Ch 12 Life Insurance
Wednesday, April 22, 2026 3:18 PM
Life Insurance: An intro
- Before the pandemic life insurance was seen as a purchase as need financial tool but as we know
these things post COVID-19 have changed
What is Life Insurance?
- 3 simple steps to understand
1. A risk-sharing group (Insuracne) by purchasing a contract (policy)
2. Under this policy the insurer promises a sum of money in the event of the policy holders
death
i. The money is paid to the policy holder (the insured) on the future/maturity date to the
person named in the policy
3. The Insuracne company make this promise on the premium in return to the premium (sum of
money) occasionally
The Purpose of Life Insurance
- Policies are usually used for the following
○ To pay off the home mortgage and/or other debts
○ Provide a lump sum payment to children at a certain age
○ Can provide an education or income to children
○ Used to cover medical/funeral costs
○ Are applied to charitable donations upon death
○ To provide a retirement income
○ To Accumulate savings
○ Establish an income for survivors/family left behind
○ For estate planning & death tax payments
- This can & will change as life expectancy continues to grow
Determining your Life Insurance Needs
- Evaluating your needs for life insurance
○ If your death should cause any financial strain on family consider purchasing a policy
§ This is recommended more to those who have a spouse & children compared to those
who are single & live alone
Determining your Life Insurance Objectives
- Before deciding what type of policy you want/need ask yourself the following questions:
○ How much money do you want to leave your dependents?
○ Will you require more/less Insuracne to meet their needs?
○ When would you like to retire?
○ How much money do you believe you need to make for you & your spouse to retire?
○ Can you afford your insurance?
○ Are your family living expenses expected to increase or decrease?
Estimating your life Insuracne requirements
- The Multiple Income Method
○ Having more than one source of income
§ I.E. your job + a side hustle/business etc
- The “Easy” Method
○ The ability to multiply your income by 7 & 0.70
§ Income (7yrs) = 7 $$(0.70) = the estimate of your life insurance needs
- The “DINK” Method
○ DINK - Dual Income No Kids
§ You have simple insurance needs, ensure you/your spouse will not be left w/ burdening
debts in the event of your death
- Non-Working Spouse Method
○ Income (7yrs)($10,000)= amount you will need to care for your child until the age of 18
- Family Needs Method
○ Using the non working method + life insurance
○ However be aware of inflation & how the economy has changed as this may cause certain
needs to increase in price - reach out to a financial advisor for more clarification
Online Calculators & Apps
- These online tools assist w/ calculating estimates of insurance needs
○ Bank Rate
○ Calc XML - What can i afford?
○ Nerd Wallet - 4 diff types of Life Insurances
- Apps recommend by the book
○ Apple - Fabric App
○ Android link - Fabric App
○ Lemonade Insurance - Lemonade - Apple
○ Lemonade Insurance - Lemonade - android
Types of Insurance Companies & Policies
- Types of Life Companies
○ Non Participating Policy
§ Life insurances that don’t provide policy dividends
○ Participating Policy
§ A policy that provides dividends; aka Par Policy
§ Tend to have a higher premium compared to non participating policies that is refunded
to the policyholder
□ This is known as a policy dividend
- Types of Life Insurance Policies
○ Term Life Insurance
§ Protected insurance for a set period of time or until the age of 95
§ This is a basic plan, the premiums are usually less expensive for people in their 20’s &
30’s
○ Renewability Option
§ When your insurance term end & the option to renew is given
○ Multiyear Level Term (aka straight term)
§ When you pay the same premium price for the life of the policy
§ This can also be referred to as term to 65
□ Term to 65 Insurance - Coverage expires at age 65 or when a death benefit has been
paid
○ Conversion Options
§ When your Insurance lets you exchange it for a whole life policy w/o medical
examination of a higher premium
○ Decreasing Term Insurance
§ This premium remains constant & the amount that is paid to insurance will decrease over
the course several years
□ This can be est used on a home w/ 30 yr mortgage loan
○ Return of Premium (ROP)
§ A policy that gives you a full refund if you outlive your 10, 15 and/or 30 yr policy
§ They are 30-50% more expensive than traditional term life policies
○ Re Entry Term Insurance
§ In exchange for good health, your policy will renew at a lower rate compared to those
who are always ill or injured
- Whole Life Insurance
§ Whole Life Policy
