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Chapter 12 Life Insurance McGraw Hill Irwin Copyright 2007 by The McGraw Hill Companies Inc All An Introduction to Life Insurance Life insurance Purchase policy insurance company promises to pay a lump sum at the time of the policy holder s death or sometimes while they are still alive Purpose of life insurance Protect someone who depends on you from financial loss related to your death Other reasons are To leave as part of your estate To save money for retirement or for income or education for children To pay off a mortgage or debts at the time of death 12 2 The Principle of Life Insurance Mortality tables provide odds on your dying based on your age and sex Your premium is based on your life expectancy and the projections for the payouts for persons who die 12 3 Determining Your Life Insurance Needs Ask Yourself Do you need life insurance Do you have people you need to protect financially Do you have a partner who works What are your objectives for life insurance How much money do you want to leave your dependents should you die today When do you want to retire and what income do you think you ll need How much will you be able to pay for your insurance program 12 4 Estimating Your Life Insurance Requirements The Easy Method You will need 70 of your salary for seven years while your family adjusts The DINK dual income no kids Method The Nonworking Spouse Method Multiply the number of years until the youngest child reaches 18 by 10 000 The Family Need Method More thorough than the first three because it also considers employer provided insurance Social Security benefits and income and assets 12 5 Two Types of Life Insurance Companies Stock life insurance companies are owned by the shareholders 95 are of this type Sell non participating policies If you want to pay the same premium each year choose a non participating policy with its guaranteed premiums 12 6 Two Types of Life Insurance Companies continued Mutual life insurance companies Owned by the policyholders 5 of



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