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Chapter 10 - Financial planning with life insurance. In this chapter, you will learn to: Define life insurance and determine your life insurance needs, distinguish between the types of life insurance companies and analyze various life insurance policies these companies issue, select important provisions in life insurance contracts and create a plan to buy life insurance, recognize how annuities provide financial security. | 10 Financial Planning With Life Insurance Primary Purpose of Life Insurance: Protect someone who depends on you from financial loss related to your death Reduces financial burdens of survivors Life insurance: Obtained by purchasing a policy The insurance company promises to pay a lump sum (death benefit) to a named beneficiary at the time of the policy holder’s death (or sometimes while they are still alive) 10- Objective 1 Define Life Insurance and Determine Your Life Insurance Needs Other reasons to buy life insurance: Pay off a mortgage or debts Lump-sum endowments for children Provide an education or income for children Make charitable donations Provide retirement income Accumulate savings Establish a regular income for survivors Set up an estate plan (e.g., fund trusts with life insurance) Pay estate and gift taxes (e.g., business owners) 10- The Principle of Life Insurance Mortality Tables-provide odds on your dying, based on your age and sex. Premium is based on life expectancy and projections for payouts for persons who die (called actuarial tables) Older people pay more because they will die sooner Face Amount- the dollar value of protection listed in the policy and amount used to calculate the premium (e.g., $100,000) Group Term Insurance- issued to people as members of a group rather than as individuals 10- Do You Need Life Insurance? Do you have people you need to protect financially? Will your death cause them financial hardship? Are you single and have a lot of debt? Do you have parents, relatives, or a charity that you want to support? Avoid being persuaded to buy unnecessary life insurance! 10- Estimating Your Life Insurance Requirements The Easy Method 70% of your salary for seven years while your family adjusts Assumes typical family The DINK Method Dual income, no kids Assumes spouse earnings will continue Cover funeral + ½ debts The “Nonworking” Spouse Method # years until the youngest child reaches 18 X $10,000 The “Family Need” | 10 Financial Planning With Life Insurance Primary Purpose of Life Insurance: Protect someone who depends on you from financial loss related to your death Reduces financial burdens of survivors Life insurance: Obtained by purchasing a policy The insurance company promises to pay a lump sum (death benefit) to a named beneficiary at the time of the policy holder’s death (or sometimes while they are still alive) 10- Objective 1 Define Life Insurance and Determine Your Life Insurance Needs Other reasons to buy life insurance: Pay off a mortgage or debts Lump-sum endowments for children Provide an education or income for children Make charitable donations Provide retirement income Accumulate savings Establish a regular income for survivors Set up an estate plan (e.g., fund trusts with life insurance) Pay estate and gift taxes (e.g., business owners) 10- The Principle of Life Insurance Mortality Tables-provide odds on your dying, based on your age and sex. Premium is based on life .