□ A plan where the policy holder pays a specified premium every year for as long as
they live
§ Cash Value
□ The amount received after giving up a life Insurance policy
□ These policies are for people who need to save money long term
- Limited Payment Policy
○ Premium payments are specified in an agreement between 20-30yrs or when the policy
holder turns 60 unless an untimely death occurs sooner
○ Your policy is then “paid up” and you can be insured for the rest of your life
- Modified Life Insurance Policy
○ Are typically lower for the first 5-10yrs & increase over the course of the insurers life span
- Variable Insurance Policy
○ Fluctuate according to earnings from either a stock, money market and/or a bond fund
- Adjustable Life Insurance Policy (aka flexible premium)
○ You can change your policy to your needs
- Universal Life
○ First seen in 1979, has a minimum payment, can be changed more easily than a traditional
policy
○ Key Factors are:
1. The charges element
2. Charges for company expenses (commissions, fees etc)
3. The return rate/cash value on investment on the policy
Other Types of Life Insurance Policies
- Group Life Insurance
○ Covers groups of people under one policy w/o requiring a medical examination
§ These are usually split between employee & employer so that costs for Insuracne can
stay at $1,000 for every employee despite age
- Endowment Life Insurance
○ Provides coverage in a set amount of time & doesn’t exceed the time limit
§ Usually lasts 10-20 yrs, have been recently used to save for college student beneficiaries
- Credit Life Insurance
○ Used to repay personal debts should the borrower die before paying it off
§ They are used for car loans & mortgages - this is not recommended instead use a term
insurance
- Industrial Life
○ AKA home services or debt insurance that is collected weekly, bi monthly and/or monthly
Important Provisions in a Life Insurance Contract
- Payments to Life Insurance Policies
○ Policy Reinstatement
§ Can be reinstated if they haven’t been cashed out, you must prequalify to be assured you
are not a risk & pay overdue premiums w/ interest within 1-2yrs
○ The Grace Period
§ The insurance company will pay a certain amount under agreed specific circumstances, it
allows for 20-31 days w/o penalty allowing you to repay them
○ Automatic Repayment Loan
§ You don’t pay the premium in the grace period, the insurance company pay it out in cash
value if you have sufficient value in your policy
○ Guaranteed Insurability Option
§ Allows you to buy specified additional amounts of insurance in intervals, should your
health drop you will still be covered & increase coverage along w/ income
- Clauses In Life Insurance Policies
○ Nonforfeiture
§ Allows the insured not to forfeit all accrued benefits
○ Incontestability
§ The insurer can’t dispute the validity of a policy after a specified period
○ Suicide
§ If the insurer dies by suicide during the first two years the policy will be enforced, the
death benefit will be the amount of the paid premium
- Payments from Life Insurance
○ Naming you beneficiary
§ A person who is designated to receive something from the insured, like a set amount of
money
○ Misstatement of Age Provision
§ If a company learns your age was incorrectly stated, they will pay for the benefits of your
premiums in the event of the error
○ Policy Loan Provision
§ You can borrow money from your policy (cash value)
§ Only after the policy has been active for a while
§ If you don’t pay it back the death benefit decreases (plus interest)
- Joint Life Options
○ Covers 2 people (usually spouses)
§ Usually first-to-die
□ pays when first person die to help support the other person
§ Second-to-die (survivorship)
□ pays after BOTH die & usually for estate taxes *******Start writing here********
§ Riders (add-ons to policy)
□ Rider is an extra feature added to policy
○ Can add benefits or change coverage
§ Waiver of Premium for disability
□ if you become disabled → you don’t pay premiums
□ insurance company pays instead
□ has age limit (usually before 60)
□ nice to have but costs extra
§ Accidental Death Benefit (AKA double indemnity)
• pays 2x if death is from an accident
• must happen within certain time (ex: 90 days)
• age limits (around 60–65)
• expensive + low chance of actually using it
- Cost-of-Living Protection
○ Adjusts policy for inflation
○ Keeps value from dropping over time
§ Inflation
• Money loses value over time
• Fixed life insurance payout = worth less in the future
- Accelerated Living Benefits
○ Terminally ill recipients can get part of payout early usually 25–95% but it reduces what
beneficiaries get later
Buying Life Insurance
- Things to think about:
○ Income now & future income
○ Savings
○ Other coverage (job, social security, etc.)
