Money Management II

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• Money Management II

Life Insurance
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What Were 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

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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.

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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

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Some Ways Life Insurance is Used
Purpose of Life Insurance 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
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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.

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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).

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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.

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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.
  Its one of those bills you have to pay. It
  should be right up there with your mortgage or
  rent. 

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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 Im raising them.
• If you stop paying the premiums, your coverage
  stops.
• Term life is often the best value. Its CHEAPER!
  Premiums for younger people (20s and 30s) are
  less expensive than those for whole life
  insurance.

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Types of Insurance Term Life
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Types of Life Insurance Policies

• Permanent Insurance Whole Life
• More common even though its 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!

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Types of Insurance - Whole Life
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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!

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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!

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More Provisions

• The Grace Period usually 28-31 days. Allows you
  to pay a bit late without a lapse in coverage.
  After the grace period, the policy lapses. Its
  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.

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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 isnt worth the cost.
• Guaranteed Insurability Option IMPORTANT to
  consider. Allows you to add more insurance
  without new medical exams!

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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!