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PREMIUM. GUARANTEE. VARIABLE. RIDER. ANNUITY. AD&D. TERM. LOSS. WHOLE LIFE. AD&D. UNIVERSAL. LIFE INSURANCE. . . . IT’S A MAZE . . . . ING. What is Insurance?. Pooling of Risk Lloyds of London. Contract – If you pay premiums the insurance company will pay a benefit

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Presentation Transcript
slide1

PREMIUM

GUARANTEE

VARIABLE

RIDER

ANNUITY

AD&D

TERM

LOSS

WHOLE LIFE

AD&D

UNIVERSAL

LIFE INSURANCE

. . . IT’S A MAZE

. . . ING

slide2

What is Insurance?

Pooling of Risk

Lloyds of London

  • Contract – If you pay premiums the insurance company will pay a benefit
  • Why Learn about Life Insurance?
    • ‘MOST offered ‘investment’
    • Highest undisclosed commissions of any investment – by far
    • Most Americans should have MORE life insurance

LIFE INSURANCE

parties to the contract
Parties to the Contract

Owner

Insured(example: Father)

82% husbands pass away before wife

Beneficiary

Primary (example: Mother)

Secondary (example: the children to share equally)

LIFE INSURANCE

life insurance contract provisions
Life Insurance Contract Provisions

Insurability

Preferred, Standard, Substandard

Pre-existing Conditions

Need to Take a Medical Examination

MIB – Medical Information Bureau

Insurable Interest – In a position to lose something of value

Indemnify– Pay for but not ‘profit’ from a loss

Non-Cancellable– Except for nonpayment of premiums

No Waiting Period

Settlement Options– Ways to receive death benefits

Riders – Additonal coverage

Contract– Only the insurance company is ‘bound’ by contract

LIFE INSURANCE

life insurance contract provisions1
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

LIFE INSURANCE

life insurance contract provisions2
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

LIFE INSURANCE

life insurance contract provisions3
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

LIFE INSURANCE

life insurance contract provisions4
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

Riots or Insurrections

LIFE INSURANCE

life insurance contract provisions5
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

Riots or Insurrections

Deaths as a result of illegal activities

LIFE INSURANCE

life insurance contract provisions6
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

Riots or Insurrections

Deaths as a result of illegal activities

Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis

LIFE INSURANCE

life insurance contract provisions7
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

Riots or Insurrections

Deaths as a result of illegal activities

Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis

Suicide – for two years after policy inception

LIFE INSURANCE

life insurance contract provisions8
Life Insurance Contract Provisions

Exclusions

War, either declared or undeclared

Military Activity

Nuclear Related Activity

Riots or Insurrections

Deaths as a result of illegal activities

Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis

Suicide – for two years after policy inception

Aviation Accidents

LIFE INSURANCE

aviation exclusion
Aviation Exclusion

A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities

Policy only pays if:

Fare paying passenger

Regularly Scheduled Commercial Airline

LIFE INSURANCE

aviation exclusion example a
Aviation Exclusion – Example A

Insurance Company claimed the man was ‘airborne’

-- no death benefit because of the Aviation Exclusion.

Court ruled the man never intended to be ‘airborne’

-- the insurance company had to pay the death claim.

LIFE INSURANCE

aviation exclusion example c
Aviation Exclusion – Example C

Insurance company claimed they didn’t need to pay because the person had completed the commercial air flight.

Court ruled didn’t intend to be in flight

LIFE INSURANCE

riders
Riders

Waiver of Premium – requires no premium while disabled

Accelerated Death Benefit – some or all of benefit if terminally ill

Guaranteed Insurability – purchase future additional coverage without medical

Family Income – income in addition to initial death benefit

Long-term Care – Long-term care benefits prior to death

Accidental Death & Dismemberment – additional benefit if death results from an accident

Automatic Premium Loan – company loans money from cash value to pay premiums

Disability Income – Disability income benefits prior to death

Mortgage Redemptions – Mortgage payoff in addition to death benefit

Child term insurance – term insurance coverage for children

LIFE INSURANCE

types of life insurance
Types of Life Insurance

Group– Inexpensive if not a preferred risk

Individual (Ordinary) – If a preferred risk – least expensive

LIFE INSURANCE

individual ordinary
Individual (Ordinary)

Term = Death Benefit

Cash Value = Death Benefit + Investment

Whole Life

Variable Life

Adjustable Life

Indexed Life

Universal Life

Variable Universal Life

Universal Adjustable Life

LIFE INSURANCE

cash value chart
Cash Value Chart

Age 100

$ 1,000,000

Life Insurance

Death Benefit

Face Value

Cash Value

‘Investment’

