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Insuring Your Life. #8. Learning Goals. Basic Insurance Concepts. Basic purpose of insurance. Protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs. The Concept of Risk. Risk: chance of economic loss.
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Basic Insurance Concepts Basic purpose of insurance Protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs
The Concept of Risk Risk: chance of economic loss • There’s a risk anytime you have a financial interest in something • Life • Health • Home • Car • Business
The Concept of Risk Risk Assumption:choice to accept andbear the risk of loss yourself Example:Bear the cost of replacing stolen textbook Risk Avoidance:avoiding an act that would create risk Example:not driving to avoid a car accident
Loss Prevention and Control Prevention- reduce chance that loss will occur Example: Driving the speed limit may reduce likelihood of a car accident Control -reduce severity of loss once it occurs Example: Wearing a seat belt can reduce effects of a car accident
Insurance Insurance Policy --transferring your risk of loss to the insurance company
Do You Need Life Insurance? Consider if Dependents count on your financial support You have debts home mortgage Maybe Not if No one depends on your support You are a child
How Much Life Insurance is Right for You? Multiple-of-Earnings Method Multiply annual earnings by an arbitrary number Needs Analysis Method Estimate needs and examine available resources
This is the amount of life insurance needed to provide your family with desired standard of living Subtract Resources From Needs
Types of Term Insurance Straight term Coverage remains the same while premiums can increase Decreasing term Premiums remain the same while coverage decreases
Important Features In Term Insurance Renewability Renew policy without evidence of insurability Convertibility Convert to whole life policy without evidence of insurability
Representative Annual Renewable Term Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates
Representative Annual Renewable Term Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates
Advantages Economical way for young families to purchase large amounts of life insurance Provides for needs that disappear over time Disadvantages Premiums become more costly as you get older Does not build cash value Term Insurance
Whole Life Insurance Cash value Provides death protection plus a savings feature Nonforfeiture right Right to cash value when canceled prior to death
Representative Whole Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates
Representative Universal Life Insurance Annual Outlays: $100,000 Policy, Preferred Nonsmoker Rates
Representative Variable Life Insurance Values: $100,000 Policy,Preferred Nonsmoker, Male, Age 45
Other Types of Life Insurance Variable life insurance Combines flexibility of premium payment feature of universal with investment choices offered by variable Group life insurance Usually term insurance offered through employers Premiums usually lower than individually purchased policies
Other Special-Purpose Life Insurance Credit and Mortgage life insurance Decreasing term insurance Pays off outstanding balance if borrower dies before repaid Costly form of coverage Industrial life insurance Whole life policies with small face amounts For low-income families
