life and Health Insurance - FIN-3660
Abu khaled
chapter_5_term_life_insurance.pptxTerm Life Insurance
Life and Health Insurance FIN 3660
Chapter 5
Outline
Needs Met by Life Insurance
Personal Needs
Business Needs
Term Life Insurance
Characteristics of Term Life Insurance Products
Plans of Term Life Insurance Coverage
Features of Term Life Insurance Policies
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Needs Met by Life Insurance
Personal Needs
Most common personal needs that life insurance can meet are:
Dependents’ support
Estate planning
Paying debts and final expenses
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Dependents Support
Life insurance can provide funds to support the family members of a deceased loved one until they obtain new methods of support or until they adjust to living on a lower income.
The proceeds can also be used to supplement the family’s income.
In many jurisdictions, the beneficiary of a lump sum of money after the death of a loved one is usually not taxed on the money they receive.
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Estate Planning
Estate- the accumulated assets an individual owns when he/she dies.
Will- a legal document that directs how the individual’s property is to be distributed after his death.
The executor is the person who is a personal representative of the person who has died with a valid will. (administrator if they person died without a valid will)
Estate Plan- considers the amount of assets and debts that he/she is likely to have when he/she dies and how best to preserve those assets so that they can be distributed as she desires.
Life insurance is an important part of the estate plan.
Can leave home to one child and life insurance policy to the other.
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Debts and Final Expenses
A person’s death generally does not extinguish his/her debts.
In some cases the deceased estate isn’t large enough to pay his/her debts and final expenses.
If a life insurance policy is included in the estate plan, the proceeds can help pay those remaining debts.
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Business needs
Two reasons for a business to purchase life insurance:
To provide funds to ensure that the business continues in the event of the death of an owner, partner, or other key person.
To provide benefits for its employees.
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Business Continuation Insurance
An insurance plan designed to enable a business owner(s) to provide for the business’ continued operation if the owner or a key person dies.
Key Person Life Insurance- individual life insurance that a business purchases on the life of a key person.
The business owner is the beneficiary of the insurance policy if the person dies.
Buy-Sell Agreement- an agreement in which one party agrees to purchase the financial interest that a second party has in a business following the second party’s death and the second party agrees to direct his estate to sell his interest in the business to the purchasing party.
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Characteristics of Term Life Insurance Products
Provides a death benefit only is the insured dies during the period specified in the policy.
The length of the policy term varies considerably from one policy to another.
Another common type of term life insurance cover the insured until he/she reaches a specified age, usually 65 or 70.
Referred to as term to age___.
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Level Term Life Insurance
Most common plan of term insurance.
AKA Level face amount term life insurance or guaranteed level premium term insurance.
Provides a policy benefit that remains the same over the term of the policy.
Amount of initial premium and each renewal premium payable for a level term policy remains the same throughout the stated policy term.
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Decreasing Term Life Insurance
Provides a policy that decreases in amount over the term coverage.
The amount of each renewal premium payable for a decreasing term insurance policy usually remains level throughout the policy term.
Three common plans of decreasing term insurance are mortgage life insurance, credit life insurance, and family income insurance.
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Mortgage Life Insurance
A plan of decreasing term insurance designed to provide a benefit amount that corresponds to the decreasing amount owed on a mortgage loan.
The beneficiary is often a family member of the insured.
Joint Mortgage Life Insurance- provides the same benefit as a mortgage life insurance except the join policy insures the lives of two people.
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Credit Life Insurance
A type of life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.
Generally the loan must be a type of loan that can be repaid in 10 years or less
Premiums for credit life insurance may be level over the duration of the loan or, in cases in which the amount of the loan varies, may increase or decrease as the amount of the outstanding loan balance increases or decreases
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Family Income Coverage
A plan of decreasing term life insurance that provides to the beneficiary a stated monthly income benefit amount if the insured dies during the term of coverage.
A form of decreasing term life insurance
Most commonly purchased as a policy rider to a cash value life insurance policy.
Policy Rider is an amendment to an insurance policy that becomes apart of the insurance contract and either expands or limits the benefits payable under the contract.
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Increasing Term Life Insurance
Provides a death benefit that starts at one amount and increases by some specified amount of percentage at stated intervals over the policy term.
Often purchased as a rider to a life insurance policy and usually is just for a limited time.
Premium generally increases as the amount of coverage increases.
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Renewable Term Insurance
A term life insurance policy that gives the policyowner the option to continue the coverage at the end of the specified term without presenting evidence of insurability (proof that the insured person continues to be an insurable risk).
Renewal Provision- the provision in the policy that gives the insured the right to continue coverage without presenting evidence of insurability.
Most common limitations on renewals
The coverage may be renewed only until the insured attains a stated age.
The coverage may be renewed only a stated maximum number of times.
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Convertible Term Insurance
Gives the policyowner the right to convert the term policy to a cash value life insurance policy.
Conversion Privilege- allows the policyowner to change the term insurance policy to a cash value policy without providing evidence that the insured is an insurable risk.
Premium rate is higher when a term policy is converted into a cash policy.
Attained age conversion- premium is based on insured’s age
Original age conversion- premium rate is based on insured’s age when original term policy was issued
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Return of Premium Term Insurance
A form of term life insurance that provides a death benefit if the insured dies during the policy term and promises a return of premiums if the insured does not die during the policy term.
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