Personal Finance 12: Life Insurance

Life insurance Insurance company promises to pay lump sum at end of death or sometimes while they are still alive
Purpose of life insurance To protect someone who depends on you from financial loss related to your death
Mortality tables Provide odds on your dying, based on your age and sexActuaries
Easy method Method of calculation: 70% of salary for 7 years
DINK method Method of calculation: Duel income, no kids. Half of debts + funeral expensesp. 393
‘Non-working’ spouse method Method of calculation: Multiply number of years until youngest child reaches 18 by 10,000
‘Family need’ method Method of calculation: Thorough methodConsiders employer provided insurance, Social Security benefits, and income/assetsp. 394-5
Stock life insurance company Insurance company that issues common stock, people invest by buying common stock(Owned by stockholders, get dividends)Sell non-participating policiesSame premium each year
Mutual life insurance company Insurance company that is owned by policy holdersPolicy holders get any dividends distributed
Policy dividend Part of premium is refunded to policyholders annually
Term life insurance Least expensive kind of insuranceProtection for specified period of timeStop paying premiums, coverage stopsGood for “good” people, according to mortality table
Renewability option Option to renew the policy without having a physical at the end of the term (term life)
Multiyear level term Most popular form of life insurance
Conversion option Option to exchange term policy for whole life policy without having a physical
Decreasing term insurance Insurance where premium stays the same, but amount of coverage decreases as you age (mortgage insurance)
Return on premium Policy that refunds every penny of the premiums if one outlives the defined term
Whole life insurance Traditional kind of insuranceYounger you are, the lower the premium for your whole lifePay premium as long as you liveDeath benefit AND accumulates cash value
Limited payment policy Policy pays premiums for 20-30 years of draw it out at 65Policy then becomes paid up and you remain insured for life
Variable life insurance policy Policy with minimum death benefit guaranteed, but the death benefit can be greater than minimum depending on earnings of dollars invested in a separate stock or bond fund
Adjustable life insurance policy Whole life insurance policy, but can change premium payments to increase or decrease coverage
Universal life Policy with more direct controlCan pay premiums at any time in almost any amount
Group life insurance Term insuranceOften provided by employerNo physical required
Endowment life insurance Insurance that provides coverage from beginning of contract to maturity and guarantees payment of specified sum to the insured
Credit life insurance Insurance that pays off debts like car loans if you dieExpensive
Nonforfeiture Keep accrued benefits if you drop policy
Incontestability clause Clause saying that after policy has been in force for a while (2yrs), company can’t dispute its validity
Suicide clause If holder commits suicide within first 2 years, family only gets refund of premium
Accidental death Involving this, family receives double indemnity (payout)
Accumulated premium loans Loan that uses accumulated cash value to pay premium if you don’t pay it during grace period
Accelerated benefits Living benefits, paid to those who are terminally ill before they die
Second-to-die option Option that involves survivorship, insures 2 lives
Limited installment payment Paid in equal installments for a specific number of years after your death
Life income option Option involving payments to the beneficiary for life
Annuity The opposite of life insurance: It pays while you live, whereas life insurance pays when you die. This provides you with a regular income during your retirement years.

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