ANNUITY

1. PREMIUM GUARANTEE VARIABLE RIDER ANNUITY AD&D TERM LOSS WHOLE LIFE AD&D UNIVERSAL LIFE INSURANCE . . . IT’S A MAZE . . . ING

2. What is Insurance? Pooling of Risk Lloyds of London • Contract – If you pay premiums the insurance company will pay a benefit • Why Learn about Life Insurance? • ‘MOST offered ‘investment’ • Highest undisclosed commissions of any investment – by far • Most Americans should have MORE life insurance LIFE INSURANCE

3. Parties to the Contract Owner Insured(example: Father) 82% husbands pass away before wife Beneficiary Primary (example: Mother) Secondary (example: the children to share equally) LIFE INSURANCE

4. Life Insurance Contract Provisions Insurability Preferred, Standard, Substandard Pre-existing Conditions Need to Take a Medical Examination MIB – Medical Information Bureau Insurable Interest – In a position to lose something of value Indemnify– Pay for but not ‘profit’ from a loss Non-Cancellable– Except for nonpayment of premiums No Waiting Period Settlement Options– Ways to receive death benefits Riders – Additonal coverage Contract– Only the insurance company is ‘bound’ by contract LIFE INSURANCE

5. Life Insurance Contract Provisions Exclusions War, either declared or undeclared LIFE INSURANCE

6. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity LIFE INSURANCE

7. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity LIFE INSURANCE

8. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity Riots or Insurrections LIFE INSURANCE

9. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity Riots or Insurrections Deaths as a result of illegal activities LIFE INSURANCE

10. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity Riots or Insurrections Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis LIFE INSURANCE

11. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity Riots or Insurrections Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Suicide – for two years after policy inception LIFE INSURANCE

12. Life Insurance Contract Provisions Exclusions War, either declared or undeclared Military Activity Nuclear Related Activity Riots or Insurrections Deaths as a result of illegal activities Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis Suicide – for two years after policy inception Aviation Accidents LIFE INSURANCE

13. Aviation Exclusion A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities Policy only pays if: Fare paying passenger Regularly Scheduled Commercial Airline LIFE INSURANCE

14. Aviation Exclusion – Example A Insurance Company claimed the man was ‘airborne’ -- no death benefit because of the Aviation Exclusion. Court ruled the man never intended to be ‘airborne’ -- the insurance company had to pay the death claim. LIFE INSURANCE

15. Aviation Exclusion – Example B LIFE INSURANCE

16. Aviation Exclusion – Example C Insurance company claimed they didn’t need to pay because the person had completed the commercial air flight. Court ruled didn’t intend to be in flight LIFE INSURANCE

17. Riders Waiver of Premium – requires no premium while disabled Accelerated Death Benefit – some or all of benefit if terminally ill Guaranteed Insurability – purchase future additional coverage without medical Family Income – income in addition to initial death benefit Long-term Care – Long-term care benefits prior to death Accidental Death & Dismemberment – additional benefit if death results from an accident Automatic Premium Loan – company loans money from cash value to pay premiums Disability Income – Disability income benefits prior to death Mortgage Redemptions – Mortgage payoff in addition to death benefit Child term insurance – term insurance coverage for children LIFE INSURANCE

18. Types of Life Insurance Group– Inexpensive if not a preferred risk Individual (Ordinary) – If a preferred risk – least expensive LIFE INSURANCE

19. Individual (Ordinary) Term = Death Benefit Cash Value = Death Benefit + Investment Whole Life Variable Life Adjustable Life Indexed Life Universal Life Variable Universal Life Universal Adjustable Life LIFE INSURANCE

20. Cash Value Chart Age 100 $ 1,000,000 Life Insurance Death Benefit Face Value Cash Value ‘Investment’ Endow Year 5 Time Time LIFE INSURANCE

21. Cash Value Chart Age 100 $ 1,000,000 Life Insurance Death Benefit Face Value Cash Value ‘Investment’ Investment Surrender Penalty Endow Year 5 Year 25 Time Time LIFE INSURANCE

