PPSet11_317_PP[1] 7-27-11.ppt

PPSet11_317_PP[1] 7-27-11.ppt - PowerPoint Set 11 Life...

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PowerPoint Set 11: Life Insurance Life insurance: risk management tool for dealing with the risk of “premature death”. 1 1
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Life Insurance: Key Terms Face amount Amount of coverage listed on the policy Death benefit Amount the beneficiary gets. Usually the same as the face amount but can be different for some types of life insurance. Beneficiary Party designated to be paid the death benefit Lapse Discontinuation of policy due to non-payment of premium Surrender Discontinuation of policy at the policyholder’s request Cash value Savings element found in some types of life insurance. 2 2
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Life Insurance: Key Concepts Can meet two classes of economic needs Protection (death benefit of life insurance) Savings (cash value of life insurance) Many buyers want BOTH in estate/retirement planning Life insurance tax issues Premiums not generally tax deductible Savings element grows “tax deferred”. Pay tax if you surrender the policy. Death benefit generally is income-tax-free to beneficiary Death benefit generally is not estate tax free. If estate is of a certain size 3 3
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Life Insurance: Key Concepts (continued) Savings element often subject to “surrender charge” If withdrawn in early years Amount and timing of needs Big issue: “permanent” vs. “temporary” 4 4
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Types of Life Insurance The face amount of new life insurance sold in the U.S. is about $3 trillion/year. Total life insurance in force is about $19 trillion. Three major types of life insurance Term: For death protection only. Temporary. Whole life: For death protection and savings. Permanent. Universal life: For death protection and savings. Permanent. 5 5
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Term Insurance Coverage for a specified duration (term) Such as 1, 5, 10, 20, or 30 years or to age 65 Is “pure” death protection No cash value (i.e. no savings element) Most death protection per premium dollar 6 6
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Term Insurance (continued) “Straight” versus “Renewable” Straight term insurance Generally not renewable Renewable term insurance Individual insurance: initial health exam required.
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  • Fall '15
  • Term life insurance, Whole life insurance,  Savings

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