Unit_8_Life_Insurance_Students_Notes

Unit_8_Life_Insurance_Students_Notes - UNIVERSITY OF...

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UNIVERSITY OF TECHNOLOGY, JAMAICA FACULTY OF BUSINESS AND MANAGEMENT SCHOOL OF BUSINESS ADMINISTRATION INSURANCE UNIT 8 – LIFE INSURANCE OBJECTIVES Explain the meaning of premature death Describe the financial impact of premature death on different types of families Explain the needs approach for estimating the amount of life insurance to own Describe the basic characteristics of term life insurance Explain the basic characteristics of ordinary life insurance Describe the variations of whole life insurance Describe the basic characteristics of current assumption of life insurance Premature Death The death of a family head with outstanding unfulfilled financial obligations can cause serious financial problems for the surviving family members The deceased’s future earnings are lost forever Additional expenses are incurred, e.g., funeral expenses, uninsured medical bills, and estate settlement costs Some families will experience a reduction in their standard of living Noneconomic costs are incurred, e.g., grief Life expectancy has increased significantly over the past century Thus, the economic problem of premature death has declined Millions of Americans still die annually from heart disease, cancer and stroke The purchase of life insurance is financially justified if the insured has earned income and others are dependent on those earnings for financial support Describe the financial impact of premature death on different types of families Financial Impact of Premature Death on Different Types of Families The need for life insurance varies across family types: Single person Single-parent family Two income earners with children Traditional family Blended family Sandwiched family Amount of Life Insurance to Own 1
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Explain the needs approach for estimating the amount of life insurance to own Three approaches can be used to estimate the amount of life insurance to own: The human life value approach The needs approach The capital retention approach The human life value approach The amount needed depends on the insured’s human life value, which is the present value of the family’s share of the deceased breadwinner’s future earnings The human life value approach To calculate: Estimate the individual’s average annual earnings over his or her productive lifetime Deduct taxes, insurance premiums and self-maintenance costs
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Unit_8_Life_Insurance_Students_Notes - UNIVERSITY OF...

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