22. Individual (Ordinary) Advantages of Investment Life Insurance Fixed premiums do not increase Permanent Coverage – Insurance for Life Investment Can be used to pay premiums Grows tax deferred Can be borrowed – no tax consequence Does not increase death benefit LIFE INSURANCE

23. Why to Avoid Cash Value Large Lapse Rates – Behaviorally Inefficient 80% Cancelled in the first 5 Years A cancelled policy loses generally all ‘investment’ value if cancelled within 3 years of purchase 20-25 Year Surrender Penalties Affordability – High Cost Most Americans are underinsured – and it’s getting worse Objective Advisors Avoid Clark Howard, Jonathon Pond, Jane Bryant Quinn www.smartmoney.com/plan/insurance/term-or-whole-life-8011 LIFE INSURANCE

24. Why to Avoid Cash Value – Cont. High Expenses – Life insurance investments tend to grow at a slower rate than an equivalent mutual fund investment Rarely does actualinvestmentexperiencematchprojectedinvestment values Very Confusing Language Highest undisclosed commissions relative to dollars invested – by far LIFE INSURANCE

25. Why to Avoid Cash Value – Cont. • "As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company, • . . . is likely to die before he reaches a conclusion.“ • New York State Insurance Commissioner • April 1, 1870 LIFE INSURANCE

26. Life Insurance Purchase Solution Purchase full coverage Term Life Purchase enough for pre-mature ‘Point-of-Choice’ Invest additional money in 401(k) Invest taxes saved WHOLE LIFE TERM CREDIT AD&D

27. How Much Face Value 2 ways to calculate 14 times primary breadwinner’s income (easiest) Point of ChoiceTM Required Assets / Immediate Death Generally $1,250,000 per $50,000 income Required POC Assets - Existing Net Financial Assets LIFE INSURANCE

28. Insurance to Avoid Accidental Death and Dismemberment Example $100 per month for $500,000 coverage for any death $ 40 per month for $500,000 coverage for accidental death 4.4% of all deaths occur by accident Insurance premium should be $ 4.40 for deaths that occur by accident You pay 952% too much for premiums LIFE INSURANCE

29. CAUSES OF DEATH, USA 2002National Vital Statistics Report FORMAL NAMEINFORMAL NAME% ALL DEATHS (1) Diseases of the heart heart attack (mainly) 28.5% (2) Malignant neoplasms cancer 22.8% (3) Cerebrovascular disease stroke 6.7% (4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1% (5) Unintentional injuries accidents 4.4% (6) Diabetes mellitus diabetes3.0% (7) Influenza and pneumonia flu & pneumonia2.7% (8) Alzheimer's Disease Alzheimer's senility 2.4% (9) Nephritis and Nephrosis kidney disease 1.7% (10) Septicemia systemic infection 1.4% (11) Intentional self-harm suicide1.3% (12) Chronic Liver/Cirrhosis liver disease 1.1% (13) Essential Hypertension high blood pressure 0.8% (14) Assault homicide 0.7% (15) All other causes other 17.4% LIFE INSURANCE

30. Accidental Death and Dismemberment Example No suicide coverage Trip Insurance Cancer Coverage Pre-Need Funeral Expenses Insurance to Avoid www.consumersunion.org/other/funeral/life.htm Kathryn Anderson of Dallas $ 6,120 premiums for a $ 2,400 funeral $ 10,447 with 10% interest LIFE INSURANCE

31. Accidental Death and Dismemberment Example No suicide coverage Trip Insurance Cancer Coverage Pre-Need Funeral Expenses Credit Life Very expensive per $1,000 of coverage 66% of deaths go unreported Consumers often told purchase is a condition of loan Children Life Insurance Insurance to Avoid http://www.consumersunion.org/other/funeral/life.htm http://abcnews.go.com/Business/PersonalFinance/story?id=6256535 LIFE INSURANCE

32. PREMIUM GUARANTEE VARIABLE RIDER ANNUITY AD&D TERM LOSS WHOLE LIFE AD&D UNIVERSAL LIFE INSURANCE . . . IT’S A MAZE . . . ING