Principal Financial Life Accidental Death

Document Sample
Principal Financial Life Accidental Death Powered By Docstoc
					Chapter 9

  Managing Life, Health, and
       Disability Risks


         Chapter 9: Managing Life, Health,
                and Disability Risks
2



               Identifying Risks Associated
               with Premature Death
                 Inadequate financial resources
                 Estate preservation




Chapter 9: Managing Life, Health,
       and Disability Risks                         2005 Kaplan Financial
3




               Inadequate Financial Resources
                 Income for the readjustment period
                 Financial support of dependents
                 Funds for specific goals




Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
4




               Estate Preservation
                 Medical expenses prior to death
                 Disposal and ceremonial expenses
                 Probate expenses




Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
5



               Measuring Needs Related to
               Premature Death
                 Human Life Value Approach
                 Financial Needs Approach
                 Capital Retention Approach




Chapter 9: Managing Life, Health,
       and Disability Risks                 2005 Kaplan Financial
6




               Human Life Value Approach
              1. Calculate the family’s share of
                 earnings (FSE).
              2. Determine Work Life Expectancy.
              3. Determine present value of
                 worker’s stream of expected
                 earnings.


Chapter 9: Managing Life, Health,
       and Disability Risks                  2005 Kaplan Financial
7




               Financial Needs Approach
                 Lump-sum (cash) needs
                      Final expenses and debts
                      Mortgage liquidation or payment fund
                      Education expenses
                      Emergency expenses
                 Income (cash flow) needs
                      Readjustment period
                      Dependency period
                      Spousal life income (pre- and postretirement)
Chapter 9: Managing Life, Health,
       and Disability Risks                                    2005 Kaplan Financial
8




               Capital Retention Approach
              1. Prepare a personal balance sheet.
              2. Calculate the capital available for
                 income.
              3. Determine the amount of additional
                 capital required.



Chapter 9: Managing Life, Health,
       and Disability Risks                   2005 Kaplan Financial
9



               Individual Life Insurance
               Policies
                 Term insurance
                 Whole life insurance
                 Universal life insurance




Chapter 9: Managing Life, Health,
       and Disability Risks                   2005 Kaplan Financial
10




               Term Insurance (1 of 3)
                 Affordable
                 Maximum Coverage/$ of premium
                 Fulfills temporary need
                 Ensures insurability
                 Cost Prohibitive at Older Ages
                 No Savings Feature

Chapter 9: Managing Life, Health,
       and Disability Risks                   2005 Kaplan Financial
11




               Term Insurance (2 of 3)
              Types
                 Annual Renewable Term (ART)
                 Level Premium
                 Term to age 65 or 70
                 Decreasing/Increasing
                 Reentry

Chapter 9: Managing Life, Health,
       and Disability Risks                  2005 Kaplan Financial
12




               Term Insurance (3 of 3)
              Riders
                 Waiver of Premium
                 Accidental Death Benefit
                 Accelerated Death Benefit
                 Return of Premium
                 Spouse Insurance
                 Child Insurance

Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
13




               Whole Life Insurance
                 Permanent protection
                 Cash value build-up
                 Level premium (in general)
                 Mortality charges
                 Administrative costs and insurer profit



Chapter 9: Managing Life, Health,
       and Disability Risks                       2005 Kaplan Financial
14




               Whole Life Insurance (cont.)
              Types
                 Ordinary Life/Continuous Premium
                 Limited-Pay Policy
                 Modified Life
                 Single Premium/MEC
                 Current Assumption (Interest-Sensitive)
                 Variable Life
                 Joint Life
Chapter 9: Managing Life, Health,
       and Disability Risks                          2005 Kaplan Financial
15




               Dividend Options
                 Cash
                 Paid-Up Additions
                 Accumulate at Interest
                 Reduce Premium
                 One-Year Term Insurance (5th Dividend
                  Option)


Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
16




               Nonforfeiture Options
                 Cash Surrender Value
                 Reduced Paid-Up Insurance
                 Extended Term Insurance




Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
17




               Whole Life Riders
                 Waiver of Premium
                 Accidental Death Benefit
                 Spouse and Children’s Riders
                 Term Insurance
                 Living Benefits
                 Option to Purchase Paid-Up Additions
                 Unemployment Rider
Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
18




               Universal Life Insurance
                 Premium Flexibility
                 Ability to Change Death Benefit Amount
                 Current Assumptions
                 Fewer Guarantees




Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
19



               Structure of a Universal Life
               Policy




Chapter 9: Managing Life, Health,
       and Disability Risks               2005 Kaplan Financial
20



               Universal Life Death Benefit
               Options
                 Option A (Option 1)
                      Level Death Benefit
                      Net Amount at Risk equals Death Benefit
                       less Cash Value
                 Option B (Option 2)
                      Increasing Death Benefit
                      Net Amount at Risk Remains Level
                       Throughout the Policy
Chapter 9: Managing Life, Health,
       and Disability Risks                            2005 Kaplan Financial
21




               Variable Universal Life
                 Combines investment direction of variable
                  life, and the premium death benefit and cash
                  value flexibility of universal life
                 Policyowner directs investment and bears
                  investment risk
                 Cash value maintained in one or more
                  separate accounts
                 Must be approved by SEC
                 Agents/brokers who sell VUL must have
                  license for insurance and securities
Chapter 9: Managing Life, Health,
       and Disability Risks                          2005 Kaplan Financial
22



