Financial Services Industry Training

Life Insurance Basics

Date July 2012

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Training from Saunders Learning Group

Saunders Learning Group
provides a variety of training
programs, workshops and
seminars targeted to the
financial services industry.
Programs are available in a wide
range of topics, and we are
specialists in developing custom
programs that are targeted to
your needs.
Contact the founder, Floyd
Saunders at
316-680-6482 or at
[email protected] for
more information.

Saunders Learning Group, LLC, Andover, KS

Topics

1.
2.
3.
4.
5.

Life Insurance Basics

Insurance Contract
Types of Life Insurance
Life Insurance Beneficiaries
Where to Buy Life Insurance

Saunders Learning Group, LLC, Andover, KS

Slide 3

Life Insurance Basics

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Life Insurance Basics

Life insurance is an agreement between you
(the policy owner) and an insurer.
Under the terms of a life insurance policy, the
insurer promises to pay a certain sum to a person
you choose (your beneficiary) upon your death, in
exchange for your premium payments.
Proper life insurance coverage should provide you
with peace of mind, since you know that those
you care about will be financially protected after
you die.

Saunders Learning Group, LLC, Andover, KS

The many uses of life insurance

One of the most common reasons for buying

life insurance is to replace the loss of income
that would occur in the event of your death.
When you die and your paychecks stop,
your family may be left with limited
resources.
Proceeds from a life insurance policy make
cash available to support your family almost
immediately upon your death.

Saunders Learning Group, LLC, Andover, KS

Uses for Life Insurance

Life insurance can pay
any debts that you may
leave behind.
Life insurance can pay
off mortgages, car loans,
and credit card debts,
leaving other remaining
assets intact for your
family.
Life insurance proceeds
can also be used to pay
for final expenses and
estate taxes.
Finally, life insurance can
create an estate for your
heirs.
Saunders Learning Group, LLC, Andover, KS

How Much Life Insurance Do You Need

Your life insurance needs will depend on a

number of factors, including:

whether you're married

the size of your family
the nature of your financial obligations
your career stage
your goals.

For example, when you're young, you may

not have a great need for life insurance.
However,
as
you
take
on
more
responsibilities and your family grows, your
need for life insurance increases.
Saunders Learning Group, LLC, Andover, KS

Determining Life Insurance Needs

There are tools to help you determine how
much coverage you should have.
Your best resource may be a financial
professional.
At the most basic level, the amount of life
insurance
coverage
that
you
need
corresponds directly to your answers to
these questions:
1. What immediate financial expenses (e.g., debt
repayment, funeral expenses) would your family
face upon your death?
2. How much of your salary is devoted to current
expenses and future needs?
3. How long would your dependents need support if
you were to die tomorrow?
4. How much money would you want to leave for
special situations upon your death, such as
funding your children's education, gifts to
charities, or an inheritance for your children?

Saunders Learning Group, LLC, Andover, KS

How Much Life Insurance Can You Afford?

How do you balance the cost of insurance

coverage with the amount of coverage that
your family needs?
Just as several variables determine the
amount of coverage that you need, many
factors determine the cost of coverage.
The type of policy that you choose, the
amount of coverage, your age, and your
health all play a part.
The amount of coverage you can afford is
tied to your current and expected future
financial situation, as well. A financial
professional or insurance agent can be
invaluable in helping you select the right
Saunders Learning Group, LLC, Andover, KS
insurance plan.

Life Insurance Contract

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Life Insurance Contract

A life
up:

insurance

contract

is

made

of legal provisions
your
application
(which
identifies
who
you
are
and
your
medical
declarations)
and a policy specifications page that
describes the policy you have selected,
including any options and riders that you
have purchased in return for an additional
premium.

Saunders Learning Group, LLC, Andover, KS

Life Insurance Contract

Provisions
describe
the
conditions,
rights, and obligations of the parties
to
the
contract
(e.g.,
the
grace
period
for
payment
of
premiums,
suicide and incontestability clauses).
The policy specifications page describes the
amount to be paid upon your death and the
amount of premiums required to keep the
policy in effect.
Also stated are any riders and options
added to the standard policy.
Saunders Learning Group, LLC, Andover, KS

Life Insurance Basics

Life insurance riders include:

waiver of premium
- allows you to skip
premium payments during periods of disability
guaranteed insurability - permits you to raise
the amount of your insurance without a
further medical exam
accidental death benefits.

The insurer may add an endorsement to the

policy at the time of issue to amend a
provision of the standard contract.
Each rider you add, increase the cost of
coverage.
Saunders Learning Group, LLC, Andover, KS

Types of Life Insurance

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Types of life insurance policies

The two basic types of life insurance are term life and permanent
(cash value) life.

Term policies provide life insurance protection for a specific period of

time.
If you die during the coverage period, your beneficiary receives the
policy death benefit.
If you live to the end of the term, the policy simply terminates, unless
Saunders
Learning
Andover, KS
you
renew
for aGroup,
newLLC,
period.

