1 / 39

Chapter 9

Chapter 9. Managing Life, Health, and Disability Risks. Identifying Risks Associated with Premature Death. Inadequate financial resources Estate preservation. Inadequate Financial Resources. Income for the readjustment period Financial support of dependents Funds for specific goals.

kalani
Download Presentation

Chapter 9

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 9 Managing Life, Health, and Disability Risks Chapter 9: Managing Life, Health, and Disability Risks

  2. Identifying Risks Associated with Premature Death • Inadequate financial resources • Estate preservation Chapter 9: Managing Life, Health, and Disability Risks

  3. Inadequate Financial Resources • Income for the readjustment period • Financial support of dependents • Funds for specific goals Chapter 9: Managing Life, Health, and Disability Risks

  4. Estate Preservation • Medical expenses prior to death • Disposal and ceremonial expenses • Probate expenses Chapter 9: Managing Life, Health, and Disability Risks

  5. Measuring Needs Related to Premature Death • Human Life Value Approach • Financial Needs Approach • Capital Retention Approach Chapter 9: Managing Life, Health, and Disability Risks

  6. Human Life Value Approach • Calculate the family’s share of earnings (FSE). • Determine Work Life Expectancy. • Determine present value of worker’s stream of expected earnings. Chapter 9: Managing Life, Health, and Disability Risks

  7. Financial Needs Approach • Lump-sum (cash) needs • Final expenses and debts • Mortgage liquidation or payment fund • Education expenses • Emergency expenses • Income (cash flow) needs • Readjustment period • Dependency period • Spousal life income (pre- and postretirement) Chapter 9: Managing Life, Health, and Disability Risks

  8. Capital Retention Approach • Prepare a personal balance sheet. • Calculate the capital available for income. • Determine the amount of additional capital required. Chapter 9: Managing Life, Health, and Disability Risks

  9. Individual Life Insurance Policies • Term insurance • Whole life insurance • Universal life insurance Chapter 9: Managing Life, Health, and Disability Risks

  10. Term Insurance (1 of 3) • Affordable • Maximum Coverage/$ of premium • Fulfills temporary need • Ensures insurability • Cost Prohibitive at Older Ages • No Savings Feature Chapter 9: Managing Life, Health, and Disability Risks

  11. Term Insurance (2 of 3) Types • Annual Renewable Term (ART) • Level Premium • Term to age 65 or 70 • Decreasing/Increasing • Reentry Chapter 9: Managing Life, Health, and Disability Risks

  12. Term Insurance (3 of 3) Riders • Waiver of Premium • Accidental Death Benefit • Accelerated Death Benefit • Return of Premium • Spouse Insurance • Child Insurance Chapter 9: Managing Life, Health, and Disability Risks

  13. Whole Life Insurance • Permanent protection • Cash value build-up • Level premium (in general) • Mortality charges • Administrative costs and insurer profit Chapter 9: Managing Life, Health, and Disability Risks

  14. Whole Life Insurance (cont.) Types • Ordinary Life/Continuous Premium • Limited-Pay Policy • Modified Life • Single Premium/MEC • Current Assumption (Interest-Sensitive) • Variable Life • Joint Life Chapter 9: Managing Life, Health, and Disability Risks

  15. Dividend Options • Cash • Paid-Up Additions • Accumulate at Interest • Reduce Premium • One-Year Term Insurance (5th Dividend Option) Chapter 9: Managing Life, Health, and Disability Risks

  16. Nonforfeiture Options • Cash Surrender Value • Reduced Paid-Up Insurance • Extended Term Insurance Chapter 9: Managing Life, Health, and Disability Risks

  17. Whole Life Riders • Waiver of Premium • Accidental Death Benefit • Spouse and Children’s Riders • Term Insurance • Living Benefits • Option to Purchase Paid-Up Additions • Unemployment Rider Chapter 9: Managing Life, Health, and Disability Risks

  18. Universal Life Insurance • Premium Flexibility • Ability to Change Death Benefit Amount • Current Assumptions • Fewer Guarantees Chapter 9: Managing Life, Health, and Disability Risks

  19. Structure of a Universal Life Policy Chapter 9: Managing Life, Health, and Disability Risks

  20. Universal Life Death Benefit Options • Option A (Option 1) • Level Death Benefit • Net Amount at Risk equals Death Benefit less Cash Value • Option B (Option 2) • Increasing Death Benefit • Net Amount at Risk Remains Level Throughout the Policy Chapter 9: Managing Life, Health, and Disability Risks

