Chapter 10

In-Class Notes

Background on Life Insurance• Parties to a life insurance contract• Beneficiary, life insured, policy owner• Life and health insurance company

• Types of temporary life insurance• Term insurance

• Consider the implications of owning Term10 versus Term20

• Renewability• Creditor insurance

• Who is the beneficiary?• Should I buy creditor insurance or personally

owned term insurance?• Group life insurance

10-2Copyright © 2009 Pearson Education Canada

Permanent Insurance• Types of permanent life insurance• Whole life

• Fixed premiums

• Source of liquidity (you can borrow from the cash value)

• Limited payment policies available

• Investments made at the discretion of the life insurance company

10-3Copyright © 2009 Pearson Education Canada

Permanent Insurance (Continued)• Universal life• Flexible premiums• Cost of insurance options

• Level term• Yearly renewable term (YRT)

• Company expenses will vary • Investment returns are based on the

performance of the investments selected by the policy owner

• Term to 100• No cash value

10-4Copyright © 2009 Pearson Education Canada

Determining the Amount of Life Insurance Needed• Income method

• Multiple of your annual income

• Does not consider age or household circumstances (children vs. no children)

• Budget method

• Allows you to consider your household’s future expected expenses

• Does not account for unexpected expenses10-5Copyright © 2009 Pearson Education Canada

Contents of a Life Insurance Policy

• Features• Beneficiary• Grace period• Reinstatement• Living benefits• Premium schedule• Loans• Suicide clause• Incontestability date• Misstatement of age or sex• Renewability and conversion options

10-6Copyright © 2009 Pearson Education Canada

Contents of a Life Insurance Policy (Continued)• Riders• Waiver of premium• Guaranteed insurability• Accidental death• Child term coverage• Term insurance coverage

10-7Copyright © 2009 Pearson Education Canada

Selecting a Life Insurance Company• Other types of insurance offered?• Group insurance• Living benefits

• Provides the specific policy desired?• Settlement options available?

• Services available?• Online services• Convenient office location

• Relatively low premiums?• Financial condition?• What rating is assigned by services such as A.M. Best,

Moody’s, and Standard & Poor’s?10-8Copyright © 2009 Pearson Education Canada