COA 4131 1st Edition Lecture 19 Outline of Last LectureI. Review of Health CareII. Life Insurance Defined III. How does Life Insurance Work?Outline of Current Lecture I. Life Insurance and FamiliesII. Four Basic Types of Life Insurance III. Policy ChoiceIV. Other Types of Life Insurance V. Clauses Current LectureA. Life Insurance and Familiesa. Determining needsi. Insurance has been around for 500 years1. 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 havea child2. They will try to sell it to you but you should probably wait until you get a job and have a group employer3. It will expensive to buy nowiii. Women and life insurance1. If you are a homemaker and do not work out of the home, you willneed life insurance if people are dependent on you2. Sometimes they are under life insured iv. Children and life insurance1. No they do not need it if they are famous or important person2. But generally not necessary v. Insuring people other than family and business partners1. You cannot just pick a random famous person and buy life insurance on thema. Can’t buy it on Lindsey Lohan because you think she is going to self destruct2. Have to know them and have some connectiona. Affectionate or financial relationshipb. How much is needed?i. Old rule of thumb1. Need 5 to 7 times your annual salarya. Depends on lifestyle, number of dependents, and dependents’ other sources of incomeb. If you make $50,000, then face value of $250,000c. What does it cost?i. Many people pay more per year for life insurance than any other kindii. For low income people, person will come to your house to collect $10 a week1. 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 person1. It’s very quick2. One check, lump sum3. 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 Insurancei. This is the one that those who teach this course will recommend the mostii. Least expensive, will cover 10 or 15 yearsiii. Renewable clause 1. Allows for renewing the policy2. After 5 years you decide you want it another 5 years so you renew it iv. Convertibility1. Allows the conversion of a term policy to whole lifev. Level premium term1. Policy with constant face values; premiums increase with each renewal2. The price it says, it will stay at the pricevi. Decreasing term1. Policy has decreasing face value but premium remains the same2. Worth less but pay the same b. Whole Lifei. Policy that combines insurance with a savings feature ii. Will cover you for your entire lifeiii. Has a savings feature1. If you don’t want to pay it anymore, they will give you some money back but you will lose the policyiv. Can’t buy life insurance when you are on your death bed, no one will insure youv. Longer payment periodvi. Savings amount is lowvii. Nothing wrong with this method, most people just don’t know any information about itc. Universal Life Insurancei. Flexible policyii. Combines term life insurance with a tax-deferred savings accountiii. Rareiv. Face value might change depending on stock market and investments v. Depends on the market so maybe not the best onevi. Yesterday, the stock market hit the highest it has been since 2007d. Variable Life Insurancei. Policy that allows for flexibility in types of investments e. Insurance agent will push wholei. They will get the most commission ii. They get this commission when you buy it, not when you die C. Policy Choicea. Termi. Pure insurance1. Best choice if needed for less than 10 years2. You are only buying this, nothing else b. Permanenti. Permanent is the same thing as whole ii. Longer you hold the policy, the more money you will makeiii. Cash value1. Allow some money back2. Pay higher premiums D. Other Types of Life Insurance a. Other types i. Survivorship or 2nd to die1. For famous people with a lot of money to fight overii. Credit life insurance1. Does not suggest2. Repays your debts iii. Endowment insurance1. Money goes to main bread winner iv. Family income policies1. 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 familyE. Clauses a. Clausesi. Double or triple indemnity clause1. Doubles or triples the amount of insurance proceeds if the insureddies 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 movies4. There is a suicide clausea. Have to wait 2 years before it kicks inb. 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 anymoreF. Finding a Financially Secure Insurera. Checking insurance company reputationsi. Better Business Bureau1. All big cities have these ii. State departments of insurance iii. Publications iv. Do not want the cheapest if it is not a good company1. You want the best quality! 2. Research before you buyb. Revising i. Policies should be reviewed every few yearsii. Better to have one good policy better than many little not as good ones c. Unclaimed Life Insurance Benefits and Unclaimed Propertyi. More than 25% of life insurance policies are sold go
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