Transcript Slide 1

Personal Finance:
Another Perspective
Insurance 2:
Life Insurance
Tyler J Vongsawad, CLU, ChFC, CFP®
02/10/2011
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Objectives
A. Understand Benefits of Life Insurance
B. Understand 5 Key Questions about Life
Insurance
C. Understand different types of Term
Insurance
D. Understand different types of Permanent
Insurance
E. Understand which type of insurance is best
for you and the steps to buying Life
Insurance
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A. Understand Benefits of
Life Insurance
What are some benefits of Life Insurance?
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A. Understand Benefits of
Life Insurance
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•
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•
•
Death Benefit
Secure Insurability
Cash Value
Tax-deferred Growth
Estate Planning
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B. Understand 5 Key Questions about Life
Insurance
1.
2.
3.
4.
5.
Why Have Life Insurance?
How Does Life Insurance work?
Who Needs Life Insurance?
How Much Life Insurance is Needed?
Which Type of Life Insurance is Suitable?
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1. Why Have Life Insurance
Life Insurance and Your Investment Plan
Total Dollars in (000s)
$2,000
$1,500
$1,000
$500
$0
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
Age
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Investments
Term
Permanent
Total Protection
B. Understand 5 Key Questions about Life
Insurance
1.
2.
3.
4.
5.
Why Have Life Insurance?
How Does Life Insurance work?
Who Needs Life Insurance?
How Much Life Insurance is Needed?
Which Type of Life Insurance is Suitable?
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4. How Much Life Insurance is Needed?
From the old LDS Handbook for Families it states:
• Insure the family’s breadwinner first, then others, if
desired, as income permits. At a minimum, get
enough life insurance to pay for such things as a
funeral, taxes, mortgage on the home, car
payments, and other debts. The next priority should
be to get enough insurance that, supplemented by
any government retirement benefits the surviving
spouse may be entitled to, there will be sufficient to
provide for the family and to make provisions for
the children’s education and missions. “Handbook for
Families: Preparing for Emergencies,” Ensign, Dec. 1990, 59.
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Customized Needs Approach
• Immediate Expenses
•
•
•
•
Mortgage
Debt
Funeral Costs
Other Final Expenses
• Future Expenses
• Education
• Missions
• Weddings
• Ongoing Expenses
• How much is needed to be comfortable and for how
long?
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B. Understand 5 Key Questions about Life
Insurance
1.
2.
3.
4.
5.
Why Have Life Insurance?
How Does Life Insurance work?
Who Needs Life Insurance?
How Much Life Insurance is Needed?
Which Type of Life Insurance is Suitable?
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5. Which Type of Life Insurance is
Suitable?
Permanent
Own
Term
Lease
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5. Which Type of Life Insurance is
Suitable?
Own
Lease
Permanent
More Expensive per
Month
Equity
More Control
Payments Will Stop
Tax Benefits
Temporary
Less Expensive per
Month
No Equity
Less Control
Payment Will Continue
No Tax Benefits
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5. Which Type of Life Insurance is
Suitable?
• Which Type is Better?
• It Depends on Goals and Situations
• Goal – Financial Security is the goal, not just
having Life Insurance
• Goal – Death benefit 1st, other benefits 2nd
• Situation – Duration
• Situation – Ability to pay premiums
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Types of Life Insurance Products (continued)
• The differences in life insurance products relate to:
• Mortality Risk (for insurer): The risk that the insured
dies during the contract period.
• Investment Risk: The risk of who takes responsibility
for the outcome of the investments
• Policy Cost: What are the costs of the policy
compared to other policies
• Investment Choice:
The types of investment
vehicles the non-mortality portion of the premiums
are invested in, i.e., bonds, stock, etc.
• Policy Flexibility: The ability to change the types of
investments, monthly premium amounts, or the face
value amount during the life of the contract.
