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MTHEL 131 (111)
David Kohler (106)

Lecture 5

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University of Waterloo
Mathematics Electives
David Kohler

Lesson 5 Cash surrender value (permanent life insurance): - you’re allowed to borrow against the policy - up to 90% of what you’ve paid - they don’t say no, unlike banks - interest is lower - if you don’t pay the loan back, the company will just deduct it from your death benefits Permanent insurance policies (designed to be enforced for life). 4 Types: 1. Whole life insurance - premiums are payable for life - has csv (cash surrender value) Limited pay whole life insurance - premiums are condensed over shorter period of time (more expensive) - coverage continues for life 2. Term- 100 (T-100) - no csv  no cash builds up  you get $0 back if you cancel - lowest price option - don’t miss a premium!! (or policy will be lapsed) - no non-forfeiture options because no csv 3. Universal life (U-life) - More flexible than other types - Premiums deposits are flexible - You can pay however much you want, whenever you want - A certain amount is required to be there daily  Depends on amount of coverage, age of the insured - You can change the amount of coverage you want at any time. The premium required per day will change - You can choose what to invest in  any money earned is tax free  goes into reserve  if you earn more money in investments, you don’t have to pay as much yourself. You should make smart decisions * the money you have in the reserve depends on the investments you’ve made. It’s usually higher than the CSV (unless you’ve made poor investment choices) Universal Life Policy, The choices you can make: 1) death benefit a. level death benefit (U-life regular) - you get the face value - not what is in the reserve - the more money you have in the reserve, the less you pay per day  ex. if policy is $500k, and you have $100k in the reserve, you have to pay for a $400k policy b. level amount at risk (U-life plus) - you get face value PLUS whatever you have in the reserve - pay level premiums - pay more in premiums than for level benefit ^ cost is neutral. The extra money you get in benefits, you pay extra in premiums ^ if you choose to switch type of death benefit, price of premium changes 2) Investments 3) Cost of insurance a. yearly renewable term choice (YRT) - increases each year b. level cost of insurance - stays the same - accumulates more quickly In Force vs. Lapsed If you have simple term insurance, and miss one payment, insurer still has to pay. Law: days of grace policy provision. You have 30 days to pay your monthly premium. After 30 days, policy has lapsed, and is no longer enforced.  you can reinstate with
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