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Insuring Your Life

Insuring Your Life. #8. Learning Goals. Basic Insurance Concepts. Basic purpose of insurance. Protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs. The Concept of Risk. Risk: chance of economic loss.

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Insuring Your Life

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  1. Insuring Your Life #8

  2. Learning Goals

  3. Basic Insurance Concepts Basic purpose of insurance Protect you and your dependents from the financial consequences of losing assets or income when an accident, illness, or death occurs

  4. The Concept of Risk Risk: chance of economic loss • There’s a risk anytime you have a financial interest in something • Life • Health • Home • Car • Business

  5. The Concept of Risk Risk Assumption:choice to accept andbear the risk of loss yourself Example:Bear the cost of replacing stolen textbook Risk Avoidance:avoiding an act that would create risk Example:not driving to avoid a car accident

  6. Loss Prevention and Control Prevention- reduce chance that loss will occur Example: Driving the speed limit may reduce likelihood of a car accident Control -reduce severity of loss once it occurs Example: Wearing a seat belt can reduce effects of a car accident

  7. Insurance Insurance Policy --transferring your risk of loss to the insurance company

  8. Underwriting Basics

  9. Benefits of Life Insurance

  10. Do You Need Life Insurance? Consider if Dependents count on your financial support You have debts home mortgage Maybe Not if No one depends on your support You are a child

  11. How Much Life Insurance is Right for You? Multiple-of-Earnings Method Multiply annual earnings by an arbitrary number Needs Analysis Method Estimate needs and examine available resources

  12. How Much Life Insurance Do You Need?

  13. Assess Family’s Total Economic Needs

  14. Determine Financial Resources

  15. This is the amount of life insurance needed to provide your family with desired standard of living Subtract Resources From Needs

  16. Term Life Insurance

  17. Types of Term Insurance Straight term Coverage remains the same while premiums can increase Decreasing term Premiums remain the same while coverage decreases

  18. Important Features In Term Insurance Renewability Renew policy without evidence of insurability Convertibility Convert to whole life policy without evidence of insurability

  19. Representative Annual Renewable Term Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates

  20. Representative Annual Renewable Term Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates

  21. Advantages Economical way for young families to purchase large amounts of life insurance Provides for needs that disappear over time Disadvantages Premiums become more costly as you get older Does not build cash value Term Insurance

  22. Whole Life Insurance Cash value Provides death protection plus a savings feature Nonforfeiture right Right to cash value when canceled prior to death

  23. How Cash Value Accumulates In A $200,000 Whole Life Policy

  24. Representative Whole Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates

  25. Types of Whole Life Policies

  26. Advantages of Whole Life

  27. Disadvantages of Whole Life

  28. Universal Life Insurance

  29. Representative Universal Life Insurance Annual Outlays: $100,000 Policy, Preferred Nonsmoker Rates

  30. Variable Life Insurance

  31. Representative Variable Life Insurance Values: $100,000 Policy,Preferred Nonsmoker, Male, Age 45

  32. Other Types of Life Insurance Variable life insurance Combines flexibility of premium payment feature of universal with investment choices offered by variable Group life insurance Usually term insurance offered through employers Premiums usually lower than individually purchased policies

  33. Other Special-Purpose Life Insurance Credit and Mortgage life insurance Decreasing term insurance Pays off outstanding balance if borrower dies before repaid Costly form of coverage Industrial life insurance Whole life policies with small face amounts For low-income families

  34. Buying Life Insurance

  35. Major Advantages and Disadvantages-Life Insurances

  36. Life Insurance Contract Features

  37. Other Policy Features

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