○ Company strength
- Where to Buy
○ insurance companies, banks/financial institutions, jobs, unions, organizations
○ Be sure to choose:
§ A strong company w/ a good reputation & qualified agents
- Insurance Companies
○ stronger company = more reliable
○ can affect cost of premiums
○ ask friends/family/colleagues & check ratings
- Trends
○ Be aware that premiums have gone down over time
§ BUT companies are more strict now:
• They look at overall health, family history & driving record
Life Insurance Notes
- Policy Loan Provision
○ You can borrow money from your policy (cash value)
○ Only after policy has been active for a while
○ If you don’t pay it back your death benefit goes down (plus interest)
- Joint Life Options
○ covers 2 people (usually spouses)
○ first-to-die
§ pays when first person dies
§ helps support the other person
- second-to-die (survivorship)
○ pays after BOTH die
○ usually for estate taxes
- Riders (add-ons to policy)
○ rider are extra features that can be added to a policy
○ This can be added benefits or changing coverage
- Waiver of Premium (disability)
○ if you become disabled you then don’t pay premiums, the insurance company pays instead
○ has age limit (usually before 60)
- Accidental Death Benefit (double indemnity)
○ Pays double the amount if death is from an accident & must happen within certain time (i.e.
90 days)
○ Has age limits (around 60–65)
○ It is both expensive & has a low chance of actually using it
- Cost-of-Living Protection
○ Can be an adjusted policy for inflation
○ Keeps value from dropping over time
- Inflation
○ Money loses value over time
○ Fixed life insurance payout = worth less in the future
- Accelerated Benefits (living benefits)
○ If the recipient is terminally ill you can get part of payout early usually 25%–95%
○ BUT this can reduces what beneficiaries get later
Buying Life Insurance - things to think about:
- income now + future income
○ savings
○ other coverage (job, social security, etc.)
○ company strength
- Where to Buy
○ insurance companies
○ banks/financial institutions
○ jobs, unions, organizations
○ choose:
§ strong company, good reputation & qualified agents
- Insurance Companies
○ stronger company are usually more reliable
○ can affect cost of premiums
○ ask people & check ratings
- Trends
○ premiums have gone down over time
○ BUT companies are more strict now:
§ health
§ family history
§ driving record
- Comparing Policy Costs
○ Be aware of underwriting
§ Determines your premium based on age, gender, health, job & hobbies
○ Interest adjusted Index
§ A way to evaluate the cost of insurance
- Obtaining a Policy
1. You have to state your name, age, gender, medical history & the type of policy you want to
the insurance company of your choice
2. The insurance company will then decide on your eligibility based on he info you have given
Examining A Policy
- Before the purchase
○ Be sure to read everything, ask your agent for clarification
- After the purchase
○ You have 10 days to change your mind about the policy
§ You can mail/email it back
§ be sure to have a date record of the return date & who sold it to you
§ The company has 30 days to return your premium, if it takes longer they legally owe you
10% in a penalty fee
Life Insurance Policy
- Death(survivor) Benefits
○ Two main objectives
1. To cover immediate expenses resulting in a death
2. To protect dependents from loss of income
- Lump Sum Payment
○ When the Insuracne pays the amount of the policy in one installment
- Proceeds left w/ a company
○ Set at a specified rate, the company acts as trustee to the beneficiary & pays the minimum
interest
- Limited Installment
○ Fixed period v Fixed amount
§ Fixed Period - When equal payments are made for a specified number of yrs after death
§ Fixed Amount - The same payment + interest is made until all the benefits have been
used
- Life Income Option
○ Annuity
§ A financial contract form the insurance stating a regular income begins at a set
date/time, is based on gender & age agreed upon before the passing of the insured to
their beneficiary
- Income from Life Insurance Policies
○ Variable Annuities
§ Have optional features/a guaranteed minimum or long term care Insuracne
- Switching Policies
○ Is it worth it?
