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AOF Insurance Unit 2, Lesson 7 Life Insurance Copyright © 2009– 2011 National Academy Foundation. All rights reserved.
People purchase life insurance for four main reasons • • Financial protection for survivors and heirs Tax deferral Enforced savings Estate planning Can you think of a reason why someone would like to enforce savings?
Life insurance has a familiar business model Investments Insured Insurance Company RIP $ Beneficiary
Underwriters look at a variety of factors ● Age ● Gender ● Health ● Lifestyle Mortality Table Policy’s Terms and Conditions Premiums
There are two major categories of life insurance 1. Protection Policies Term Life Insurance Provides coverage for a specified period of years and then ends or must be renewed 2. Permanent (or Cash Value) Policies Whole Life and Universal Life Insurance Lasts until death Part of premiums go into cash value fund, which can be used by insured Premiums can be fixed or flexible
Each type has different strengths and weaknesses 1. Term Life Policies 2. Permanent (or Cash Value) Policies Much lower premiums Higher premiums Sometimes difficult to extend after expiration Flexible premiums in some policies No way to take cash out Does not expire as long as premiums are paid Cash can be withdrawn
There are several types of permanent policies Whole Life Much lower premiums Sometimes difficult to extend after expiration No way to take cash out Universal Life Higher premiums May have investment options Flexible premiums in some policies Does not expire as long as premiums are paid Cash can be withdrawn
It is important to choose a policy that meets your needs • Are the premiums affordable? • Do you have the right amount of protection? • Do you need access to a cash account? • Are there better ways to invest money than a cash account? • Do you need an estate planning tool? • Do you need a tax-deferred investment option? • Do you need insurance? Would a very wealthy person be more or less likely to need access to a cash account? Why?