Objective 08.02 Interpret the nature, theory, and different types of insurance

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Objective 08.02Interpret the nature, theory, and
different types of insurance

• LIFE INSURANCE

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Life Insurance

• Provides income to dependents or other named
  beneficiaries in the event of the insured
  persons death.
• Face value- the amount of protection stated in
  the policy
• Example Marla buys a 100,000 face value life
  insurance policy. Marla dies. Marla s
  beneficiaries will get 100,000 in proceeds.

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Beneficiaries

• The policyholder names a beneficiary
• Can be an individual or business
• Beneficiary receives proceeds from a life
  insurance claim.
• Proceeds is the money paid to a survivor by a
  life insurance policy.
• Contingent beneficiaries named in the policy are
  second in line if the
• beneficiary is deceased.

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Life Insurance Advantages

• Face amount is paid as proceeds to beneficiary
• Proceeds are NOT taxable by income, estate or
  inheritance tax laws.
• Proceeds are paid direct to beneficiaries.
• Proceeds avoid probate.

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Term Life Insurance

• Term life is temporary insurance.
• Only pays if insured dies during policy period
• Purchased for a specific term (one year or
  multiple years)
• Usually renewable for another term
• Least expensive premium for most coverage
• Pure insurance, no savings add up

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Whole Life Insurance

• Permanent insurance for lifetime of insured.
• Premium is more.
• Excess premium creates savings called cash value.
• Cash value can be
• Withdrawn by policyholder as loan
• Used to buy more paid up insurance
• Used to pay current premium

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Other Types of Life InsuranceSupplemental
Information

• Limited pay life - stop paying after a specified
  of years without lapse
• Universal life - blend of term and whole
• Endowment - lump sum paid in advance
• Variable life - cash value builds in investment
  chosen by policyholder
• Accidental death dismemberment - for deaths due
  to accident or loss of limb

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Cost Factors for Life Insurance

• Type of insurance
• Age of insured
• Health of insured
• Gender (sex) of insured
• Face amount Dollar amount of coverage provided
  by the life policy
• Company