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Final

FINAL Review

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Department
Finance
Course
FIN 3440
Professor
All Professors
Semester
Fall

Description
Life InsuranceWhat is Life insurance Protection against the premature death of the heads of the family when hisher death results in significant financial hardship for surviving family membersAverage life expectancies have continued to rise with improvements in medicine income and public health Three major causes of death heart problems stroke and cancerThe financial impact is most significant for those with dependents to supportlife insurance is greatest for these individuals which include single parents and two parent families with children Young singles with no dependents dont really need life insuranceNeeds Approachused to assess what type of life insurance needed It estimates present value of future income and expense cash flows to the surviving spouse and compares that value to the current value of hisher assets to determine adequacy of life insurance coverage what you NEEDcan be purchased by individuals OR as a part of Group Life insurance offered by an employee important employee benefit in the US more individual life insurance 52 than group 48Term InsuranceWhat is Term insurance Offers temporary life insurance coverage for 1 5 or 10 years At the end of the period you can renew or buy a new one Relatively cheap Mostly for those who need a lot of insurance such as families with young childrenonly affordable way to buy enough coverageAdvantages oPolicies are renewable no evidence of insurability physical exam requiredoPremiums are lower than permanent insurance resulting in more insurance coverage for less moneyoCoverage for a specific period in timegetting kids through college or retiring a mortgage in the event of your deathoAutoHomeowner insurance are other types of term insurancepaying for a specific thing for a period of timeDisadvantagesoDoes NOT provide saving feature of cash valueterm policies pay benefits ONLY if you die while policy is in forceoPremiums INCREASE each time a policy is renewed because they are determined by death rates at each attained age Cost of term insurance can become high as you approach your 60s so if you want lifetime insurance the yearly renewable method is impractical you many outlive coverage because term insurance is NOT renewable in your 70soPermanent policies are MORE expensive than Term insuranceoThe price of term insurance DOES increase as you get older but your insurance needs will likely decrease so term insurance in smaller amounts may be most affordableoMOST insurance offered by employer as a GROUP policy is a term life insurance policyAnnual RenewableLevel Term InsuranceAnnual Renewable Premiums rise each year that you renewLevel term policies premiums are FIXEDlevel for a specified period 5 or 10 When period ENDS years but sometimes as long as 15 or 20 years premiums rise SHARPLYAnnual Renewable OR Level Cost is first consideration Second is how long you expect to need the insurance ex most families with young children will need it for a long timeOther Term insurance Convertible decreasing term increasing termoConvertible term allows policy holder to CONVERT term policy to a permanent policyoDecreasing term allows a decrease of the death benefit over its termoIncreasing term allows an increase of the death benefit over timePermanentWhole Life InsuranceWhat is Permanent Life insurance Also called whole life insurance offers lifetime protection Was main product of life insurance in US sold to replace income before there was social security or welfare systemnow more fancier and EXPENSIVEoPart of premium pays for insurance protectionmortality charge This charge rises as you get older whether you buy a cash value policy or a term policy
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