1 Life Insurance Basics Continuing Education Course Course #COM-593-9, Part A.

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Life Insurance BasicsContinuing Education Course

Course #COM-593-9, Part A

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Life Insurance Defined

Life insurance is a contract that pays a death benefit to a beneficiary upon the demise of the insured insured person

Death benefits are common to all types of life insurance

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Life Insurance Defined

The insuring of a life is termed life insurance

The loss of life initiates the death benefit

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Life Insurance

The purpose of life insurance is to provide income replacement to beneficiaries

The risk of premature death motivates most purchases of life insurance

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Life Insurance

Term Life Life Defined as temporary insurance

Whole Life Defined as permanent insurance

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Life Insurance

Universal Life Provides flexible benefits

Variable Life The amount of coverage varies

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Term Insurance

There are four variations of term insurance Annual renewable Level term Decreasing term Increasing term

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Term Insurance

Death benefit is paid to the beneficiary upon the insured’s demise during the term of the policy

Term policies contain an expiration date terminating all coverage

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Annual Renewable Term

Issued for a period of one year

Has limited applications for individuals because the premium rises with age

Appropriate for immediate short-term insurance protection

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Level Term

Provides a level death benefit through out the policy term

Provides a fixed amount of temporary insurance

Appropriate for known obligations or contingencies

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Level Term

Often issued as renewable and convertible policies

All coverage ceases if it is not renewed after the expiration of the policy

The premium will be based on the insured’s age at the time or renewal

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$100,000 20-Year Level Term Policy

$100,000

Year0

Year 5

Year10

Year15

Year20

Amount of Protection

PolicyInception

PolicyExpiration

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Decreasing Term Insurance

Provides coverage for a specified period of time

The death benefit decreases to zero at the expiration of the policy

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$100,000 20-Year Decreasing Term Policy

$0

$25,000

$50,000

$75,000

$100,000

Year0

Year 5

Year10

Year15

Year20

Amount of Protection

PolicyInception

PolicyExpiration

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Term Insurance Advantages

Term insurance provides the lowest premium cost per unit of protection

Low premiums allow greater coverage for younger persons when their needs are the greatest

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Increasing Term Insurance

Premiums remain level

Death benefit starts small and increases over the term of the policy

Increasing term is used less than other types of policies

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$100,000 20-Year Increasing Term Insurance

$0

$25,000

$50,000

$100,000

Year 0 Year 5 Year 10 Year 20

Amount of Protection

PolicyInception

PolicyExpiration

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Term Insurance Advantages

Allows people with low incomes to buy adequate amounts of protection

It is used to cover temporary obligations, such as the balance remaining on long term debts

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Term Insurance Advantages

It is a low-cost option to provide for future insurability for a person whose future insurance needs may change.

It allows people with lower incomes to purchase adequate amounts of immediate protection

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Term Insurance Disadvantages

It is temporary protection only.

Coverage may terminate or become too expensive to continue a the end of the term.

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Term Insurance Disadvantages

Generally premiums increase at periodic intervals, such as every five or ten years

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Whole Life Advantages

Provides insurance for the insured - until death or age 100

The death benefit remains the same throughout the life of the insured

The premium remains level

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Whole Life Advantages

Builds cash value

The maturity date is age 100

The insurance will not terminate as long as the premiums are paid on time

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Whole Life Advantages

Protection is guaranteed for life as long as the premium is paid

Premiums do not increase because the insured grows older

Policy owner always knows exactly the cost of the insurance

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Whole Life Disadvantages

The amount of premiums may make it difficult to buy required protection

It may be more expensive than term insurance if it is terminated early

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Whole Life Disadvantages

Premiums may continue longer than the insured’s income-producing years

The cash value at retirement age may be much less than the face value of the policy

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Whole Life Disadvantages

It is conservative producing lower interest income than other investments

Protection per dollar is less than term insurance

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Universal Life

Designed for flexibility

Premiums are often lower than whole life insurance

You have more control over the amounts of the face value and premiums

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Variable Life

Variable death benefit and premiums are based upon performance of investments

Cash value accumulates through investment in bonds, stocks and real estate funds offered through the insuror

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Life Insurance Policy Riders

Multiple Indemnity (Accidental Death)

Accidental Death and Dismemberment (AD&D)

Waiver of Premium (if insured is unable to pay)

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Life Insurance Policy Riders

Waiver of Premium with Disability Income

Guaranteed Insurability

Return of Premium

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Life Insurance Policy Riders

Return of Cash Value

Cost of Living

Additional Insureds

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Life Insurance Policy Riders

Living Need (partial advance payment of insurance amount)

Long Term Care (LTC)

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Summary

Once you have an idea of what you are looking for, shopping for the right policy or combination of policies gets a lot simpler.

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