Chapter 13. Life Insurance Introduction. ............................................................................................................................ 13–1 Building a Personal Insurance Program.................................................................................... 13–2 Why Life Insurance?................................................................................................................. 13–3 Types of Life Insurance............................................................................................................ 13–4 Term Life Insurance................................................................................................................. 13–5 Whole Life Insurance................................................................................................................ 13–6 Universal Life Insurance........................................................................................................... 13–7 Other Types of Life Insurance. ................................................................................................. 13–8 Contract Provisions.................................................................................................................. 13–9 How Much Life Insurance?..................................................................................................... 13–10 Risk Classification . ................................................................................................................ 13–11 Selecting a Life Insurance Company....................................................................................... 13–12 The Language of Life Insurance. ............................................................................................ 13–13 Insurance Worksheet. ............................................................................................................ 13–14
13–1. INTRODUCTION. This chapter provides an overview of life insurance. We will begin with a few comments on building a personal insurance program — a kind of philosophical overview. Then we will examine the purpose, cost, and types of insurance that are generally available. Next we will look at various contract provisions associated with life insurance policies including settlement options, policy loans, and participation features. After examining the question of how much life insurance is needed, we will wrap up our review with a brief glossary that defines the major terms used in the life insurance industry. 13–2. BUILDING A PERSONAL INSURANCE PROGRAM. The fundamental purpose of insurance is protection. The insurance product that may best satisfy that need when you are starting out in life is term insurance. Why? Because
when you are young, the premium dollars spent on term insurance will provide the most protection for the least cost. However, as you get older, the cost of term insurance can rise dramatically. Also, lower cost term coverage is usually unattainable during the later stages of life as health problems begin to occur. Consequently, most insurance advisors recommend clients move toward a combination of term and permanent insurance — whole life or universal life — at a point in their lives when they can afford the higher premiums associated with permanent insurance products. By purchasing permanent insurance, you are able to lock in a specific payment for the remainder of your life and guard against being uninsurable at some subsequent point. 13–3. WHY LIFE INSURANCE? The answer lies in one word — risk. The purpose of life insurance, as with all forms of
CHAPTER 13: LIFE INSURANCE
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