1. Insurance & Investments
Chapter 7
Insurance & Investments

2. 7.1 Life Insurance

3. Life Insurance – way to protect your family from financial hardship when you die (replaces income, childcare, home, car, funeral)
Policy – contract between insured (person whose life is covered) & insurance company
Death benefits (face value) – amt to be paid upon insured’s death
Premium - $ paid to insurance company to buy insurance
Beneficiary – person to receive $ upon insured’s death

4. Types of Life Insurance
Whole Life (permanent life insurance)
Protects for whole life
More expensive
Premiums paid your entire life
One type is universal life (can pay in extra to invest; extra amt may earn enough to cover your premiums over time)
Term
protects for fixed amt of time
(1, 5, 10 yrs)
Less expensive
Can be renewed, but more expensive (older means greater chance of dying)
May not be renewed by comp if you’re ill (ex: cancer)
One type is decreasing term (even less expensive; face value decreases over time; often used to cover mortgage)

5. Example 1 (see annual premiums table, p. 283 from textbook)
Shelly Burnam buys a $25,000 whole life insurance policy at age 25. Shelly does not smoke. What is her annual premium?

6. Net Cost of Insurance = total premiums – dividends
amt insurance comp may pay back to you
Can either deduct that amt from premiums or can leave to invest or buy even more insurance
Net Cost of Insurance = total premiums – dividends
Example 2
Tom paid $57 quarterly for a life insurance policy. His policy also paid a dividend of $14.80 at the end of the year. What was the net cost of his insurance policy for the year?

7. Life Insurance Cash Values
If cancel term policy  get nothing
If cancel whole policy, you can get cash value (take cash or buy some other life insurance, or use to borrow low interest)

8. Example 3 (see cash value table, p. 285 from textbook)
Using the cash value table, find the maximum amt you can borrow against your $100,000 policy if you had the policy for 20 years:

9. Wrap It Up