Endow

Year 5

Time

Time

LIFE INSURANCE

cash value chart1
Cash Value Chart

Age 100

$ 1,000,000

Life Insurance

Death Benefit

Face Value

Cash Value

‘Investment’

Investment Surrender Penalty

Endow

Year 5

Year 25

Time

Time

LIFE INSURANCE

individual ordinary1
Individual (Ordinary)

Advantages of Investment Life Insurance

Fixed premiums do not increase

Permanent Coverage – Insurance for Life

Investment

Can be used to pay premiums

Grows tax deferred

Can be borrowed – no tax consequence

Does not increase death benefit

LIFE INSURANCE

why to avoid cash value
Why to Avoid Cash Value

Large Lapse Rates – Behaviorally Inefficient

80% Cancelled in the first 5 Years

A cancelled policy loses generally all ‘investment’ value if cancelled within 3 years of purchase

20-25 Year Surrender Penalties

Affordability – High Cost

Most Americans are underinsured – and it’s getting worse

Objective Advisors Avoid

Clark Howard, Jonathon Pond, Jane Bryant Quinn

www.smartmoney.com/plan/insurance/term-or-whole-life-8011

LIFE INSURANCE

why to avoid cash value cont
Why to Avoid Cash Value – Cont.

High Expenses – Life insurance investments tend to grow at a slower rate than an equivalent mutual fund investment

Rarely does actualinvestmentexperiencematchprojectedinvestment values

Very Confusing Language

Highest undisclosed commissions relative to dollars invested – by far

LIFE INSURANCE

why to avoid cash value cont1
Why to Avoid Cash Value – Cont.
  • "As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company,
  • . . . is likely to die before he reaches a conclusion.“
    • New York State Insurance Commissioner
    • April 1, 1870

LIFE INSURANCE

slide26

Life Insurance Purchase Solution

Purchase full coverage Term Life

Purchase enough for pre-mature ‘Point-of-Choice’

Invest additional money in 401(k)

Invest taxes saved

WHOLE LIFE

TERM

CREDIT

AD&D

how much face value
How Much Face Value

2 ways to calculate

14 times primary breadwinner’s income (easiest)

Point of ChoiceTM

Required Assets / Immediate Death

Generally $1,250,000 per $50,000 income

Required POC Assets - Existing Net Financial Assets

LIFE INSURANCE

insurance to avoid
Insurance to Avoid

Accidental Death and Dismemberment

Example

$100 per month for $500,000 coverage for any death

$ 40 per month for $500,000 coverage for accidental death

4.4% of all deaths occur by accident

Insurance premium should be $ 4.40 for deaths that occur by accident

You pay 952% too much for premiums

LIFE INSURANCE

causes of death usa 2002 national vital statistics report
CAUSES OF DEATH, USA 2002National Vital Statistics Report

FORMAL NAMEINFORMAL NAME% ALL DEATHS

(1) Diseases of the heart heart attack (mainly) 28.5%

(2) Malignant neoplasms cancer 22.8%

(3) Cerebrovascular disease stroke 6.7%

(4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1%

(5) Unintentional injuries accidents 4.4%

(6) Diabetes mellitus diabetes3.0%

(7) Influenza and pneumonia flu & pneumonia2.7%

(8) Alzheimer's Disease Alzheimer's senility 2.4%

(9) Nephritis and Nephrosis kidney disease 1.7%

(10) Septicemia systemic infection 1.4%

(11) Intentional self-harm suicide1.3%

(12) Chronic Liver/Cirrhosis liver disease 1.1%

(13) Essential Hypertension high blood pressure 0.8%

(14) Assault homicide 0.7%

(15) All other causes other 17.4%

LIFE INSURANCE

slide30
Accidental Death and Dismemberment

Example

No suicide coverage

Trip Insurance

Cancer Coverage

Pre-Need Funeral Expenses

Insurance to Avoid

www.consumersunion.org/other/funeral/life.htm

Kathryn Anderson of Dallas

$ 6,120 premiums for a $ 2,400 funeral

$ 10,447 with 10% interest

LIFE INSURANCE

slide31
Accidental Death and Dismemberment

Example

No suicide coverage

Trip Insurance

Cancer Coverage

Pre-Need Funeral Expenses

Credit Life

Very expensive per $1,000 of coverage

66% of deaths go unreported

Consumers often told purchase is a condition of loan

Children Life Insurance

Insurance to Avoid

http://www.consumersunion.org/other/funeral/life.htm

http://abcnews.go.com/Business/PersonalFinance/story?id=6256535

LIFE INSURANCE

slide32

PREMIUM

GUARANTEE

VARIABLE

RIDER

ANNUITY

AD&D

TERM

LOSS

WHOLE LIFE

AD&D

UNIVERSAL

LIFE INSURANCE

. . . IT’S A MAZE . . . ING