Textbook Notes (362,734)
Canada (158,032)
Finance (361)
FIN 502 (69)
Chapter 10

Chapter 10.docx

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Ryerson University
FIN 502
Steve Joyce

thChapter 10 Life Health and Disability Insurance February 28 2012Learn how to deal with unsupportable risksLearn how to use life insurance to finance the risk of loss of income due to the premature death of a family memberLearn how to use disability insurance to finance the risk of loss of income due to the disability of a family memberLife InsuranceMeans of financing the risk of the premature and untimely death of a family memberLoss of income due to the unanticipated death of a family member is an insupportable risk for most families finance risk through insuranceA small premium is exchanged for the insurance companys promise to pay a potentially large amount which will ensure that income will be provided to financial dependents of the insured in the event that he diesInsured the person upon whose death the death benefit or the face value of the insurance policy will be paidBeneficiary the persons who receives the death benefit or face value of the policy upon the death of the insuredDeath Benefit or Face Value the dollar amount that will be paid to the beneficiary if the insured diesPremium the dollar amount that must be paid to the insurance company The premium may be payable in one lump sum or periodically monthly quarterly semiannually or annuallyOwner the person who pays the premiums The owner can be the insured her employer the beneficiary or other third parties If you buy life insurance for your son you are the owner and your son is the insuredPolicy Term the period during which the insurance is in force The term can range from one year to an entire lifetimeRate the cost of each unit of insurance A rate of 250 per 100 unit means that the premium for 10 000 of insurance is equal to 250 x 100 or 250Insurability the qualification for the insured to be insurable There are certain requirements that the insured may have to meet before an insurance policy can be bought ex the insured may have to pass a medical examGuaranteed Insurability a provision that allows the insured to buy additional life insurance at certain specified future dates without proof of insurability Ex without undergoing a new medical exam Do you need Life InsuranceIf you do not have financial dependents you do not need life insuranceLife insurance is needed if the standard of living of the remaining spouse is expected to fallThree Important Questions in Life Insurance 1 Do you need life insurance Who needs life insurance Look above point2 How much life insurance do you need How can people estimate the appropriate amount of insurance they should buy2 approaches to calculate ones required life insurance face value estimate the amount of life insurance coverage that a family needs o The income approacho Expense approach
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