COA 4131 1st Edition Lecture 19 Outline of Last Lecture I Review of Health Care II Life Insurance Defined III How does Life Insurance Work Outline of Current Lecture I II III IV V Life Insurance and Families Four Basic Types of Life Insurance Policy Choice Other Types of Life Insurance Clauses Current Lecture A Life Insurance and Families a Determining needs i Insurance has been around for 500 years 1 England were really big when people would go out to sea and not come back ii College students and life insurance 1 No college students do not need it unless you are married or have a child 2 They will try to sell it to you but you should probably wait until you get a job and have a group employer 3 It will expensive to buy now iii Women and life insurance 1 If you are a homemaker and do not work out of the home you will need life insurance if people are dependent on you 2 Sometimes they are under life insured iv Children and life insurance 1 No they do not need it if they are famous or important person 2 But generally not necessary v Insuring people other than family and business partners 1 You cannot just pick a random famous person and buy life insurance on them a Can t buy it on Lindsey Lohan because you think she is going to self destruct 2 Have to know them and have some connection a Affectionate or financial relationship b How much is needed i Old rule of thumb 1 Need 5 to 7 times your annual salary a Depends on lifestyle number of dependents and dependents other sources of income b If you make 50 000 then face value of 250 000 c What does it cost i Many people pay more per year for life insurance than any other kind ii For low income people person will come to your house to collect 10 a week 1 Not a good idea d How is beneficiary paid i Receive proceeds over given period ii You are supposed to get policy by a week after the death of the person 1 It s very quick 2 One check lump sum 3 With all of this money it should be put away somewhere safe 4 Will get taxed on it B Four Basic Types of Life Insurance a Term Life Insurance i This is the one that those who teach this course will recommend the most ii Least expensive will cover 10 or 15 years iii Renewable clause 1 Allows for renewing the policy 2 After 5 years you decide you want it another 5 years so you renew it iv Convertibility 1 Allows the conversion of a term policy to whole life v Level premium term 1 Policy with constant face values premiums increase with each renewal 2 The price it says it will stay at the price vi Decreasing term 1 Policy has decreasing face value but premium remains the same 2 Worth less but pay the same b Whole Life i Policy that combines insurance with a savings feature ii Will cover you for your entire life iii Has a savings feature 1 If you don t want to pay it anymore they will give you some money back but you will lose the policy iv Can t buy life insurance when you are on your death bed no one will insure you v Longer payment period vi Savings amount is low vii Nothing wrong with this method most people just don t know any information about it c Universal Life Insurance i Flexible policy ii Combines term life insurance with a tax deferred savings account iii Rare iv Face value might change depending on stock market and investments v Depends on the market so maybe not the best one vi Yesterday the stock market hit the highest it has been since 2007 d Variable Life Insurance i Policy that allows for flexibility in types of investments e Insurance agent will push whole i They will get the most commission ii They get this commission when you buy it not when you die C Policy Choice a Term i Pure insurance 1 Best choice if needed for less than 10 years 2 You are only buying this nothing else b Permanent i Permanent is the same thing as whole ii Longer you hold the policy the more money you will make iii Cash value 1 Allow some money back 2 Pay higher premiums D Other Types of Life Insurance a Other types i Survivorship or 2nd to die 1 For famous people with a lot of money to fight over ii Credit life insurance 1 Does not suggest 2 Repays your debts iii Endowment insurance 1 Money goes to main bread winner iv Family income policies 1 It s a mix of whole life and term together v Family policies 1 Whole life with decreasing term on the whole family 2 Highest amount to breadwinner and less and less as you go down the family E Clauses a Clauses i Double or triple indemnity clause 1 Doubles or triples the amount of insurance proceeds if the insured dies in certain types of accidents 2 If you work in an ammunition plant and you die in an explosion it would be worth double or triple 3 Portrayed in TV shows and movies 4 There is a suicide clause a Have to wait 2 years before it kicks in b Idea is that if you want to take it out you are not going to wait 2 years before you kill yourself hopefully you will not want to do that anymore F Finding a Financially Secure Insurer a Checking insurance company reputations i Better Business Bureau 1 All big cities have these ii State departments of insurance iii Publications iv Do not want the cheapest if it is not a good company 1 You want the best quality 2 Research before you buy b Revising i Policies should be reviewed every few years ii Better to have one good policy better than many little not as good ones c Unclaimed Life Insurance Benefits and Unclaimed Property i More than 25 of life insurance policies are sold go uncollected
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