INSURANCE

Personal Finance

Insurance

Protects individuals against unexpected financial loss. Many types of insurance, each with a specific purpose.

Types of Insurance

Life insurance provides financial security for your family in the

event of your death.

Property Insurance Tenant’s or homeowners

provides protection for the loss of the contents, the building, and liability related to your property.

Types of Insurance cont’d

Extended Health Insurance Basic Coverage

Prescriptions, ambulance service, and semi-private hospital rooms

Long Term Disability Financial assistance in case of an illness or accident that

prevents you from returning to your work.

Vision Care Eye exams and corrective lenses.

Dental Care Cleanings, check ups and dental work.

Insurance Terminology

Insured or Policy Holder Individual who contracts the policy with the insurance

company.

Insurer Insurance company

Policy Contract that contains the legally enforceable agreement

between the insurer and the insured.

Premium Amount of money the insured pays the insurer for the policy.

Rider Extra insurance purchased separately from the basic policy provides additional benefits at additional cost

Life Insurance

Life Insurance

Provides financial security for your family in event of your death. Insurer agrees to pay an amount of money; face value

of the policy, to an individual you chose; your beneficiary

Amount you need depends on what expenses you will leave behind, and what assets you have.

This money is not subject to income tax.

Purchasing Life Insurance

Individual Life insurance Purchased directly from an agent Contract can’t be cancelled by the insurer Provisions cannot be changed Fully portable and transferable Many optional benefits available.

Purchasing Life Insurance cont’d

Group Life insurance Purchased through membership in a group

Often your workplace or an association Contracts can be cancelled by the insurer Provisions can be changed at policy anniversary by

individual or group Usually not portable and not transferable Limited selection of optional benefits

Types of Life Insurance

Term Life Insurance Purchased for a fixed and limited number of years.

Usually 1, 5, 10, 15 or 20 years

Policy may be renewed at the end of the term, depending on health, and ability to pay higher premiums. Just like starting a new policy!

Also called temporary insurance – if you die after the term ends, there is no insurance.

Types of Life Insurance cont’dTerm Life cont’d

SEE Term Premiums Table p. 14Plan

10-year renewable life insurance. All premiums and benefits are guaranteed for the term of 10 years.

Issue Ages 20 – 65 (age at last birthday)

Policy Fee $75.00 per year

Available Riders Waiver of Premium (in case you become disabled) Accidental Death

Payment Modes Semi – annual (multiply annual premium by 0.52) Monthly (multiply annual premium by 0.09)

Types of Life Insurance cont’d

Permanent Life Insurance Provides lifetime protection

Changes in health do not affect your insurance, you are approved for life.

Whole Life Insurance You pay set premiums for as long as you live

Limited Payment Life You pay set premiums for a stated number of years

Types of Life Insurance cont’d

See….Whole Life Insurance Premiums p. 15 Plan

Offers level coverage at guaranteed premiums payable to age 100, at which time the policy becomes paid up.

Issue Ages 0 – 75 (age at last birthday)

Policy Fee $75.00 per year

Available Riders Waiver of Premiums Accidental Death

Payment Modes Annual Semi – annual (multiply annual premium by 0.52) Monthly (multiply annual premium by 0.09)

Types of Life Insurance cont’d

Permanent Insurance cont’d Premiums appear to be higher than for Term Insurance

BUT no renewal needed – premiums stay the same for life.

Permanent Insurance is an investment! The difference in the premiums are invested, and used later to

offset the increasing cost of your policy as you age.

The amount in the investment fund at any given time is referred to as the cash surrender value of the policy. After 2-3 years in the policy you can withdraw this value at any

time.

Types of Life Insurance cont’d

See….Cash Surrender Values p. 16-17

Permanent Life insurance cont’d Amount of money invested, above and beyond the

cost of the insurance.

The values depend on; Gender Age at which the policy was issued Number of years the policy was in force.

You can cash out this savings… but you must repay if you wish to maintain insurance.

Life Insurance Calculations

What type of Insurance? Term or Whole

Find the correct table value based on: Age? Gender? Smoker or Non?

Value is per $1000 multiply by # of thousands.

Add $75 annual fee

How are premiums to be paid Annual, Semi-Annual or Monthly?

Example

Robert is a 36 year old non-smoker. He is considering purchasing a 10 year term insurance policy in the amount of $300,000. Find his monthly premium.

Value from Table –$1.27$1000

$1.27 x 300 = $381 + 75 = $456 annually

$456 annually x 0.09 for monthly = $41.04/month

Example

Crystal bought a $100,000 whole-life policy when she turned 20. When she turned 40, she decided to cancel the policy and take the cash surrender value. How much did she receive?

Value from Table –$46$1000

$46 x 100 = $4600 cash surrender

P. 22 #1- 8

Assignment