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This week's topic is on Life Insurance. Although it
may not be the most exciting topic, it is a necessity
for many people.

Teaching your students the basics about insurance
will help them build a better financial future for
themselves.

Thank you for being a subscriber to our newsletter.

Timothy Liptrap,
Vice President, Education and Development

Life insurance is a contract between you and an insurance
company, to provide your family with money in the case of
your death.

The insurance money, which is tax-free, can be used to pay
down debt, such as credit cards, car loans or mortgages.
Many people buy insurance to maintain their family's standard
of living, pay for a funeral or to cover anticipated expenses,
such as college tuition.

There are three different types of licensed brokers who sell
life insurance, regular, discounted and deep-discounted
insurance brokers. You can find brokers in the yellow pages,
online or by asking friends or family members for referrals

Brokers are paid on commission. It is important to find a broker
that you trust and believe is working in your best interest.

There are two general types of life insurance products
available, Term and Permanent.

Term Life Insurance is an insurance policy sold with a
set amount of years (i.e. 10, 20, 25, 30 years). Many people
purchase this type of insurance to cover expenses that will
disappear with time. Those expenses may include a home
mortgage, car loans, credit card debt, etc.

Term Life Insurance will remain in affect for the contracted
amount of years, as long as the premiums are paid. It is
important to understand that your premiums will never change,
regardless of your medical condition.

The advantage to Term Life Insurance is that:

• The premiums are lower than the permanent life 
  insurance products, thus allowing for the policy 
  holder to purchase a higher level of coverage, 
  earlier in life, when expenses may be higher
  and when their children are young.
  
• It allows people to purchase a life insurance 
  policy without having to purchase a retirement
  plan.

A disadvantage to purchasing a term life insurance policy is
 that at the end of the term, it may be too expensive to
re-purchase due to your age, health or both.

Inflation

When purchasing a Term life policy, it is important to keep
in mind that the value of money today (i.e. $250,000) will 
have more buying power than it will have in 20 or 30 years. 
To compensate for inflation, you might consider adding 
another $100,000 or $200,000 to the initial death benefit 
when buying your policy.

Individuals who are interested in having an insurance
policy that does not have term limit or that has a retirement plan,
may be interested in a Permanent Life Insurance policy.

Permanent Life Insurance unlike Term Insurance, will not expire
in a set amount of years. These contracts are in force as long
as you are alive and have made or making the payments.

The most common names for Permanent Life Insurance policies
include whole, ordinary, universal, adjustable and variable life.

The benefits to permanent life insurance policy are:

• They provide a guaranteed protection for life, as 
  long as the payments are made.

• Policies may accumulate a "Cash Value" that may
  be used to borrow against for down payments on 
  houses, education or hardships. Instead of claiming
  your death benefit, you could choose to use the cash
  value to pay yourself a monthly check as an "annuity 
  payment", during your retirement years. This would 
  provide you a source income for your retirement years.
  

• A "rider" can be added to the contract to allow a 
  policyholder to make changes to the death benefit, 
  without taking a medical exam.

Note: Cash value, unlike a death benefit is not guaranteed.

The cash value will grow or decline depending upon which
investment vehicle (stocks, bonds, mutual funds, CDs) was
chosen to invest the money into. Since the investment markets
can fluctuate, the amount of the "annuities" are not guaranteed.

Many people often ask, how much insurance coverage should
I have?

According to the American Council of Life Insurance, the rule
of thumb when purchasing life insurance is that you purchase
enough to cover 5 - 7 times your annual gross income.

If you are earning $50,000 a year, you should consider a
policy starting at $250,000 (5 x $50,000).

Note: Before purchasing term insurance, be sure to account for
any potential changes in your expenses (i.e. having children) or
increases in your standard of living over the next 5 - 10 years.

According the quote from the calculators at SLBI (www.sbli.com),
a 30-year term life insurance policy annual premium for a
non-smoking male is as follows:

Life insurance rates or premiums are determined on many
factors including age, weight, overall health, blood pressure,
occupation, hobbies, smoking , if you wear seatbelts and
marital status. If you are healthy, young and participate in
less dangerous activities (not parachuting), your costs for
life insurance will be lower compared to an older person
who has a past medical history.

You may have heard the term "Planned Giving". Many
non-profit agencies and charities will ask you to list
them as a beneficiary on your life insurance policy.

Planned giving allow the donor the ability to give a
larger cash gift, without depleting their savings. This
will also eliminate any ambiguity of one's wishes upon
dying.

We recommend that when you are teaching insurance as
a topic, that you conduct a class discussion.

Points to focus on include:

• Why people have life insurance
• The difference between term life and permanent insurance
• Calculating how much insurance is needed
• How to shop for the best insurance rates
• Factors that can effect insurance premiums and why:
  Age, gender, weight, blood pressure, occupation, smoking, marital status

Answer Key

1 G, 2 I, 3 F, 4 B, 5 C, 6 H, 7 E, 8 A, 9 D

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