Insurance - Chapter 1 notes Cash Value money accumulated in...

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Chapter 1 notes Cash Value- money accumulated in a permanent policy which the policy owner may borrow as a policy loan or receive if the policy is surrendered before maturity. Surrender charges may be assessed at policy surrender. Upon maturity or endowment the cash value is paid to the policy owner. Some financial authors suggest that cash value may be a source of supplemental income. Nonparticipating policies(nonpar)- insurance policies which do not pay dividends to policy owners. Participating policies(par)- policies that may pay annual dividends to policy owners. Personal Uses of life insurance a. Survivor protection- providing funds for dependents b. Estate creation- providing large sums of money for dependents and beneficiaries c. Estate conservation- provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured’s estate. d. Cash accumulation- an amount of cash accessible to the policyowner. e. Liquidity- immediate funds available upon death to pay creditors, taxes and final expenses. f. Viatical settlements- life insurance policies purchased from a terminally ill insured. Human Life Value approach- measure of the actual future earnings and services of a person at risk in the event of a premature death. The objective is to provide the proper amount of coverage as determined by the value of the individual to his/her dependents using the following factors: a. The individual’s after-tax annual salary b. The individual’s annual expenses, not to include hobby or habit expenses c. The value of all personal assets d. The number of years remaining for the individual’s expected ability to work e. Ages of all family members which determines the dependency period of the family members f. The value of the individual’s dollar as it depreciates over time g. Present salaries of all wage earners in the home Needs Analysis approach- determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be immediate and uses the following factors to arrive at the proper amount of coverage needed. a. Calculate all financial needs caused by an immediate death. To properly calculate this need one must know the age of each dependent child. b. Subtract any assets available to fund financial needs after death. c. Purchase adequate life insurance to fill all gaps between needs and available assts. d. Regardless of age, some needs are permanent, such as retirement, disability funds and funeral expenses while some needs are disappearing, such as mortgage and educational funds. e. An Emergency Reserve Fund could be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured. For educational funds, consideration must be given to the type of education, tuition costs, and number of children. Medical expense during college is not an educational cost factor. Buy-Sell Agreement-
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This note was uploaded on 09/20/2010 for the course DS 6351321365 taught by Professor Sdffsd during the Spring '09 term at Acadia.

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Insurance - Chapter 1 notes Cash Value money accumulated in...

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