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C. Understand the Different Types of
Term Insurance
+ Premium
Payments
Your Term Life
Insurance Policy
- Mortality
Costs
- (Low)
Expense
Costs
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C. Understand the Different Types of
Term Insurance
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Term Insurance Comparisons
$1,000,000 Male Age 25
1400
1200
Annual Premium
1000
800
600
400
200
0
25
26
27
28
29
30
31
32
33
34 35
Age
36
37
38
39
40
41
42
43
44
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Term Insurance Comparisons
$1,000,000 Male Age 25
9000
8000
7000
Annual Premium
6000
5000
Term 80 Premier
4000
Level 20 Premier
3000
2000
1000
0
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Age
18
Term Insurance Comparisons
$1,000,000 Male Age 25
9000
8000
7000
Annual Premium
6000
5000
Term 80 Premier
4000
Level 20 Premier
Level 20 Standard Plus
3000
2000
1000
0
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Age
19
Term Insurance Comparisons
$1,000,000 Male Age 25
14000
12000
Annual Premium
10000
8000
Term 80 Premier
Level 20 Premier
6000
Level 20 Standard Plus
Level 20 Class 4
4000
2000
0
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Age
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C. Understand the Different Types of
Term Insurance
Level
Annually Renewable
+/- Fixed Cost
+/- Increasing Cost (starts
smaller finishes larger)
+ Potential Long-term
Savings
+ Potential Short Term
Savings
- Coverage May End
Sooner than Needed + Coverage May Continue
Without Evidence of
Insurability
Can it be Converted to Permanent?
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D. Understand the Different Types of
Permanent Insurance
+ Premium
Payments
+ Investment
Income
+ Dividends
(if participating)
Policy Cash Value
Your Permanent
Insurance Policy
- Mortality
Costs
A major benefit is to be
able to borrow against
your cash value portion
of your policy tax-free
- (high)
Expense
Costs
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D. Understand the Different Types of
Permanent Insurance
Whole
Universal
Variable
Equity Indexed
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E. Understand which type of insurance is best
and the steps to buying Life Insurance
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E. Understand which type of insurance is best
and the steps to buying Life Insurance
• Things to watch out for
• “Why do I need to know this, isn’t it the life
insurance agents job to know this stuff?”
• “I’ll have life insurance coverage through work”
• “I can get $500,000 of life insurance for
$13.56/month. Why would I pay more?”
• “Why do I have to get a medical to open an
investment account?”
• “Only buy permanent insurance, if you don’t you’ll
be throwing away your money!”
• “Only buy term and invest the difference, if you
don’t you’ll get ripped off!”
• “I’ll self insure when I’m 48, so I won’t need more
than a 20 year policy”
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E. Understand which type of insurance is best
and the steps to buying Life Insurance
• Steps to Buying
• Know what you want to achieve and maintain
financial security and find a life insurance policy
that fits it
• Understand the financial institution – Fortune does
a survey every year on “America’s Most Admired”
companies in each industry – Insurance: Life and
Health
• Understand the companies Financial strength
ratings
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E. Understand which type of insurance is best
for you and the steps to buying Life Insurance
• Ratings Companies:
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A.M. Best
http://www.ambest.com/
Fitch Ratings 800-893-4824
Moody’s
212-553-0377
Standard & Poor’s
212-438-2400
Weiss Research
800-289-9222
• Aggregate Consumer Complaint Reports
• National Association of Insurance
Commissioners - Consumer Information Source
http://www.naic.org/cis/index.do
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E. Understand which type of insurance is best
for you and the steps to buying Life Insurance
• Steps to Buying
• Know what you want to achieve and maintain
financial security and find a life insurance policy
that fits it
• Understand the financial institution – Fortune does
a survey every year on “America’s Most Admired”
companies in each industry – Insurance: Life and
Health
• Understand the companies Financial strength
ratings
• Find a licensed professional you are comfortable
with
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E. Understand which type of insurance is best
for you and the steps to buying Life Insurance
• First Presidency Message – March 2008
• “Consideration should also be given to investing
wisely with responsible and established financial
institutions. We are also concerned that there are
those who use relationships of trust to promote
risky or even fraudulent investment and business
schemes. While all investments carry an element of
risk, that risk can be managed by following sound
and proven financial principles: first, avoid
unnecessary debt, especially consumer debt;
second, before investing, seek advice from a
qualified and licensed financial advisor; and third,
be wise.”
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E. Understand which type of insurance is best
for you and the steps to buying Life Insurance
• Steps to Buying
• Know what you want to achieve for financial
security and find a life insurance policy that fits
• Understand financial institutions – Fortune does a
survey every year on “America’s Most Admired”
companies in each industry – Life and Health
• Understand the companies Financial strength
ratings
• Find a licensed professional you are comfortable
with
• Compare policies – Not just on price but on
benefits
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E. Understand which type of insurance is best
for you and the steps to buying Life Insurance
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Questions?
Tyler Vongsawad, CLU, ChFC, CFP®
[email protected]
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