§ A new policy as we grow will be more expensive
Wednesday, April 22, 2026 3:18 PM
Life Insurance: An intro
- Before the pandemic life insurance was seen as a purchase as need financial tool but as we know
these things post COVID-19 have changed
What is Life Insurance?
- 3 simple steps to understand
1. A risk-sharing group (Insuracne) by purchasing a contract (policy)
2. Under this policy the insurer promises a sum of money in the event of the policy holders
death
i. The money is paid to the policy holder (the insured) on the future/maturity date to the
person named in the policy
3. The Insuracne company make this promise on the premium in return to the premium (sum of
money) occasionally
The Purpose of Life Insurance
- Policies are usually used for the following
○ To pay off the home mortgage and/or other debts
○ Provide a lump sum payment to children at a certain age
○ Can provide an education or income to children
○ Used to cover medical/funeral costs
○ Are applied to charitable donations upon death
○ To provide a retirement income
○ To Accumulate savings
○ Establish an income for survivors/family left behind
○ For estate planning & death tax payments
- This can & will change as life expectancy continues to grow
Determining your Life Insurance Needs
- Evaluating your needs for life insurance
○ If your death should cause any financial strain on family consider purchasing a policy
§ This is recommended more to those who have a spouse & children compared to those
who are single & live alone
Determining your Life Insurance Objectives
- Before deciding what type of policy you want/need ask yourself the following questions:
○ How much money do you want to leave your dependents?
○ Will you require more/less Insuracne to meet their needs?
○ When would you like to retire?
○ How much money do you believe you need to make for you & your spouse to retire?
○ Can you afford your insurance?
○ Are your family living expenses expected to increase or decrease?
Estimating your life Insuracne requirements
- The Multiple Income Method
○ Having more than one source of income
§ I.E. your job + a side hustle/business etc
- The “Easy” Method
○ The ability to multiply your income by 7 & 0.70
§ Income (7yrs) = 7 $$(0.70) = the estimate of your life insurance needs
- The “DINK” Method
○ DINK - Dual Income No Kids
§ You have simple insurance needs, ensure you/your spouse will not be left w/ burdening
debts in the event of your death
- Non-Working Spouse Method
○ Income (7yrs)($10,000)= amount you will need to care for your child until the age of 18
- Family Needs Method
○ Using the non working method + life insurance
○ However be aware of inflation & how the economy has changed as this may cause certain
needs to increase in price - reach out to a financial advisor for more clarification
Online Calculators & Apps
- These online tools assist w/ calculating estimates of insurance needs
○ Bank Rate
○ Calc XML - What can i afford?
○ Nerd Wallet - 4 diff types of Life Insurances
- Apps recommend by the book
○ Apple - Fabric App
○ Android link - Fabric App
○ Lemonade Insurance - Lemonade - Apple
○ Lemonade Insurance - Lemonade - android
Types of Insurance Companies & Policies
- Types of Life Companies
○ Non Participating Policy
§ Life insurances that don’t provide policy dividends
○ Participating Policy
§ A policy that provides dividends; aka Par Policy
§ Tend to have a higher premium compared to non participating policies that is refunded
to the policyholder
□ This is known as a policy dividend
- Types of Life Insurance Policies
○ Term Life Insurance
§ Protected insurance for a set period of time or until the age of 95
§ This is a basic plan, the premiums are usually less expensive for people in their 20’s &
30’s
○ Renewability Option
§ When your insurance term end & the option to renew is given
○ Multiyear Level Term (aka straight term)
§ When you pay the same premium price for the life of the policy
§ This can also be referred to as term to 65
□ Term to 65 Insurance - Coverage expires at age 65 or when a death benefit has been
paid
○ Conversion Options
§ When your Insurance lets you exchange it for a whole life policy w/o medical
examination of a higher premium
○ Decreasing Term Insurance
§ This premium remains constant & the amount that is paid to insurance will decrease over
the course several years
□ This can be est used on a home w/ 30 yr mortgage loan
○ Return of Premium (ROP)
§ A policy that gives you a full refund if you outlive your 10, 15 and/or 30 yr policy
§ They are 30-50% more expensive than traditional term life policies
○ Re Entry Term Insurance
§ In exchange for good health, your policy will renew at a lower rate compared to those
who are always ill or injured
- Whole Life Insurance
§ Whole Life Policy
