LIFE INSURANCE

1. LIFE INSURANCE LIFE INSURANCE

2. What is Insurance? • Pooling of Risk • Lloyds of London • Contract – If you pay premiums the insurance company will pay a benefit • Why Learn about Life Insurance? • ‘MOST offered ‘investment’ • Highest commissions of any investment – by far • Most Americans should have MORE life insurance LIFE INSURANCE

3. Parties to the Contract • Owner • Insured (example: Father) • 82% husbands pass away before wife • Beneficiary • Primary (example: Mother) • Secondary (example: the children to share equally) LIFE INSURANCE

4. Life Insurance Contract Provisions • Insurability • Preferred, Standard, Substandard • Pre-existing Conditions • Need to Take a Medical Examination • MIB – Medical Information Bureau • Insurable Interest – In a position to lose something of value • Indemnify – Pay for but not ‘profit’ from a loss • Non-Cancellable – Except for nonpayment of premiums • No Waiting Period • Settlement Options – Ways to receive death benefits • Riders – Add coverage • Contract – Only the insurance company is ‘bound’ by contract LIFE INSURANCE

5. Life Insurance Contract Provisions • Exclusions • War, either declared or undeclared • Military Activity • Nuclear Related Activity • Riots or Insurrections • Deaths as a result of illegal activities • Accidents occurring under the influence of alcohol or drugs on other than a physician prescribed basis • Suicide – for two years after policy inception • Aviation Accidents LIFE INSURANCE

6. Aviation Exclusion • A contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities • Policy only pays if: • Fare paying passenger • Regularly Scheduled Commercial Airline LIFE INSURANCE

7. Aviation Exclusion – Example A Insurance Company claimed the man was ‘airborne’ -- no death benefit because of the Aviation Exclusion. Court ruled the man never intended to be ‘airborne’ -- the insurance company had to pay the death claim. LIFE INSURANCE

8. Aviation Exclusion – Example B LIFE INSURANCE

9. Aviation Exclusion – Example C Insurance company claimed they didn’t need to pay because the person had completed the commercial air flight. Court ruled didn’t intend to be in flight LIFE INSURANCE

10. Riders • Waiver of Premium • Accidental Death & Dismemberment • Disability Income • Automatic Premium Loan • Family Income • Mortgage Redemption • Guaranteed Insurability LIFE INSURANCE

11. Types of Life Insurance • Group – Inexpensive if not a preferred risk • Individual (Ordinary) – If a preferred risk – least expensive LIFE INSURANCE

12. Individual (Ordinary) • Term = Death Benefit • Cash Value = Death Benefit + Investment • Whole Life • Variable Life • Adjustable Life • Indexed Life • Universal Life • Variable Universal Life • Universal Adjustable Life LIFE INSURANCE

13. Cash Value Chart Age 100 Life Insurance Death Benefit Face Value Cash Value ‘Investment’ Endow Time LIFE INSURANCE

14. Why to Avoid Cash Value • Large Lapse Rates – Behaviorally Inefficient • 80% Cancelled in the first 5 Years • A cancelled policy loses generally all ‘investment’ value if cancelled within 3 years of purchase • 20-25 Year Surrender Penalties • Affordability – High Cost • Most Americans are underinsured • Objective Advisors Avoid • Clark Howard, Jonathon Pond, Jane Bryant Quinn LIFE INSURANCE

15. Why to Avoid Cash Value – Cont. • High Expenses – Life insurance investments tend to grow at a slower rate than an equivalent mutual fund investment • Rarely does actual investment experience match projected investment values • Very Confusing Language • Highest commissions relative to dollars invested – by far LIFE INSURANCE

16. Why to Avoid Cash Value – Cont. • "As already intimated, it is believed to be a fact, now causing quite general complaint, that there are too many complicated schemes or plans of insuring, and conducting companies, as well as too many and too elaborate forms of contract or policy. Each new company announces some new feature in its business, which is to enure greatly to the advantage of the insured, and thus, with some seventy different companies, each urging their superiority over all others, he who seeks insurance, if he stops to hear all the arguments, and deliberately determine which is really the best company, • . . . is likely to die before he reaches a conclusion.“ • New York State Insurance Commissioner • April 1, 1870 LIFE INSURANCE

17. Insurance to Avoid • Accidental Death and Dismemberment LIFE INSURANCE

18. CAUSES OF DEATH, USA 2002National Vital Statistics Report FORMAL NAMEINFORMAL NAME% ALL DEATHS • (1) Diseases of the heart heart attack (mainly) 28.5% • (2) Malignant neoplasmscancer 22.8% • (3) Cerebrovascular disease stroke 6.7% • (4) Chronic lower respiratory diseaseemphysema, chronic bronchitis5.1% • (5) Unintentional injuries accidents 4.4% • (6) Diabetes mellitus diabetes3.0% • (7) Influenza and pneumonia flu & pneumonia2.7% • (8) Alzheimer's Disease Alzheimer's senility 2.4% • (9) Nephritis and Nephrosiskidney disease 1.7% • (10) Septicemia systemic infection 1.4% • (11) Intentional self-harm suicide1.3% • (12) Chronic Liver/Cirrhosis liver disease 1.1% • (13) Essential Hypertension high blood pressure 0.8% • (14) Assault homicide 0.7% • (15) All other causes other 17.4% LIFE INSURANCE

19. Insurance to Avoid • Accidental Death and Dismemberment • Example • No suicide coverage • Trip Insurance • Cancer Coverage • Pre-Need Funeral Expenses • Credit Life • Very expensive per $1,000 of coverage • 66% of deaths go unreported LIFE INSURANCE

20. How Much Face Value 2 ways to calculate • 14 times primary breadwinner’s income (easiest) • Point of ChoiceTM • Required Assets / Immediate Death • Generally $1,250,000 per $50,000 income • Required POC Assets - Existing Net Financial Assets LIFE INSURANCE