What does life insurance mean? It s a protection against financial loss resulting from death. It is am insurance company s promise to pay your beneficiary a specific amount of money when you die in exchange for timely payment of premiums
Why do you need life insurance? It helps replace lost income in the event of your premature death. The reasons people buy insurance is to: Replace income Pay off mortgage loan and other business or personal debts Create a fund for children s education Pay final expenses(funerals) Family emergency fund Pay special taxes (inheritance)
Different Policies Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.
Two Most Common Types of Policies Whole or Universal Life intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. Builds Cash Value! Term Life Covers the life of a person for a specific period of time. Usually 10 to 20 years. Less expensive but builds no cash value
ANNUAL premiums for 75,000 in term 10 life insurance AGES Male,non smoker Female non smoker 25 yrs old $113.75 $84.50 35 yrs old $146.75 $133.25 45 yrs old $237.50 $181.25 55 yrs old $568.25 $156.25
Types of Term Insurances Renewable Term : continues in force for a specified term or terms and can be renewed Level Term: provides a fixed amount of coverage with premiums that remain stable over a certain period of time Decreasing Term: premiums remain level, but the amount of coverage decreases throughout the term. Convertible Term: The right to change to a permanent type of life insurance
Types of Permanent Insurance Whole Life: the most common type of insurance. It remains in force during your entire lifetime, and offers a death benefit along with a savings vehicle (called the cash value). Variable Life : in addition to a death benefit, offers investment options. You can use the cash accumulated in your savings account to invest in stocks, bonds and money market mutual funds Universal Life: provides a savings vehicle (cash value account) flexible premiums, cash values, and adjustable death benefits. Variable-universal Life: combine the features of variable and universal life policies. Investment risks and rewards and ability to adjust your premiums and death benefit that.
Different policies and Add-ons Riders are modifications to the insurance policy added at the same time the policy is issued. Change the basic policy to provide some feature desired by the policy owner. Common one is accidental death, which used to be commonly referred to as "double indemnity", which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured. Another common rider is premium waiver, which waives future premiums if the insured becomes disabled. Joint life insurance is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death. Survivorship life or second-to-die life is a whole life policy insuring two lives with the proceeds payable on the second (later) death.
What is an Annuity? A contract between the purchaser (you) and the issuer(insurance company) Process: *You pay money to issuer, issuer invest money issuer pays out principle and earnings back to you or beneficiary.
Annuity types Types of Annuities: Fixed annuity: guaranteed rate of return for a specified time. Variable annuities: underlying investments are in stocks and bonds, potential for a greater return on your investment, but high risk. Payout options: Immediate annuity: Distribution period begins immediately (within one years) after annuity was purchased Deferred Annuity: Time delay between when you begin investing in annuity and when distribution period begins.
Phases of Annuities Phase One: Accumulation (investment phase) *Time period when you invest money into annuities Phase Two: Distribution phase *Options for receiving - Withdraw earnings - Guaranteed income(annual distribution)
Why invest in an Annuity? Advantages: Earning accrue tax deferred Guaranteed payments for life No contribution limits Different types of annuities Can delay payout until later age Proceeds avoid probate May receive income for life Disadvantages: Costly fees and expenses May have higher surrender charges Contributions are not tax deductible Tax penalties for early withdrawals Payout plan is irrevocable one selected May not keep up with inflation
Types of Whole Life Policies Non-cancelable policy : locks in rates and benefits (best policy) Guaranteed renewable policy; insurer can t drop you but can raise prices. Future purchase : Allows you to buy more coverage as your salary rises or business expands
Other Types of Whole Life Policies (cont.) Group life insurance is term insurance covering a group of people, usually employees of a company or members of a union or association. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size and turnover of the group, and the financial strength of the group. Group life insurance often has a provision that a member exiting the group has the right to buy individual insurance coverage.
Disability Insurance Disability insurance pays an insured person an income when that person is unable to work because of an accident or illness. When you buy a private disability income policy, you can expect to replace from 50% to 70% of income. Insurers won t replace all your income because they want you to have an incentive to return to work..)
How are disability premiums determined? Disability premiums are based on your age, sex, occupation and the amount of potential lost income you are trying to protect. In general, the lower the chance that your occupation puts you in harm s way, the lower the premium. The higher the chance of injury, the bigger the premium. So, for instance, an accountant working in an office would have much lower disability premiums than a construction worker.
Disability Insurance Disability insurance: provides partial wage replacement to eligible worker who are unable to work because of a disability. Disability insurance policies are different depending on insurance company. Many people get their disability plan through employers, but only most provide you with 60% salary and a monthly maximum of $5,000- $10,ooo.