               Modified Endowment Contracts
               (MECs)
                 “7-pay” Test
                 Material Change
                 LIFO Treatment
                 10% Penalty (< age 59½)




Chapter 9: Managing Life, Health,
       and Disability Risks                  2005 Kaplan Financial
23



               Universal Life Riders and
               Optional Benefits
                 Waiver of Premium
                 Accidental Death Benefit
                 Other Insured
                 Living Benefits




Chapter 9: Managing Life, Health,
       and Disability Risks                   2005 Kaplan Financial
24




               Group Life Insurance
                 Group term
                 Group whole life insurance
                 Group universal life




Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
25




               Policy Replacement
        Belth price of protection model:

        CPT = (P + CV0)(1 + i) – (CV1 + D)
                   (DB – CV1) (0.001)




Chapter 9: Managing Life, Health,
       and Disability Risks                 2005 Kaplan Financial
26




               Life Insurance Policy Provisions
                 Grace Period
                 Incontestability
                 Entire Contract Clause
                 Misstatement of Age or Gender
                 Assignment
                      Absolute
                      Collateral
                 Suicide
Chapter 9: Managing Life, Health,
       and Disability Risks                        2005 Kaplan Financial
27



              Life Insurance Policy Provisions
              (cont.)
                 Reinstatement
                 Policy Loans
                 Beneficiary Designations
                      Revocable and Irrevocable
                      Primary and Contingent
                      Survivorship Clause
                 War Exclusion
                 Simultaneous Death
Chapter 9: Managing Life, Health,
       and Disability Risks                         2005 Kaplan Financial
28



               Life Insurance Settlement
               Options
                 Interest Only
                 Fixed Amount
                 Fixed Period
                 Life Income
                 Life Income and Period Certain
                 Life Income with Refund
                 Joint and Survivor Income
Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
29




               Life Annuity Contracts
              What is an annuity?
              Types of annuities
                   Immediate/Deferred
                   Flexible/Single Premium
                   Fixed/Variable
              Timing of annuity payments
                   Straight Life
                   Life with Period Certain
                   Installment Refund
                   Joint & Survivor

Chapter 9: Managing Life, Health,
       and Disability Risks                     2005 Kaplan Financial
30




               Taxation of Life Insurance
        Dividends as return of principal
        Withdrawals
            LIFO – MEC/1st 15 years
            FIFO – After 15 years
        Death benefit excluded from beneficiary’s gross
         income
        Proceeds lose tax-free status if transfer is not a gift,
         transfer to insured, or transfer to insured’s business
        Premiums are not tax deductible except to employer
         for group life
Chapter 9: Managing Life, Health,
       and Disability Risks                          2005 Kaplan Financial
31



               Taxation of Viatical Agreements
               and Annuities
                 Viatical Agreements
                      Tax free to insured
                      Proceeds taxable to purchaser
                 Annuities
                      Inclusion/Exclusion ratio
                      100% taxable if exceed original life
                       expectancy

Chapter 9: Managing Life, Health,
       and Disability Risks                              2005 Kaplan Financial
32




               Individual Health Insurance
                 Purpose
                 Cost concerns
                 Eligibility
                 Medical expense insurance
                 Major medical insurance



Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
33




               Long-Term Care Insurance
                 Types of Care
                      Skilled Nursing Care
                      Custodial Care
                      Home Health Care
                      Assisted Living
                      Adult Day Care
                      Hospice Care

Chapter 9: Managing Life, Health,
       and Disability Risks                    2005 Kaplan Financial
34




                Long-Term Care Insurance (cont.)
                Eligibility
                     Chronically Ill
                           2 of 6 ADLs
                           Substantial Cognitive Impairment
                Tax deductible premiums and tax-free
                 benefits



Chapter 9: Managing Life, Health,
       and Disability Risks                                     2005 Kaplan Financial
35




               Disability Income Insurance

        Definition of disability      Characteristics
            Any occupation                Benefit period
            Own occupation                Elimination period
            Split definition              Partial disability
            Social Security               Waiver of premium
                                           Cost of living rider
                                           Future increase option
                                           Automatic increase rider


Chapter 9: Managing Life, Health,
       and Disability Risks                             2005 Kaplan Financial
36




               Disability Income Insurance (cont.)
                 Taxation of benefits
                      Tax free if insured pays premium
                      Taxable if employer pays premium
                 Integration with Social Security
                 Termination of beneifts
                 Residual benefits


Chapter 9: Managing Life, Health,
       and Disability Risks                           2005 Kaplan Financial
37




               Group Health Insurance
                 Eligibility
                 Characteristics




Chapter 9: Managing Life, Health,
       and Disability Risks              2005 Kaplan Financial
38




               Group Health Insurance (cont.)
                 Basic and major medical
                 Dental and vision
                 Disability income
                 Managed care
                 Coordination of benefits



Chapter 9: Managing Life, Health,
       and Disability Risks                   2005 Kaplan Financial
39




               Group Health Insurance (cont.)
                 Termination of benefits
                 COBRA
                 Coverage for elderly employees
                 Coverage for retirees
                 Taxation of group health benefits
                 HIPAA

Chapter 9: Managing Life, Health,
       and Disability Risks                      2005 Kaplan Financial

				
DOCUMENT INFO
Description: Principal Financial Life Accidental Death document sample