Module 9 Flashcards
can be defined as the death of a family head with outstanding unfulfilled financial obligations, such as dependents to support, children to educate, and a mortgage to pay off.
Premature Death
Is the average number of years of life remaining to a person at a particular age.
Life Expectancy
Life expectancy in 2010
78.7
Life expectancy in 1970
70.8
FINANCIAL IMPACT OF PREMATURE DEATH ON DIFFERENT TYPES OF FAMILIES
Single People
Single-Parent Families
Two-Income Earners with Children
Traditional Families
Blended Families
Sandwiched Families
is one in which a son or daughter with children provides
financial support or other services to one or both parents.
sandwiched families
is one in which a divorced spouse with children remarries, and the new spouse also has children. Also, additional children may be born after the
remarriage.
blended families
are families in which only one parent is in the labor force, and
the other parent stays at home to take care of dependent children.
traditional families
Families in which both spouses work outside the home have largely replaced the
traditional family in which only one spouse is in the paid labor force.
Two-income earners with children
Three approaches can be used to estimate the amount of life insurance to own:
Human life value approach
Needs approach
Capital retention approach
The family’s share of the deceased breadwinner’s earnings is lost forever if the
family head dies prematurely.
Human Life Value Approach
is needed immediately when the family
head dies. Immediate cash is needed for burial expenses; uninsured medical
bills; installment debts; estate administration expenses; and estate, inheritance,
and income taxes.
estate clearance fund
Refers to the period from the time that Social Security survivor
benefits terminate to the time the benefits are resumed.
Blackout Period
The most important family needs are the following:
Estate clearance fund
Income during the readjustment period
Income during the dependency period
Life income to the surviving spouse
Special needs
-retirement needs
FOUR LIFE INSURANCE TO AVOID
-Flight insurance at airports
-credit life insurance
-accidental death and dismemberment insurance
-cash-value policies on children
is a type of insurance that provides life insurance on a group of people in a single master contract. Physical examinations are not required, and certificates of insurance are issued as evidence of insuranc
group life insurance
was a class of life insurance that was issued in small amounts; premiums were payable weekly or monthly; and an agent of the company collected the premiums at the insured’s home. More than nine out of ten policies were cash value policies.
industrial life insurance
is a type of life insurance that was sold originally by savings banks in Massachusetts, New York, and Connecticut. SBLI is now sold in most states and in the District of Columbia to consumers over the phone or through Web sites. The objective of SBLI is to provide low-cost life insurance to consumers by holding down operating costs and payment of high sales commissions
savings bank life insurance
(also called survivorship life) is a form of life insurance that insures two or more lives and pays the death benefit upon the death of the second or last insured.
second-to-die life insurance
Most life insurers sell policies at lower rates to individuals known as preferred risks. These people are individuals whose mortality experience is expected to be lower than average
preferred risks
is a whole life policy in which premiums are lower for the first three to five years and higher thereafter. The initial premium is slightly higher than for term insurance, but considerably lower than for a whole life policy issued at the same age.
modified life insurance
these policies typically contain a provision that allows the policyholder to discontinue paying premiums after a certain time period, such as 10 years.
high-premium products
he initial premium is substantially lower than the premium paid for a regular, nonparticipating whole life policy. The low premium is initially guaranteed only for a certain period, such as five years
low-premium products
VARIATIONS OF WHOLE LIFE INSURANCE
- Variable Life Insurance
- Universal Life Insurance
- Indexed Universal Life Insurance
- Variable Universal Life Insurance
- Current Assumption Whole Life Insurance
(also called interest sensitive whole life) is a nonparticipating whole life policy in which the cash values are based on the insurer’s current mortality, investment, and expense experience.
current assumption whole life insurance
is an important variation of whole life insurance. Most variable universal life policies are sold as investments or tax shelters. Variable universal life insurance is similar to a universal life policy with
variable universal life insurance
is a variation of universal life insurance with certain key characteristics.First, there is a minimum interest rate guarantee, which is usually lower than the minimum interest rate guarantee on a regular universal life policy
indexed universal life insurance
(also called flexible premium life insurance) can be defined as a flexible premium policy that provides protection under a contract that unbundles the protection and saving components.
universal life insurance
Can be defined as a fixed premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer.
variable life insurance
pays the face amount of insurance if the insured dies within a specified period; if the insured survives to the end of the endowment period, the face amount is paid to the policyholder at that time.
endowment insurance
A cash value policy that provides lifetime protection
whole life insurance
types of life insurance
-Term insurance
-whole life insurance
-endowment insurance
A type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified and the policy is active, or “in force,” then a death benefit will be paid.
term insurance
preserves the capital needed to provide income to the family. The income-producing assets are then available for distribution later to the heirs.
capital retention approach
follows the readjustment period; it is the period until the
youngest child reaches age 18.
dependency period
is a one- or two-year period following the breadwinner’s
death.
readjustment period
is a type of insurance that provides life insurance on a group of people in a single master contract. Physical examinations are not required,
and certificates of insurance are issued as evidence of insurance.
group life insurance
was a class of life insurance that was issued in small amounts; premiums were payable weekly or monthly; and an agent of the company collected the premiums at the insured’s home. More than nine out of ten policies were cash value policies.
industrial life insurance
is a type of life insurance that was sold originally by savings banks in Massachusetts, New York, and Connecticut. is now sold in most states and in the District of Columbia to consumers over the
phone or through Web sites. The objective of SBLI is to provide low-cost life
insurance to consumers by holding down operating costs and payment of high
sales commissions.
savings bank life insurance
(also called survivorship life) is a form of life insurance that insures two or more lives and
pays the death benefit upon the death of the second or last insured.
second-to-die life insurance
Most life insurers sell policies at lower rates to individuals known as. These people are individuals whose mortality experience is expected to be
lower than average
preferred risk
is a whole life policy in which premiums are lower for the first three to five years and higher thereafter. The initial premium is slightly higher than for term insurance, but considerably lower than for a whole life policy issued at the same age.
modified life insurance
Although premiums are higher under the second category, these policies typically
contain a provision that allows the policyholder to discontinue paying premiums
after a certain time period, such as 10 years.
high-premium products
the initial premium is substantially lower than the premium paid for a regular, nonparticipating whole life policy. The low premium is initially guaranteed only for a certain period, such as five years.
low-premium products
