CSM 204 Chapter 12 LectureOutline of Previous LectureI. Health Care CostsII. Why does health care cost so much?III. Controlling Health Care CostsIV. Health Insurance and Your Financial PlanV. Plan TypesVI. Types of Medical CoverageVII. Major Provisions in Health InsuranceVIII. Health Insurance Trade-OffsIX. Private Health InsuranceX. Government Health Care PlansXI. Patient Protection and Affordable Health Care Act of 2010XII. Disability Income InsuranceXIII. Sources of Disability IncomeXIV. Quiz 4-2Outline of Current LectureI. Purpose of Life InsuranceII. Life Insurance Needs Over the Life CycleIII. Estimating Life InsuranceIV. Types of Life Insurance CompaniesV. Term Life Insurance (Temporary Life Insurance)VI. Whole Life InsuranceVII. Other Types of Life InsuranceVIII. Life Insurance Contract ProvisionsIX. Buying Life InsuranceX. Settlement OptionsXI. Quiz 4-3Current LectureChapter 12 – Life InsurancePurpose of Life InsurancePay off debts like mortgageThese 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.Provide income to survivorsProvide educationCover medical and funeral costsMake charitable bequestsProvide retirement incomeEstate planning and estate taxesLife Insurance Needs Over the Life CycleChildhood and Single-hoodRarely need much life insurance, if anyMarriagePotential for needing life insurance escalates the minute a couple gets married because most new couples lives off of two incomes and have new debts due to moving in together and jointly making large purchasesChildrenMore life insurance because money is needed to raise childrenEmpty NestNeed for life insurance begins to decrease againRetirementBarely need life insuranceEstimating Life InsuranceEasy MethodMultiple of EarningsOnly good if you are singleDual Income No Kids (DINK) MethodEach spouse works, no kids there yetNon-Working Spouse MethodLost income from one spouse raising the children instead of workingFamily Need MethodGo through all the needsTypes of Life Insurance CompaniesStock Companies75% of companiesSell non-participating policiesLife insurance that does not provide policy dividendsGuaranteed premiumsMutual Companies25% of companiesSells participating policiesLife insurance that provides policy dividendsOwned by policy holdersSlightly higher premiums and dividendsTerm Life Insurance (Temporary Life Insurance)Specific period of timeCan be renewableThe coverage of term insurance ends at the conclusion of the term, but can be renewed for another termTypes of Term Life InsuranceMultiyear level term (straight term) – most popularThe policyholder pays the same premium amount for the life of the policyConversion optionCan be exchanged for a whole life policy without a medical examination and at a higher premiumDecreasing termPays less to the beneficiary as time passesPremium remains constant while the payout amount of the insurance decreasesOriginally designed to be paired with a debt repayment, such as a mortgage on a homeReturn of premium – no cash valueRefunds every penny you paid in premiums if you outlive the 15-, 20-, or 30-year term of the policyCosts 30% to 50% more than traditional term lifeWhole Life InsurancePay premiums as long as you livePremium based on age and health at time of purchaseCash value buildsCan borrow against cash valueTypes of Whole Life InsuranceLimited payment policyPay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age, usually 60 to 65.After that time period, policy then becomes “paid up,” and you remain insured for lifeVariable life policyCash values fluctuate according to the yields earned by a separate fundMinimum death benefit is guaranteedDeath benefit can rise above that minimum depending on the earnings of the dollars invested in the separate fundAdjustable life policyCan change your policy as your need changeUniversal life insuranceSubject to certain minimumsDesigned to let you pay premiums at any time in virtually any amountDistinguishing FeaturesThe charges for the insurance elementThe changes for company expensesCommissionsPolicy FeesEtc.The rate of return on the investmentFlexibleOther Types of Life InsuranceGroup Life InsuranceInsures a large number of persons under the terms of a single policy without requiring medical examinationsThrough your workUsually tied to your salaryEndowment Life InsuranceProvides coverage form the beginning of the contract to maturityGuarantees payment of a specified sum to the insured, even if he/she is still living at the end of the endowment periodCredit Life InsuranceUsed to repay a personal debt should the borrower die before doing soLife Insurance Contract ProvisionsBeneficiaryPerson designated to receive somethingContingent BeneficiaryPerson(s) designated to receive something in the case of the beneficiary being dead before able to receive itGrace PeriodInsurance company agrees to pay a certain sum of money under specified circumstancesYou agree to pay a premium regularlyAllows 28 – 31 days to elapse during which time you can pay the premium without penaltyAfter 28 – 31 days, the policy lapses if the premium is not paidReinstatementLapsed policy put back into force if it has not been turned in for cashNon-forfeitureA provision that allows the insured not to forfeit all accrued benefitsIncontestability clauseA provision stating that the insurer cannot dispute the validity of a policy after a specified period of usually two yearsSuicide clauseA provision stating that if the insured dies by suicide during the first two years the policy is in force, the death benefit will equal the amount of the premium paidAutomatic premium loansIf you do not pay the premium within the grace period, the insurance company automatically pays it out of the policy’s cash value if that cash value is sufficient in your whole life policyMisstatement of age provisionIf the company finds out that your age was incorrectly stated, it will pay the benefits your premiums would have bought if your age had been correctly statedPolicy loansA loan from the insurance company available on a whole life policy after the policy has been in force for one, two, or three yearsPermits you to borrow any amount up to the cash value of the policyReduces the death benefit by the amount of the loan plus interest if the loan is not repaidRidersA document attached to a policy that modifies its coverageTypes of