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This chapter’s objectives are to: Premature death, financial impact of premature death on different types of families, amount of life insurance to own, types of life insurance, variations of whole life insurance, other types of life insurance. | Life Insurance Lecture No. 21 1 Agenda Premature Death Financial Impact of Premature Death on Different Types of Families Amount of Life Insurance to Own Types of Life Insurance Variations of Whole Life Insurance Other Types of Life Insurance 2 Premature Death The death of a family head with outstanding unfulfilled financial obligations can cause serious financial problems for the surviving family members The deceased’s future earnings are lost forever Additional expenses are incurred, e.g., funeral expenses, uninsured medical bills, and estate settlement costs Some families will experience a reduction in their standard of living Noneconomic costs are incurred, e.g., grief 3 Premature Death Life expectancy has increased significantly over the past century Thus, the economic problem of premature death has declined Millions of Americans still die annually from heart disease, cancer and stroke The purchase of life insurance is financially justified if the insured has earned income and . | Life Insurance Lecture No. 21 1 Agenda Premature Death Financial Impact of Premature Death on Different Types of Families Amount of Life Insurance to Own Types of Life Insurance Variations of Whole Life Insurance Other Types of Life Insurance 2 Premature Death The death of a family head with outstanding unfulfilled financial obligations can cause serious financial problems for the surviving family members The deceased’s future earnings are lost forever Additional expenses are incurred, e.g., funeral expenses, uninsured medical bills, and estate settlement costs Some families will experience a reduction in their standard of living Noneconomic costs are incurred, e.g., grief 3 Premature Death Life expectancy has increased significantly over the past century Thus, the economic problem of premature death has declined Millions of Americans still die annually from heart disease, cancer and stroke The purchase of life insurance is financially justified if the insured has earned income and others are dependent on those earnings for financial support 4 Financial Impact of Premature Death on Different Types of Families The need for life insurance varies across family types: Single person Single-parent family Two income earners with children Traditional family Blended family Sandwiched family 5 Amount of Life Insurance to Own Three approaches can be used to estimate the amount of life insurance to own: The human life value approach The amount needed depends on the insured’s human life value, which is the present value of the family’s share of the deceased breadwinner’s future earnings To calculate: Estimate the individual’s average annual earnings over his or her productive lifetime Deduct taxes, insurance premiums and self-maintenance costs Using a reasonable discount rate, determine the present value of the family’s share of earnings for the number of years until retirement 6 Transparency Master 1.2 Amount of Life Insurance to Own The needs approach The amount needed .
