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11. Life InsurancePremature Death

Need for Life InsuranceDetermining the amount of Life Insurance to Own

Types of Life Insurance

Life Insurance Contractual Provisions

Additional Life Insurance Benefits

Life Insurance Underwriting

Group Life Insurance

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Costs of Premature Death

Income earned by deceased terminates

Additional costs are incurred

Reduction in their Standard of Living

Emotional and non economic costs

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Life Insurance Parameters

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Need for Life Insurance

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Need for Life Insurance Depends on the family type

Various Family types possible in any society areo Singles Modest Life Insuranceo Single Parent Families Need for large amountso Two income families

o Traditional families Life Insurance is significanto Blended Families

o Sandwiched Families Life Insurance is significant

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Need for Life Insurance

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Life Insurance-Amount of Life Insurance

There is no formula that gives the amount of life insurance.

Needs Approacho An Estate Clearance fund

o Income During Adjustment Period

o Income during the Dependency Period

o Income to the Surviving spouse during the black out Period

Retirement Income

Special Needs

paying off a mortgage

Emergency fund

College fund for Children

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Programming or Needs Approach

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Types of Life Insurance

Term Insurance

Whole life Insurance

Universal Life Insurance

Variable Life Insurance

Variable Universal Life Insurance

Current Assumption whole life Insurance

Endowment Insurance

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Term Insurance

Temporary protection for specified period

No Cash Value Built

Renewable and Convertible

Premiums increase with age and mortality rates

Types

o Yearly renewable

o Specific Period term

o Decreasing Term The sum insured decreases every year.

( Protection to pay off a mortgage at the death of a homeowner)

o Reentry term - Premiums are increased substantially if

the insured cannot provide satisfactory evidence of

insurability

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Whole Life Insurance

Provides Permanent Protection

o Ordinary Life Insurance

o Limited Payment Life Insurance

o Paid-up policy

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Other Types of Life Insurance

Variable Life Insurance

Variable Universal Life Insurance

Current assumption Whole Life Insurance

Endowment Insurance

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Life Insurance Contractual Conditions

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Life Insurance Contractual Conditions Incontestable Clause (Generally Two Years)

Suicide Clause (Generally Two Years) (Refund of the premium less any policy loan)

Grace Period

Universal life policies usually have a longer grace period( such as sixty one days)

otherwise it is 30 days

Reinstatement Clause

The lapsed policy must be reinstated with in 5 yrs

All unpaid premiums plus interest must be paid

The policy must not be surrendered for its cash value

All policy loans must be repaid or reinstated

Evidence of insurability may be required. Not required with in 30 Days.

Misstatement of Age or Sex

Beneficiary Designations

o Primary, contingent, A revocable, An Irrevocable

o A Specific ( X of Y)

o A Class Beneficiary ( such as children of Insured)

Assignment Clause

o Absolute Assignment

o Collateral Assignment

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Life Insurance Contractual Conditions

Dividend Options

o Participating Policies

o Non-participating or Guaranteed Cost Policies

o Participating Policies

Cash

Reduction of Premium

Accumulate at interest

Paid-up additions

One Year Term Insurance

Nonforfeiture Options

o Cash

o Reduced Paid-up insurance

o Extended term insurance

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Life Insurance Contractual Conditions

Policy Loan Provision

o Settlement Options to beneficiaryo Lump sum option

o Interest Option

o Fixed-period Option

o Fixed-amount option

o Life income options

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Life Insurance Additional benefits

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Life Insurance Additional benefits

RIDERS

Waiver of Premium during the period of disability.

Accidental Death Benefit (Double Indemnity)

Guaranteed Insurability to buy the additional amounts of life insurance atstandard rates without evidence of insurability

Cost-of-living

Can purchase one year term insurance with face amount of term

insurance as Face amount of original policy * Percentage change in CPIAccelerated Death Benefits

For insured who have certain catastrophic diseases or who are terminally ill toreceive part or all of the available life insurance proceeds before death occurs

o Terminally ill rider

o Catastrophic ill Rider

o Long-term Care Rider

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Life Insurance underwriting

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Life Insurance underwriting Factors

Age

Sex Build

Physical Condition

Personal Health History

Family Health History

Smoking

Hazardous Sports and Hobbies

Habits and morals

Residence

Occupation

Underwriting Decisions: 90/6-7/3 (standard, non-standard, Denial)

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Group Life Insurance underwriting

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Group Life Insurance underwriting

Master Contract

Individual Insurance Certificate

Experience Rating

No need of individual evidence of Insurability

Less Cost

Conditions

o Group not solely formed for the purpose of Insurance

o Ideally low turnover of persons in groupo Minimum participation Requirements (Non contributory plan, Contributory plan)

Eligibility Requirements

o Type of employees, Number of Wage hours

o Probationary Period

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Group Life Insurance Benefits

Accidental Death Benefits

o Multiple of Amount of Insurance ( Principal Sum)

Dismemberment Benefits (Disability)

Dependent Life Insurance