Lecture 2 CIN 2120 Introduction to Life Insurance – Conti…C.pptx

Lecture 2 CIN 2120 Introduction to Life Insurance – Conti…C.pptx

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CIN 2120 - MUMO 1 Introduction to Life Insurance – Conti… At the end of this lecture, participants should be able to: Explain economic justification for Life Insurance Explain the needs approach for estimating the amount of life insurance to own. Distinguish between participating and nonparticipating life insurance contracts LECTURER 2
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2 Economic Justification for Life Insurance The purchase of life insurance is economically justified if the insured has earned income, and others are dependent on those earnings for part or all of their financial support. If a family head dies prematurely with dependents to support and outstanding financial obligations, the surviving family members are exposed to great economic insecurity. Life insurance can be used to restore the family’s share of the deceased breadwinner’s earnings. Customer needs met by life insurance contracts are protection and savings . Many contracts protect people (or their dependents) from the financial consequences of unwelcome events, such as death. Other contracts are essentially investments, allowing the policyholder to build up funds for specific things such as an income in retirement , the payment of
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3 Amount of Life Insurance to Own Once you determine that you need life insurance, the next step is to calculate the amount of life insurance to own. Three approaches can be used to estimate the amount of life insurance to own: Human life value approach Needs approach Capital retention approach
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4 Human Life Value Approach The family’s share of the deceased breadwinner’s earnings is lost forever if the family head dies prematurely. This loss is called the human life value.
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