The document discusses life insurance planning, including the purposes of life insurance, calculating insurance needs, and different types of policies. It covers term life insurance, whole life insurance, and other policy types. Key points include determining insurance needs based on income and dependents, comparing costs and returns of policies, and choosing beneficiaries and settlement options. The document provides an overview of important considerations for life insurance planning.

1. Chapter 12:
Life Insurance Planning

2. Objectives
 Identify the purpose of life insurance and
the reasons for buying it.
 Recognize that the need for life insurance
varies over the course of one’s life and
identify the procedures used to calculate
life insurance needs.

3. Objectives
 Distinguish among the various types of
term and cash-value life insurance
policies.
 Describe and explain the purpose of the
major provisions of life insurance policies.
 Discuss important points to consider when
choosing and buying life insurance.

4. What is the Purpose of
Life Insurance?
 To protect people who depend on you from
financial loss related to your death
 78% of all American households have it
 To make charitable bequests upon your death
 To save money for retirement or children’s
education
 To leave as part of your estate
 To pay off a mortgage or other debts at the
time of death

5. The Principle of Life Insurance
 Mortality tables provide
odds on your dying, based
on your age and sex
 Your premium is based on
the projections for the
payouts for persons who
die

6. Determining Your Life Insurance
Needs - Ask Yourself...
 Do you need life insurance?
 do you have people you need
to protect financially?
 does your partner work?
 What are your objectives for life insurance?
 to accumulate money for retirement?
 to provide funds when you die?
 how much can you afford?

7. Estimating the Amount of
Life Insurance You Need
 The Easy Method
 typically, you will need to have enough
insurance to cover 70% of your income
for seven years
 The DINK (dual income, no kids) Method
 The “Nonworking” Spouse Method
 The “Family Need” Method looks at
 employer provided insurance
 Social Security benefits
 income and assets

8.  Multiple-of-Earnings Approach
Determining Life Insurance Needs
CALCULATING DOLLAR LOSS:

9. Types of Life Insurance Policies
 Term life insurance
 protection for a specified period of time
 if you don’t pay premiums, coverage
stops
 renewability option
at the end of the term you can renew
the policy without having a physical

10. Types of Life Insurance Policies
 Term life insurance (continued)
 conversion option
can change your policy from term to a whole
life policy without a physical
 decreasing term insurance
your premium stays the same, but the
amount of coverage decreases as you age
12-8

11. Types of Life Insurance Policies
 Whole life insurance
 you pay a premium as long as you live
 amount of premium depends on your age when
you start the policy
 provides death benefits and accumulates a cash
value
 you can borrow against the cash value or draw it
out at retirement
 look carefully at the rate of return your money
earns
(continued)

12. Whole Life Policy Options
 Nonforfeiture clause
 if you stop paying premiums you can use
the cash value in a variety of ways.
 Limited payment policy
 pay higher premiums during your earning
years only, keeping lifetime coverage
 Variable life policy
 minimum death benefit guaranteed, but
can be more depending on how your
premium dollars are invested

13. Whole Life Policy Options
 Adjustable
 you can change your premium amount
and thus your coverage
 Universal life
 lets you pay premiums in almost any
amount
 combines term insurance and
investment elements
(continued)

14. Decreasing Term Insurance

15. Comparison of Term vs. Cash Value

16. Types of Policies Issued in 1994*
10%
*1997 Insurance Fact Book
8%
Term
22%
Whole Life
45%
Other Variable Universal
Universal
11%
Variable
2%
Decreasing
2.0%
12-12

17. Other Types of Life Insurance Policies
 Group life insurance
 often through an employer
 no physical required
 usually term insurance
 Credit life insurance
 debt is paid off if you die
mortgage, car, furniture
 also protects lenders
 expensive protection

18. Life Insurance Contract Provisions
 Naming your beneficiary (one or more)
 Length of grace period for late payments
 Reinstatement of a lapsed policy if it has not
been turned in for cash
 Suicide clause during first two years
 Automatic premium loans
 uses the accumulated cash value
to pay the premium if you do not

19. Life Insurance Contract Provisions
 Misstatement of age provision
 Policy loan provision
 can borrow against your cash value
 Rider to add or alter benefits
 cost of living protection
 Waiver of premium disability benefit
 Accidental death benefit
 pays twice the policy face amount
 Guaranteed insurability option
 Accelerated benefits
(continued)

20. Buying Your Life Insurance
 Look at your income, savings, group life
insurance, and Social Security benefits
 Compare policy costs which are affected by
 cost of doing business
 return on its investments
 mortality rate among policyholders
 features of the policy
 competition from other companies

21. Buying Your Life Insurance
 Use the interest-adjusted index to compare
policies
 takes into account the time value of money
 helps you make cost comparisons among
insurance companies
 Determine from whom to buy your policy
 examine both private and public sources
 look up the company’s rating
(continued)

22. Choosing Your Insurance Agent
 Ask friends, parents and neighbors for
recommendations
 Find out if the agent belongs to professional
groups or is a CLU
 Is the person willing to take the time to
answer your questions and find a policy that
is right for you?
 Do they ask about your financial plan?
 Do you feel pressured?
 Are they available when needed?

23. Obtaining and Examining a Policy
 Apply and provide
medical history
 Read all of the
contract
 After you buy it you
have ten days to
change your mind
 Give your
beneficiaries
and lawyer a copy

24. Choosing Settlement Options
 Options are the choices for how
you want the money paid out
 One lump-sum is most common
 Limited installment plan
 in equal installments for a specific number of
years after your death
 Income for life
 payments to the beneficiary for life
 Proceeds left with the company
 pays interest to the beneficiary

25. Should You Switch Policies?
 If benefits exceed costs of
getting another physical and
paying policy set up costs.
 Are you still insurable?
 Can you get all the provisions
you want?

26. Financial Planning with Annuities
 What is an annuity?
 a contract where you pay money in, and at
a certain date get regular payments back
during your lifetime
 Why do people buy annuities?
 to supplement retirement income and to
shelter income from taxes
 How are annuities taxed?
 income deducted and interest earned is not
taxed until you draw the money out