□ A plan where the policy holder pays a specified premium every year for as long as
they live
§ Cash Value
□ The amount received after giving up a life Insurance policy
□ These policies are for people who need to save money long term
- Limited Payment Policy
○ Premium payments are specified in an agreement between 20-30yrs or when the policy
holder turns 60 unless an untimely death occurs sooner
○ Your policy is then “paid up” and you can be insured for the rest of your life
- Modified Life Insurance Policy
○ Are typically lower for the first 5-10yrs & increase over the course of the insurers life span
- Variable Insurance Policy
○ Fluctuate according to earnings from either a stock, money market and/or a bond fund
- Adjustable Life Insurance Policy (aka flexible premium)
○ You can change your policy to your needs
- Universal Life
○ First seen in 1979, has a minimum payment, can be changed more easily than a traditional
policy
○ Key Factors are:
1. The charges element
2. Charges for company expenses (commissions, fees etc)
3. The return rate/cash value on investment on the policy
Other Types of Life Insurance Policies
- Group Life Insurance
○ Covers groups of people under one policy w/o requiring a medical examination
§ These are usually split between employee & employer so that costs for Insuracne can
stay at $1,000 for every employee despite age
- Endowment Life Insurance
○ Provides coverage in a set amount of time & doesn’t exceed the time limit
§ Usually lasts 10-20 yrs, have been recently used to save for college student beneficiaries
- Credit Life Insurance
○ Used to repay personal debts should the borrower die before paying it off
§ They are used for car loans & mortgages - this is not recommended instead use a term
insurance
- Industrial Life
○ AKA home services or debt insurance that is collected weekly, bi monthly and/or monthly
Important Provisions in a Life Insurance Contract
- Payments to Life Insurance Policies
○ Policy Reinstatement
§ Can be reinstated if they haven’t been cashed out, you must prequalify to be assured you
are not a risk & pay overdue premiums w/ interest within 1-2yrs
○ The Grace Period
§ The insurance company will pay a certain amount under agreed specific circumstances, it
allows for 20-31 days w/o penalty allowing you to repay them
○ Automatic Repayment Loan
§ You don’t pay the premium in the grace period, the insurance company pay it out in cash
value if you have sufficient value in your policy
○ Guaranteed Insurability Option
§ Allows you to buy specified additional amounts of insurance in intervals, should your
health drop you will still be covered & increase coverage along w/ income
- Clauses In Life Insurance Policies
○ Nonforfeiture
§ Allows the insured not to forfeit all accrued benefits
○ Incontestability
§ The insurer can’t dispute the validity of a policy after a specified period
○ Suicide
§ If the insurer dies by suicide during the first two years the policy will be enforced, the
death benefit will be the amount of the paid premium
- Payments from Life Insurance
○ Naming you beneficiary
§ A person who is designated to receive something from the insured, like a set amount of
money
○ Misstatement of Age Provision
§ If a company learns your age was incorrectly stated, they will pay for the benefits of your
premiums in the event of the error
○ Policy Loan Provision
§ You can borrow money from your policy (cash value)
§ Only after the policy has been active for a while
§ If you don’t pay it back the death benefit decreases (plus interest)
- Joint Life Options
○ Covers 2 people (usually spouses)
§ Usually first-to-die
□ pays when first person die to help support the other person
§ Second-to-die (survivorship)
□ pays after BOTH die & usually for estate taxes *******Start writing here********
§ Riders (add-ons to policy)
□ Rider is an extra feature added to policy
○ Can add benefits or change coverage
§ Waiver of Premium for disability
□ if you become disabled → you don’t pay premiums
□ insurance company pays instead
□ has age limit (usually before 60)
□ nice to have but costs extra
§ Accidental Death Benefit (AKA double indemnity)
• pays 2x if death is from an accident
• must happen within certain time (ex: 90 days)
• age limits (around 60–65)
• expensive + low chance of actually using it
- Cost-of-Living Protection
○ Adjusts policy for inflation
○ Keeps value from dropping over time
§ Inflation
• Money loses value over time
• Fixed life insurance payout = worth less in the future
- Accelerated Living Benefits
○ Terminally ill recipients can get part of payout early usually 25–95% but it reduces what
beneficiaries get later
Buying Life Insurance
- Things to think about:
○ Income now & future income
○ Savings
○ Other coverage (job, social security, etc.)