  21. Variable Universal Life • Combines investment direction of variable life, and the premium death benefit and cash value flexibility of universal life • Policyowner directs investment and bears investment risk • Cash value maintained in one or more separate accounts • Must be approved by SEC • Agents/brokers who sell VUL must have license for insurance and securities Chapter 9: Managing Life, Health, and Disability Risks

  22. Modified Endowment Contracts (MECs) • “7-pay” Test • Material Change • LIFO Treatment • 10% Penalty (< age 59½) Chapter 9: Managing Life, Health, and Disability Risks

  23. Universal Life Riders and Optional Benefits • Waiver of Premium • Accidental Death Benefit • Other Insured • Living Benefits Chapter 9: Managing Life, Health, and Disability Risks

  24. Group Life Insurance • Group term • Group whole life insurance • Group universal life Chapter 9: Managing Life, Health, and Disability Risks

  25. Policy Replacement Belth price of protection model: CPT = (P + CV0)(1 + i) – (CV1 + D) (DB – CV1) (0.001) Chapter 9: Managing Life, Health, and Disability Risks

  26. Life Insurance Policy Provisions • Grace Period • Incontestability • Entire Contract Clause • Misstatement of Age or Gender • Assignment • Absolute • Collateral • Suicide Chapter 9: Managing Life, Health, and Disability Risks

  27. Life Insurance Policy Provisions (cont.) • Reinstatement • Policy Loans • Beneficiary Designations • Revocable and Irrevocable • Primary and Contingent • Survivorship Clause • War Exclusion • Simultaneous Death Chapter 9: Managing Life, Health, and Disability Risks

  28. Life Insurance Settlement Options • Interest Only • Fixed Amount • Fixed Period • Life Income • Life Income and Period Certain • Life Income with Refund • Joint and Survivor Income Chapter 9: Managing Life, Health, and Disability Risks

  29. Life Annuity Contracts • What is an annuity? • Types of annuities • Immediate/Deferred • Flexible/Single Premium • Fixed/Variable • Timing of annuity payments • Straight Life • Life with Period Certain • Installment Refund • Joint & Survivor Chapter 9: Managing Life, Health, and Disability Risks

  30. Taxation of Life Insurance • Dividends as return of principal • Withdrawals • LIFO – MEC/1st 15 years • FIFO – After 15 years • Death benefit excluded from beneficiary’s gross income • Proceeds lose tax-free status if transfer is not a gift, transfer to insured, or transfer to insured’s business • Premiums are not tax deductible except to employer for group life Chapter 9: Managing Life, Health, and Disability Risks

  31. Taxation of Viatical Agreements and Annuities • Viatical Agreements • Tax free to insured • Proceeds taxable to purchaser • Annuities • Inclusion/Exclusion ratio • 100% taxable if exceed original life expectancy Chapter 9: Managing Life, Health, and Disability Risks

  32. Individual Health Insurance • Purpose • Cost concerns • Eligibility • Medical expense insurance • Major medical insurance Chapter 9: Managing Life, Health, and Disability Risks

  33. Long-Term Care Insurance • Types of Care • Skilled Nursing Care • Custodial Care • Home Health Care • Assisted Living • Adult Day Care • Hospice Care Chapter 9: Managing Life, Health, and Disability Risks

  34. Long-Term Care Insurance (cont.) • Eligibility • Chronically Ill • 2 of 6 ADLs • Substantial Cognitive Impairment • Tax deductible premiums and tax-free benefits Chapter 9: Managing Life, Health, and Disability Risks

  35. Disability Income Insurance • Definition of disability • Any occupation • Own occupation • Split definition • Social Security • Characteristics • Benefit period • Elimination period • Partial disability • Waiver of premium • Cost of living rider • Future increase option • Automatic increase rider Chapter 9: Managing Life, Health, and Disability Risks

  36. Disability Income Insurance (cont.) • Taxation of benefits • Tax free if insured pays premium • Taxable if employer pays premium • Integration with Social Security • Termination of beneifts • Residual benefits Chapter 9: Managing Life, Health, and Disability Risks

  37. Group Health Insurance • Eligibility • Characteristics Chapter 9: Managing Life, Health, and Disability Risks

  38. Group Health Insurance (cont.) • Basic and major medical • Dental and vision • Disability income • Managed care • Coordination of benefits Chapter 9: Managing Life, Health, and Disability Risks

  39. Group Health Insurance (cont.) • Termination of benefits • COBRA • Coverage for elderly employees • Coverage for retirees • Taxation of group health benefits • HIPAA Chapter 9: Managing Life, Health, and Disability Risks

More Related