11.

Life Insurance
Premature Death Need for Life Insurance Determining the amount of Life Insurance to Own Types of Life Insurance Life Insurance Contractual Provisions Additional Life Insurance Benefits Life Insurance Underwriting Group Life Insurance

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Costs of Premature Death

Income earned by deceased terminates Additional costs are incurred Reduction in their Standard of Living Emotional and non economic costs

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Life Insurance Parameters

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Life Insurance Parameters

Need for Life Insurance Amount of Life Insurance to Own Types of Life Insurance

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Need for Life Insurance

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Need for Life Insurance

Depends on the family type

Various Family types possible in any society are

o o o o o o Singles Single Parent Families Two income families Traditional families Blended Families Sandwiched Families Life Insurance is significant Life Insurance is significant Modest Life Insurance Need for large amounts

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Need for Life Insurance

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Life Insurance-Amount of Life Insurance

There is no formula that gives the amount of life insurance.

Needs Approach
o o o o An Estate Clearance fund Income During Adjustment Period Income during the Dependency Period Income to the Surviving spouse during the black out Period

Retirement Income
Special Needs

paying off a mortgage Emergency fund

College fund for Children

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Programming or Needs Approach

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Types of Life Insurance

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Types of Life Insurance

Term Insurance Whole life Insurance Universal Life Insurance Variable Life Insurance Variable Universal Life Insurance Current Assumption whole life Insurance Endowment Insurance

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Term Insurance
Temporary protection for specified period No Cash Value Built Renewable and Convertible Premiums increase with age and mortality rates Types
o o o o Yearly renewable Specific Period term Decreasing Term The sum insured decreases every year. ( Protection to pay off a mortgage at the death of a homeowner) Reentry term - Premiums are increased substantially if

the insured cannot provide satisfactory evidence of

insurability

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Whole Life Insurance

Provides Permanent Protection
o o o Ordinary Life Insurance Limited Payment Life Insurance Paid-up policy

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Universal Life Insurance

Flexible-premium life insurance that separates the protection, savings, and expense
Components Cash value account of the policy holder is credited with Premium Less Deduction for the cost of insurance Protection and Expenses Balance is credited with interest at a specific rate Cash Withdrawals Considerable Flexibility Disadvantage- No Firm commitment on payment of premiums

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Other Types of Life Insurance

Variable Life Insurance Variable Universal Life Insurance Current assumption Whole Life Insurance Endowment Insurance

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Life Insurance Contractual Conditions

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Life Insurance Contractual Conditions

Incontestable Clause (Generally Two Years) Suicide Clause (Generally Two Years) (Refund of the premium less any policy loan) Grace Period Universal life policies usually have a longer grace period( such as sixty one days)

otherwise it is 30 days
Reinstatement Clause
The lapsed policy must be reinstated with in 5 yrs All unpaid premiums plus interest must be paid The policy must not be surrendered for its cash value All policy loans must be repaid or reinstated Evidence of insurability may be required. Not required with in 30 Days.

Misstatement of Age or Sex Beneficiary Designations

o Primary, contingent, A revocable, An Irrevocable

o A Specific ( X of Y)
o A Class Beneficiary ( such as children of Insured)

Assignment Clause
o o Absolute Assignment Collateral Assignment
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Life Insurance Contractual Conditions

Dividend Options
o o o Participating Policies Non-participating or Guaranteed Cost Policies Participating Policies

Cash
Reduction of Premium
Accumulate at interest Paid-up additions One Year Term Insurance

Nonforfeiture Options

o Cash
o o Reduced Paid-up insurance Extended term insurance

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Life Insurance Contractual Conditions

Policy Loan Provision
o Settlement Options to beneficiary
o Lump sum option o Interest Option o Fixed-period Option o Fixed-amount option o Life income options

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Life Insurance Additional benefits

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Life Insurance Additional benefits

RIDERS Waiver of Premium during the period of disability.

Accidental Death Benefit (Double Indemnity)

Guaranteed Insurability to buy the additional amounts of life insurance at standard rates without evidence of insurability Cost-of-living Can purchase one year term insurance with face amount of term

insurance as Face amount of original policy * Percentage change in CPI

Accelerated Death Benefits For insured who have certain catastrophic diseases or who are terminally ill to receive part or all of the available life insurance proceeds before death occurs
o Terminally ill rider

o
o

Catastrophic ill Rider

Long-term Care Rider

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Life Insurance underwriting

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Life Insurance underwriting Factors

Age Sex Build

Physical Condition
Personal Health History Family Health History Smoking Hazardous Sports and Hobbies

Habits and morals

Residence Occupation Underwriting Decisions: 90/6-7/3 (standard, non-standard, Denial)

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Group Life Insurance underwriting

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Group Life Insurance underwriting

Master Contract Individual Insurance Certificate Experience Rating

No need of individual evidence of Insurability

Less Cost Conditions
o o Group not solely formed for the purpose of Insurance Ideally low turnover of persons in group

o
o o

Minimum participation Requirements (Non contributory plan, Contributory plan)

Type of employees, Number of Wage hours Probationary Period

Eligibility Requirements

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Group Life Insurance Benefits

Accidental Death Benefits

o Multiple of Amount of Insurance ( Principal Sum)

Dismemberment Benefits (Disability) Dependent Life Insurance

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