Chapter 10 InClass Notes Background on Life Insurance

Chapter 10 In-Class Notes

Background on Life Insurance • Parties to a life insurance contract • Beneficiary, life insured, policy owner • Life and health insurance company • Types of temporary life insurance • Term insurance • Consider the implications of owning Term 10 versus Term 20 • Renewability • Creditor insurance • Who is the beneficiary? • Should I buy creditor insurance or personally owned term insurance? • Group life insurance Copyright © 2009 Pearson Education Canada 10 -2

Permanent Insurance • Types of permanent life insurance • Whole life • Fixed premiums • Source of liquidity (you can borrow from the cash value) • Limited payment policies available • Investments made at the discretion of the life insurance company Copyright © 2009 Pearson Education Canada 10 -3

Permanent Insurance (Continued) • Universal life • Flexible premiums • Cost of insurance options • Level term • Yearly renewable term (YRT) • Company expenses will vary • Investment returns are based on the performance of the investments selected by the policy owner • Term to 100 • No cash value Copyright © 2009 Pearson Education Canada 10 -4

Determining the Amount of Life Insurance Needed • Income method • Multiple of your annual income • Does not consider age or household circumstances (children vs. no children) • Budget method • Allows you to consider your household’s future expected expenses • Does not account for unexpected expenses Copyright © 2009 Pearson Education Canada 10 -5

Contents of a Life Insurance Policy • Features • • • Beneficiary Grace period Reinstatement Living benefits Premium schedule Loans Suicide clause Incontestability date Misstatement of age or sex Renewability and conversion options Copyright © 2009 Pearson Education Canada 10 -6

Contents of a Life Insurance Policy (Continued) • Riders • • • Waiver of premium Guaranteed insurability Accidental death Child term coverage Term insurance coverage Copyright © 2009 Pearson Education Canada 10 -7

Selecting a Life Insurance Company • Other types of insurance offered? • Group insurance • Living benefits • Provides the specific policy desired? • Settlement options available? • Services available? • Online services • Convenient office location • Relatively low premiums? • Financial condition? • What rating is assigned by services such as A. M. Best, Moody’s, and Standard & Poor’s? Copyright © 2009 Pearson Education Canada 10 -8