Life Insurance

Life Insurance Definition – A contract in which someone pays a premium, in exchange for a specified death benefit payment, upon death.

  • Insurance is to protect against unknown risk
  • Investing is the business of increasing ones assets
  • Life insurance should never be sold as an investment

Life insurance is difficult to understand, policies today have many moving parts. However, at the end of the day there are only two types.  

 

Term

Vs.

Permanent (your entire life)

 

Term insurance contracts have the following features:

 

  • Least Expensive life insurance
  • Fixed # of years - 5, 10, 15, 20, 25 30.
  • Fixed monthly or annual premium
  • Fixed death benefit
  • No cash value
  • Ability to cancel contract if no longer needed

 

What is the point of Term Life Insurance?

  • To provide for others if you pass away

 

What costs are associated with Term Life Insurance?

  • The Premium or Cost of Insurance
  • Commission to Sales Agent

 

Permanent insurance is like having a term policy for your entire life with a built in savings account that accumulates cash value.

 

What is the point of Permanent Life Insurance?

  • To provide for others if you pass away
  • To accumulate cash value by investing inside policy

 

What costs are associated with Permanent Life Insurance?

  • The Premium or Cost of Insurance
  • The additional amount of money that you are investing, monthly or annually
  • Commission to the sales agent

 

1. Variable Universal Life – 2nd Least Expensive

  1. Flexible premium & Flexible death benefit
  2. Part of premium pays for cost of insurance
  3. Part of premium is invested in mutual funds with variable rates of return

 

2. Universal Life – 3rd Least Expensive

  1. Flexible premium & fixed death benefit
  2. Part of premium pays for cost of insurance
  3. Part of premium is invested in low risk securities

 

3. Whole Life – Most Expensive

  1. Fixed premium & fixed death benefit
  2. Part of premium pays for cost of insurance
  3. Part of premium is invested in the insurance company and pays an annual dividend

 

How Much Life Insurance Do You Need?

 

To estimate your life insurance needs, complete the worksheet below:

           

Expenses:

 

Mortgage Debt                        +$___________          How much left to pay off home

 

Other Debt                              +$___________          Loans

 

Other Debt                              +$___________          Credit Cards

 

Other Debt                              +$___________          Vehicle

 

Other Debt                              +$___________          Vehicle

 

Future Education Costs          +$___________          If you die and would like your child(s) college paid

 

Replacement Income              +$___________          If you die how much would your loved ones require

 

Total Cash Needed:                =____________          Total All of the Above

 

Available Assets:                    -$____________         Cash, savings or checking account, existing life insurance (work), retirement funds, etc...                                  

Total Life

Insurance Needed                  =$____________         (Total Cash needed) minus (available Assets)