HDF 322 Lecture 20 Outline of Last Lecture I Health Insurance Disability and Life Insurance Outline of Current Lecture II Whole Life Insurance III Limited payment policy IV Variable Life policy V Adjustable Life policy VI Universal life VII Group life VIII Endowment IX Credit Life insurance X Tax Advantages of Life Insurance XI Important Provisions in Life Insurance Contract XII Settlement Options XIII Choosing Your Insurance Agent XIV Switching Policies Current Lecture I Whole Life Insurance These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute attaches a savings plan to it that premium is 8 10 times higher though bc it has a savings component but is tax exempt II Limited payment policy a takes full life expectancy and pushes it down into more narrow time span this is for individuals who have earning potential very high in first decade or 2 of their life professionals are example but its not for the average person III Variable Life policy a you tell insurance company if you want savings going to buy stock dividends but NO GUARANTEE return on this and if you select wrong savings is completely lost for high risk people she doesn t recommend it IV Adjustable Life policy a as life cycle changes you can modify policy has flexible V Universal life a promise market value return in 70s and 80s they were paying 812 percent NOW we get 1 VI Group life a as long as you are with employer you get it but if you lose job you lose coverage so sometimes private is more secure VII Endowment a didn t go much into it tie life savings to it so goal is to collect money for retirement lifetime vacation and if you should die the insurance pays for what you were trying to pay and if not premiums would eventually get you that amount its aggressive savings account VIII Credit Life insurance a there was no regulation for what they were charging Credit cards but if you have to get it get it from own insurance agent not from retailer IX Tax Advantages of Life Insurance if you buy cash value savings element while you hold the policy all that savings is TAX EXEMPT also tell you that the proceeds at your death the beneficiary gets the proceeds and those are never taxable by the beneficiary by federal income tax and those proceeds cannot be taken away to pay off debts of person who died so proceeds have significant protection from other debts and tax Death of insured a No INCOME TAX nothing regarding person who died b However could be an c ESTATE TAX depends on ownership d no exam question on this X Important Provisions in Life Insurance Contract a cant just take your kid off whenever has to be on anniversary b grace period normally 30 days and send to secondary person says primary insured hasn t paid premium c reinstatement more difficult you didn t pay premium and you need policy back so you have to repay it and if you turned it into cash you have to pay that back and may be a fee with it d nonforfeiture if you quit cash value you forfeit policy and then says what do you wanna do with the money you should take the cash or go somewhere else and buy term policy e incontestability clause says after 2 or 3 years usually 2 after period of time even if you did not give accurate info they cannot contest the policy within that time period they will investigate and if you lied about age or health condition then they null and void the policy and return all your premiums and you don t have one this is saying I lied and they find out if they find out after period they cant do anything about it clip when she was smoking in front of agent f suicide clause don t want you to do this for suicide 2 years is enough time to counteract this purchase bc of suicide if you do commit suicide they null and void and all premiums returned to estate but if it occurs after then they pay proceeds XI Settlement Options Lump sum payment is most common THIS IS WHAT SHE RECOMMENDS if you die and they need money now they can Limited installment payment a In equal installments for a specific number of years after you death b In equal installments of a specific amount until proceeds are depleted c this is default with insurance companies money stays with insurance company and they benefit Life income option d Payments to the beneficiary for life e annuity they keep 500 000 dollars and they will pay you out once you hit age 65 and start paying a payment out Proceeds left with the company f Pays interest to the beneficiary a short term option XII Choosing Your Insurance Agent friends can help you want someone knowledgeable its sold so make sure you really need it before you buy it there are designations like licenses for having insurance education so see if they have certifications what kind do they sell don t feel pressured from high pressured sales you don t have to do it right now there is cooling period of 10 15 days to think about it without penalty if you go to consumer reports they do insurance analysis their analysis is based on claims service not on financial stability if you go you can see stuff about claims XIII Switching Policies Switch if benefits exceed costs of getting another is it really a better policy you may have to go through tests again and you may not be insurable never drop a policy until the new one is in place