Unformatted text preview:

Section 3 Outline Management of Personal Risks Life Insurance Annuities IRAs Health Insurance and Related Coverages Employee Related Risks Employee Benefits Group Insurance Social Security Corresponding Chapters in my Book Chapters 11 16 so far Premature Death Definition Death of a family head with outstanding unfulfilled financial obligations Economic Justification for Life Insurance To set up someone financially in case of unexpected loss Costs forever Family s share of the deceased breadwinner s future earnings is lost Additional expenses incurred because of funeral expenses uninsured medical bills and estate settlement costs Some families will experience a reduction in their standard of living Certain noneconomic costs are incurred such as intense grief loss of a parental role model and counseling and guidance for the children Financial Impact One person no children no spouse Other than needing a modest amount of life insurance for funeral expenses and uninsured medical bills this group does not need large amounts of life insurance as they only are providing for themselves Individual caring for one or more children The need for large amounts of life insurance on the family head is great as they are in need of support for another life Husband and wife and both are working Both income earners need substantial amounts of life insurance as they both provide for the family Stay home wife and male breadwinner Working parent in the labor force needs substantial amounts of life insurance The non employed spouse who is caring for dependent children also needs life insurance Single People Single Parent Families Two Income Earners Traditional Families Blended Families Sandwiched Families A family consisting of current children and children from previous relationships The need for life insurance on both family heads is great Family caring for depended children but also one or more of their parents A working spouse in a sandwiched family needs a substantial amount of life insurance Estimating the Amount Human Life Value Approach Estimate the individuals average annual earnings over his or her productive life Deduct federal and state income taxes social security tax life and health insurance premiums and the costs of self maintenance The remaining amount is used to support the family Determine of years from the person s present age to the contemplated age of Using a reasonable discount rate determine the PV of the family s share of retirement earnings for the period determined in step 3 What is my current age How old do I expect to be when I choose to retire How many working years do I have How much money do I make and how much of that money goes towards maintaining the family How much do I need to maintain that family for my entire workable life Time Value of Money Some insurers recommend that insured s carry life insurance equal to some multiple of their earnings 6 to 10 times annual earnings Capital Retention Approach Preserves the capital needed to provide income to the family Determine amount of income producing capital Determine amount of additional capital needed if any Personal Balance Sheet Needs Approach Family needs that must be met if the family head should die are analyzed and the amount of money needed to meet these needs is determined Estate clearance fund immediate expenses following death Income during readjustment period Receives breadwinners income for a Income during the dependency period Period until youngest child couple of years to adjust to new standard of living reaches 18 y o the family will receive income during this period so that the surviving spouse can remain at home Life income to the surviving spouse If they do not work they receive income from the time the youngest child turns 16 to the time the spouse turns 60 Special needs mortgage redemption education emergency Mental or Retirement needs physical challenged family member Three categories cash income special Based on what percentage you need to meet certain needs minus what is coming into the house because of social security or other forms of income Need X amount of dollars to get by and have Y value saved Insurance will write a plan to make up the difference Methods of Providing Protection PAGE 223 Temporary Method Pure Premium Mortality charge varies by age Expense charge Permanent Method unless you stop paying your High Cost at Advanced Age premiums then will be there the rest of your life How is this Possible Front load at a young age so your premium is more expensive than the average but then as you get older your premiums don t change Use of Legal Reserves Cash Values Term Insurance PAGE 223 Characteristics Convertibility term policy can be exchanged for a cash value policy without evidence of insurability Renewable premium increased each time Those will poor health will tend to renew as the healthy tend to drop their insurance age restrictions implemented Types Uses 5 10 15 20 25 or 30 year term Term to age 65 Decreasing Term Reentry Term Return of premium term insurance If the amount of income that can be spent on life insurance is limited term insurance can be effectively used Term insurance is appropriate if the need for protection is temporary Term insurance can be used to guarantee future insurability Whole Life Insurance PAGE 223 Characteristics Types Ordinary Variable Cash value policy that provides lifetime protection A stated amount is paid to a designated beneficiary when the insured dies regardless of when the death occurs Level premium policy that provides cash values and lifetime protection to age 121 the investment experience of a separate account maintained by the insurer A fixed premium policy in which the death benefit and cash values vary according to Entire reserve is held in a separate account and is invested in common stocks or other No minimum guaranteed cash values Universal Flexible premium life insurance investments A flexible premium policy that provides protection under a contract that unbundles the protection and saving components Unbundling protection and saving component Two forms of universal life insurance Considerable Flexibility Cash withdrawals permitted Favorable income tax treatment More Types of Whole Life Insurance PAGE 223 Minimum interest rate guarantee Additional interest may be credited to the policy based on the investment gains There is a formula for determining the amount of enhanced interest credited to Indexed Universal the policy Variable


View Full Document

FSU RMI 3011 - Section 3 Outline

Documents in this Course
Risk

Risk

26 pages

Exam #2

Exam #2

7 pages

Exam #2

Exam #2

7 pages

Exam #3

Exam #3

9 pages

Exam #3

Exam #3

9 pages

Exam 1

Exam 1

12 pages

EXAM 1

EXAM 1

13 pages

Exam 1

Exam 1

12 pages

Test 2

Test 2

13 pages

Test 1

Test 1

6 pages

Chapter 1

Chapter 1

56 pages

Test 2

Test 2

22 pages

Test 1

Test 1

5 pages

TEST 2

TEST 2

16 pages

Chapter 1

Chapter 1

56 pages

Notes

Notes

18 pages

Load more
Download Section 3 Outline
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Section 3 Outline and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Section 3 Outline 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?