LIFE INSURANCE

Premature death

• 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.
• It can cause serious financial problems for the
surviving family members because their share of
the deceased family head’s future earnings is lost
forever.
Costs of Premature Death

• There is the loss of human life value

• Additional expenses may be incurred, such as funeral expenses,
uninsured medical bills, and estate settlement costs
• Because of insufficient income, some families may experience a
reduction in their standard of living.
• Non economic costs are incurred, such as the emotional grief of
the surviving dependents and the loss of a role model and
guidance for the children.
Financial Impact of Premature Deaths on
Different Types of Families

• Premature deaths can cause considerable economic insecurity if a

family head dies in a single-parent family, in a family with two
income earners with children, or in traditional, blended or
sandwiched family. In contrast, if a single person without
dependents or an income earner in a two income family without
children dies financial problems for the survivors are less likely to
occur.
 Once you determine
Amount of Life that you need life
insurance, the next

Insurance to step is to calculate the

amount of life
insurance to own.

Own
Two approaches can be used to estimate
the amount of life insurance to own:

1. Human Life Value Approach

2. Needs Approach
 It can be calculated by
the following steps:

1. Estimate the
individual’s average
annual earnings over his
or her productive
HUMAN LIFE VALUE APPROACH lifetime.
2. Deduct taxes. The
remaining amount is used
to support the family.
Human life value is defined as the present value of
the family’s share of the deceased bread winner’s 3. Determine the no. of
future earnings. This approach crudely measures the years from the person’s
economic value of human life. present age to the
contemplated age of
retirement.

4. Determine the present

value of the family's share
of earnings for the period
determined in step 3.
 The most important
family needs are as
NEEDS APPROACH follows:
- Estate clearance
funds
can be used to determine the life - Income during the
insurance to purchase. After -
readjustment period
Income during the
considering other sources of income dependency period.

and financial assets, the various family - Life income to the

surviving spouse
needs are converted into specific - Retirement needs

amounts of life insurance. - Special Needs

Types of Life Insurance
 • Term Insurance provides temporary protection and
Term is typically renewable and convertible without
evidence of insurability.
Insurance • It is appropriate when income is limited, or when
there are temporary needs.
• If the insured wants lifetime protection, term
insurance is impractical because the coverage is
temporary and the premiums are prohibitive at cost
older ages. Whole life insurance is a generic name for
a cash value policy that provides lifetime protection.

Whole life Insurance

 • Form of whole life insurance that provides lifetime
Ordinary Life protection. The premiums are level and are
payable for life. An ordinary life policy is
Insurance appropriate when lifetime protection is desired or
additional savings are desired.
• Another traditional form of whole life insurance. The insured
also has a lifetime protection, but the premiums are paid only
for a limited period, such as 10, 20, or 30 years until the age
of 65.

Limited Payment Policy

 • Pays the face amount of the insurance if the
Endowment insured dies within a specific period. If the insured
survives to the end of endowment period, the face
Insurance amount of insurance is paid to the policyholder at
that time.
• A fixed premium policy in which the death
benefit and cash surrender value vary
according to the investment experience of a
separate account maintained by the insurer.
The entire reserve is held in a separate
account and is invested in common stock or
other investments.

Variable Life Insurance

Universal Life Insurance

It has the ff features:

Another variation of whole life
- Unbundling of protection,
insurance. It can be viewed as a
savings, expense components
flexible premium policy that
- Two forms of universal life
provides lifetime protection
insurance
under a contract that separates
- Flexibility
the protection and saving
- Cash withdrawals permitted
components.
- Favorable income tax treatment
• A variation of universal life insurance with certain
key characteristics; there is a minimum interest rate
guarantee; additional interest is credited to the
policy based on the investment gains of a specific
stock market index; a formula determines the
amount of enhanced interest credited to the policy.

Indexed Universal Life

Insurance
 • Similar to universal life insurance, with
Variable two major exceptions. First, the cash
value can be invested in a wide variety of
Universal Life investments. Second, no minimum
guaranteed interest rate, and the
Insurance investment risk falls entirely on the
policyholder.
Current Assumption Whole Life Insurance

• Non participating whole life policy in which the cash values are
based on the insurer’s current mortality, investment and expense
experience.
Joint Life Insurance

• Also called a first to die policy

• Is a policy written on the lives of two or more people and is
payable upon death of the first person to die.
Second-to-die Life Insurance

• Also called survivorship life

• Insures two or more lives and pays the death benefit upon the
death of the second or lasta insured
Industrial Life Insurance

• Is a type of insurance in which the poilicies are sold in small

amounts, and the premiums are earlier were to paid an agent at
the policyholder’s home .
Group Life Insurance

• Provides life insurance on people in a group under a single master

contract. Group life insurance is basically a benefit in employer
sponsored group life insurance plans.