○ Company strength
- Where to Buy
○ insurance companies, banks/financial institutions, jobs, unions, organizations
○ Be sure to choose:
§ A strong company w/ a good reputation & qualified agents
- Insurance Companies
○ stronger company = more reliable
○ can affect cost of premiums
○ ask friends/family/colleagues & check ratings
- Trends
○ Be aware that premiums have gone down over time
§ BUT companies are more strict now:
• They look at overall health, family history & driving record
Life Insurance Notes
- Policy Loan Provision
○ You can borrow money from your policy (cash value)
○ Only after policy has been active for a while
○ If you don’t pay it back your death benefit goes down (plus interest)
- Joint Life Options
○ covers 2 people (usually spouses)
○ first-to-die
§ pays when first person dies
§ helps support the other person
- second-to-die (survivorship)
○ pays after BOTH die
○ usually for estate taxes
- Riders (add-ons to policy)
○ rider are extra features that can be added to a policy
○ This can be added benefits or changing coverage
- Waiver of Premium (disability)
○ if you become disabled you then don’t pay premiums, the insurance company pays instead
○ has age limit (usually before 60)
- Accidental Death Benefit (double indemnity)
○ Pays double the amount if death is from an accident & must happen within certain time (i.e.
90 days)
○ Has age limits (around 60–65)
○ It is both expensive & has a low chance of actually using it
- Cost-of-Living Protection
○ Can be an adjusted policy for inflation
○ Keeps value from dropping over time
- Inflation
○ Money loses value over time
○ Fixed life insurance payout = worth less in the future
- Accelerated Benefits (living benefits)
○ If the recipient is terminally ill you can get part of payout early usually 25%–95%
○ BUT this can reduces what beneficiaries get later
Buying Life Insurance - things to think about:
- income now + future income
○ savings
○ other coverage (job, social security, etc.)
○ company strength
- Where to Buy
○ insurance companies
○ banks/financial institutions
○ jobs, unions, organizations
○ choose:
§ strong company, good reputation & qualified agents
- Insurance Companies
○ stronger company are usually more reliable
○ can affect cost of premiums
○ ask people & check ratings
- Trends
○ premiums have gone down over time
○ BUT companies are more strict now:
§ health
§ family history
§ driving record
- Comparing Policy Costs
○ Be aware of underwriting
§ Determines your premium based on age, gender, health, job & hobbies
○ Interest adjusted Index
§ A way to evaluate the cost of insurance
- Obtaining a Policy
1. You have to state your name, age, gender, medical history & the type of policy you want to
the insurance company of your choice
2. The insurance company will then decide on your eligibility based on he info you have given
Examining A Policy
- Before the purchase
○ Be sure to read everything, ask your agent for clarification
- After the purchase
○ You have 10 days to change your mind about the policy
§ You can mail/email it back
§ be sure to have a date record of the return date & who sold it to you
§ The company has 30 days to return your premium, if it takes longer they legally owe you
10% in a penalty fee
Life Insurance Policy
- Death(survivor) Benefits
○ Two main objectives
1. To cover immediate expenses resulting in a death
2. To protect dependents from loss of income
- Lump Sum Payment
○ When the Insuracne pays the amount of the policy in one installment
- Proceeds left w/ a company
○ Set at a specified rate, the company acts as trustee to the beneficiary & pays the minimum
interest
- Limited Installment
○ Fixed period v Fixed amount
§ Fixed Period - When equal payments are made for a specified number of yrs after death
§ Fixed Amount - The same payment + interest is made until all the benefits have been
used
- Life Income Option
○ Annuity
§ A financial contract form the insurance stating a regular income begins at a set
date/time, is based on gender & age agreed upon before the passing of the insured to
their beneficiary
- Income from Life Insurance Policies
○ Variable Annuities
§ Have optional features/a guaranteed minimum or long term care Insuracne
- Switching Policies
○ Is it worth it?
§ A new policy as we grow will be more expensive
