adding a rider to it.
A rider is a document attached to a policy that changes its terms by adding or excluding specified conditions or altering its benefits.
Examples:
Waiver of Premium Disability Benefit – if you become disabled the premium is waived.
Accidental Death Benefit – pays twice the value of the policy if the insured is killed in an accident. Experts often counsel against this saying it isn’t worth the cost.
Guaranteed Insurability Option – IMPORTANT to consider. Allows you to add more insurance without new medical exams!

18. Wrap-Up & Review
BEFORE you buy life insurance, you should always analyze whether or not you need the coverage!
Who is hurt if your income is lost?
Could be as simple as a $10,000 policy to offset the cost of a funeral
Up to as much as 500,000-1,000,000 to pay for the costs of raising your kids!
Understand the difference between Whole Life and Term Life
Understand common provisions and riders!