Objective 08.02 Interpret the nature, theory, and different types of insurance LIFE INSURANCE
Life Insurance
• Provides income to dependents or other named beneficiaries in the event of the insured person’s death. • Face value- the amount of protection stated in the policy o Example: Marla buys a $100,000 face value life insurance policy. Marla dies. Marla’ s beneficiaries will get $100,000 in proceeds.
Beneficiaries
• The policyholder names a beneficiary • Can be an individual or business • Beneficiary receives proceeds from a life insurance claim. • Proceeds is the money paid to a survivor by a life insurance policy. • Contingent beneficiaries named in the policy are second in line if the beneficiary is deceased.
Life Insurance Advantages
• Face amount is paid as proceeds to beneficiary • Proceeds are NOT taxable by income, estate or inheritance tax laws. • Proceeds are paid direct to beneficiaries. • Proceeds avoid probate.
Term Life Insurance • Term life is temporary insurance. o o o o o
Only pays if insured dies during policy period Purchased for a specific term (one year or multiple years) Usually renewable for another term Least expensive premium for most coverage Pure insurance, no savings add up
• • • •
Whole Life Insurance
Permanent insurance for lifetime of insured. Premium is more. Excess premium creates savings called cash value. Cash value can be: o Withdrawn by policyholder as loan o Used to buy more paid up insurance o Used to pay current premium
Other Types of Life Insurance Supplemental Information • Limited pay life - stop paying after a specified # of years without lapse • Universal life - blend of term and whole • Endowment - lump sum paid in advance • Variable life - cash value builds in investment chosen by policyholder • Accidental death & dismemberment - for deaths due to accident or loss of limb
Cost Factors for Life Insurance
Type of insurance Age of insured Health of insured Gender (sex) of insured Face amount – Dollar amount of coverage provided by the life policy • Company • • • • •