1 / 11

Financial Planning with Life Insurance Chapter 12

Financial Planning with Life Insurance Chapter 12. Personal Finance Finance 235. Life insurance. What is Life Insurance and when should we get it? A means for protecting the financial security of those that depend on us for their safety and economic well being.

mairi
Télécharger la présentation

Financial Planning with Life Insurance Chapter 12

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Planning with Life InsuranceChapter 12 Personal Finance Finance 235

  2. Life insurance • What is Life Insurance and when should we get it? • A means for protecting the financial security of those that depend on us for their safety and economic well being. • The best time to get it is when you are young and healthy. • You should have some by the time you marry or partner. • You are foolish not to have it when you start a family and acquire property (cars, home, investments, etc.) Personal Finance

  3. Life insurance • Major Purposes of Life Insurance • Pay off mortgage or other debts at time of death • Provide lump sum payments or endowments to beneficiaries • Provide education or income to children • Make charitable donations • Provide retirement income (whole life / endowment policies) • Estate Planning (paying estate or gift taxes) Personal Finance

  4. Life insurance • How Much Life Insurance Do You Need? • The answer depends on your personal life situation • A young single person – not much • An older person with family responsibilities – depends • Number of dependents • Magnitude of financial liabilities (mortgages, loans, etc.) • Magnitude of income • Social Security survivor benefit • Example #1: Family (spouse, children, household expenses) • 7 times 70% of yearly income • More if dependents are under 7 years of age. • Example #2: Dual Incomes no Kids (DINKs) • Enough to cover debts • Provide a financial cushion Personal Finance

  5. Life insurance companies • Types of Insurance Companies • Stock: Owned by the stockholders – sell nonparticipating polices • Mutual: Owned by the policy holders – sell participating policies • Participating Policies (Mutual): • Mutual LICs return a portion of its investment profits as dividend • Premiums are invested in investment quality bonds and other high degree of safety investments (function of legal list requirements) Personal Finance

  6. insurance companies • Type of Policies (1) • Term • Coverage for a specified number of years. • After that period, policy may continue but typically with higher premiums. • Categories • Renewable • Level • Conversion (to whole life) • Decreasing • Return of Premium Personal Finance

  7. insurance companies • Type of Policies (2) • Whole Life (cash value / straight life / ordinary) • Permanent premium paid for lifetime of insured • Accrues cash values • Cash values can be used as collateral for loans • Limited Life (paid up after 20 or 30 years) • Variable Life (value a function of stock market investment performance) • Universal Life (ability to change premiums based on cash values) • Group Polices • Associated with employment or affinity groups • Credit Life – pay off a debt if you die before debt is paid • Endowment Life – pays a sum at maturity to policy holder Personal Finance

  8. Selecting provisions • What are the Key Provisions in a Policy? • Naming the Beneficiary (ies) • Incontestability – policy cannot be cancelled after a certain period of time • Grace Period (limit to late payment) – lapsed policy • Reinstatement • Policy loan provision (borrow against cash values) • Suicide clause (within 1 year – no benefits) • Typical Riders • Accidental death (2x) • Waiver of premium if permanently disabled (age limit) Personal Finance

  9. Buying life insurance • Decision Criteria • AM Best rating • Costs and Features • Availability of local agents • Recommendations of Friends • Articles in Kiplinger, WSJ, Money • Choosing Settlement Options • Lump-sum • Installments • Life income Personal Finance

  10. Financial planning with annuities • What is an Annuity? • An particular type of insurance plan structured to provide you with a fixed payment each [month] for a set period of years. • What are the Principal Types of Annuities? • Immediate • Deferred • Variable [rate] • Indexed [to a mix of stocks and bonds] • Why do People Buy Annuities? • Main reason is to remove market risk. • There are also certain tax advantages. • Thoroughly Investigate before you Buy! Personal Finance

  11. Homework • Questions: • What is an Annuity? • What are the Principal Types of Annuities? • Why do People Buy Annuities? • Be Your Own Personal Financial Planner* • 1 – Calculating your insurance need (w/s 47) • 6 – Set up a layered Term Insurance Program (w/s 48) * These are simulated situations. Personal Finance

More Related