640 Class 6 Outline

640 Class 6 Outline - Class 6 Outline Business Finance 640...

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Business Finance 640 - Insurance and Risk Winter 2008 In this class, we review the basic methods of providing life insurance, yearly renewable term and level premium, before turning to a discussion of the various types of term and whole life Insurance. In term insurance, we look at yearly renewable term, various term periods of protection, such as 5-year term, and decreasing term. Next, the most important variations of Whole Life will be discussed. These include variable life, universal life and variable universal life contracts. While reviewing these variations, we will take a more detailed look at universal life. We will review the major characteristics of the universal life product and spend some time understanding its limitations. We will shift to the basic contractual provisions that appear in life insurance contracts. Ownership, entire contract, incontestable, suicide, grace period and reinstatement and misstatement of age clauses are all reviewed. We will also discuss pr assignment and policy loans. We will also look at the exclusions governing suicide, war provisions pertaining to beneficiary designation, change of plan, payment of premium, and aviation. We will review various dividend options, nonforfeiture options and settlement options. Finally, we will review briefly the additional life insurance benefits that can be added to a policy. These include the waiver-of-premium provision, guaranteed purchase option, accidental death benefit rider, cost of living rider, and accelerated death benefits rider. I. Review: Methods for Providing Life Insurance Protection A) Yearly Renewable Term Method 1. Pure premium—determined by the death rate at each attained age 2. Prohibitively high cost at advanced ages B) Level Premium Method 1. Level premiums are possible because the premiums paid during the early years are higher than necessary to pay current death claims. The redundant premiums paid during the early years plus compound interest are used to supplement the inadequate premiums paid during the later years of the policy. Since the redundant premiums will be needed later, a legal reserve is required. 2. Fundamental purpose of the legal reserve is lifetime protection. As the legal reserve increases, the net amount at risk declines. As a result, the cost of insurance is reasonable at all ages. 3.
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640 Class 6 Outline - Class 6 Outline Business Finance 640...

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