FINC 120 Lecture Notes - Lecture 9: Term Life Insurance, Whole Life Insurance, Life Insurance

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kurtzkm

20 Jul 2019

School

College of Charleston

Department

Finance

Course

FINC 120

Professor

Wang

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Document Summary

Protect people from the financial consequences of losing assets or income when an accident, illness, or death occurs. Risk avoidance: avoiding an act that would create a risk. Loss prevention: any activity that reduces the probability that a loss will occur. Loss control: any activity that lessens the severity of loss once it occurs. Risk assumption: choice to accept and bear the risk of loss. Insurance policy: insurer agrees to reimburse the insured for any losses suffered. Used by insurers to decide who can be insured and applicable rates for premiums. Helps insurance companies to protect against adverse selection. Practices and standards vary among insurance companies. Methods to estimate the required amount of insurance. Involves multiplying gross annual earnings by some selected number. Involves considering a person"s financial obligations, available financial. Term life insurance resources, and life insurance. Provides death benefits for a specified period. Does not provide for the accumulation of cash value.

Related Questions

True or False

____1. Pure risks are those that, when they occur, create a loss.

____2. Insurance is a contract of indemnity, which means that a person is entitled to compensation only to the extent that an actual financial loss has been suffered.

____3. The principle of insurable interest states that a person is entitled to compensation only to the extent that financial loss has been suffered.

____4. When a person or firm is exposed to risk and decides to bear all or part of the financial burden if a loss occurs, this is known as risk retention or risk assumption.

____5. Exposures that are high in frequency yet low in potential severity are best handled by insurance.

____6. Financial planners recognize two fundamental needs for the monies generated by a life insurance policy: replacing income and preserving assets.

____7. Life insurance death proceeds are taxable as income to the recipient.

____8. The capital retention approach determines the amount of life insurance needed by first determining what level of annual income the insured wishes to provide for the family.

____9. Term life, because it is temporary pure death protection, tends to be quite expensive in the early years of the policy.

____10. Unlike whole life in which premiums increase with age, term life policies are based on a level premium throughout the duration of the payment period.