Term Life Insurance

Term life insurance is , you get "pure" life insurance

coverage.
Term insurance provides a death benefit for only a
specific period of time.
If you die during the coverage period, your
beneficiary (the person you named to collect the
insurance proceeds) receives the death benefit (the
face amount of the policy).
If you live past the term period, your coverage ends,
and you get nothing back.
Term policies are available for periods of 1 to 30
years or more and may, in some cases, be renewed
until you reach age 95.
Premium payments may be increasing, as with
annually
renewable
1-year (period) term, or level
Saunders
Learning Group,
LLC, Andover, KS

Term Insurance Costs

You may be able to renew the policy for a new
term without regard to your health, but at a
higher rate.
Your
premium
goes
toward
administrative
expenses, company
profit, and
a reserve
account that pays claims to those who die
during the term period.
As you get older, the chance that you will die
increases. To cover this increasing risk, premiums
will rise at regular intervals.
Premiums that were quite inexpensive at the time
you initially purchased your term policy become
much more expensive as you get older.
Most term insurance also has a conversion feature
that allows you to switch your coverage to some
type of permanent insurance without answering
health questions.
Saunders Learning Group, LLC, Andover, KS

Permanent Life Insurance

Permanent
insurance
policies
provide
protection
for
your
entire
life,
provided
you pay the premium to keep the policy
in force.
Premium payments are greater than necessary to
provide a life insurance benefit in the beginning of
the policy, so that a cash reserve can be
accumulated to make up the shortfall in premiums
necessary to provide the insurance in the later
years.
Should the you discontinue the policy, this reserve,
known as the cash value, is returned to you.

Saunders Learning Group, LLC, Andover, KS

Whole Life Insurance

Whole life insurance is a type of cash value
insurance.
Unlike term insurance, which provides coverage
for a particular period of time, permanent
insurance provides coverage for your entire life.
You generally make level (equal) premium payments
for life.
The death benefit & cash value are predetermined
and guaranteed.
The policy owner's only action after purchase of the
policy
is
to
pay
the
fixed premium.

Saunders Learning Group, LLC, Andover, KS

Whole Life Premiums

When
you
make
premium
payments,
you pay more than is needed to pay
for
the
current
costs
of
insurance
coverage and expenses.
The
excess
payment
is
credited
to
a
cash value account.
This cash value account allows the insurance
company to:
charge a level, guaranteed premium*
provide a death benefit
Provide cash value throughout the life of the policy.

Saunders Learning Group, LLC, Andover, KS

Life Insurance Cash Values

As you make payments, the cash value

account grows.
With traditional whole life insurance,
the cash value account is guaranteed
and held in the insurance company's
general portfolio--you don't get to
choose how the cash value account is
invested.
The cash value can grow beyond its
guaranteed
amount
through
the
payment of dividends.
The cash value grows tax deferred and
can be used as:
collateral to borrow from the
insurance company
be directly accessed through a
partial or complete surrender of
the policy.
ItSaunders
is important
to note,
thatKS
a policy loan or
Learning Group,
LLC, Andover,
partial surrender will reduce the policy's

With permanent life

insurance, when you
die, the amount of
coverage is
subtracted from your
cash value before the
death benefit is paid.
For example:
If you have a
$500,000 policy and
your cash value is at
$100,000, your family
would only receive
the $400,000 +
$100,000 from the
life insurance
company
NOT $600,000. In
other words, at some
point, you may be
paying for your own

Conversion of a Whole Life Policy

If you live to the policy's
maturity date, the policy
will "endow," and the
insurance company will
pay
the
accumulated
cash value (equal at
maturity to the death
benefit) to you.

Saunders Learning Group, LLC, Andover, KS

Universal Life Insurance

Universal life provides a
death benefit and a cash
value account.
Like whole life insurance, the
cash value is held in the
insurance company's general
portfolio--you don't get to
choose how the account is
invested.
Universal
life
insurance
allows
you
flexibility
in
making premium payments.
You may pay premiums at
any time, in any amount
(subject to certain limits), as
long as policy expenses and
the
cost
of
insurance
coverage are met.
The
ofAndover,
insurance
Saundersamount
Learning Group, LLC,
KS
coverage can be decreased.

Another feature of universal life

is the option to add the cash
value to the face amount when
the death benefit is paid. For
example:
Say you die when you have
$200,000 of cash value within
your $1 million policy.

If you chose the enhanced

benefit
option,
your
beneficiary receives $1.2
million.
The increased benefit is
reflected
in
premium
calculations.

Features of Universal Life

Generally
provide
broad
premium
guidelines
(i.e.,
minimum
and
maximum
premium payments)
You can choose how much and
when you pay premiums.
Reducing
or
increasing
premiums will impact the
growth of the cash value and
possibly the death benefit.
You can change the policy's
death benefit.
If you want to raise the
amount of coverage, you'll
need a new medical exam,
and
your
premiums
will
increase.
Universal life policies reveal
all
aspects
of
theLLC,
policy's
Saunders
Learning
Group,
Andover, KScost
structure, including the cost

Variable Life Insurance

As with whole life, you pay a
level premium for life.
Like other types of permanent
life
insurance,
variable
life
insurance has a cash value
account.
The death benefit and cash
value fluctuate depending on
the performance of investments
in
what
are
known
as
subaccounts,
that
are
professionally
managed
to
pursue a stated investment
objective.
A variable life insurance policy,
however, allows you to choose
how your cash value account is
Saunders Learning Group, LLC, Andover, KS
invested.

Variable Life Investment Subaccounts

Choices can range from a
fixed interest subaccount
to
a
highly
volatile
international
growth
subaccount.
Require a fixed annual
premium for the life of the
policy and may provide a
minimum
guaranteed
death benefit*.
If the cash value account
exceeds a certain amount,
the death benefit will
increase.

Saunders Learning Group, LLC, Andover, KS

Variable Universal Life

Combines all of the options and flexibility of universal
life with the investment choices of a variable policy.

Saunders Learning Group, LLC, Andover, KS

Policy Loans and Riders for VUL

Your policy's face amount is reduced by the amount

of a policy withdrawal, and withdrawals may be
taxable.
You have the option of choosing a fixed or enhanced
death benefit.
Most variable universal life policies offer a rider that
guarantees the death benefit at a certain level
regardless of the performance of the subaccounts,
provided that a stated minimum premium is paid for
a predetermined number of years*.
Saunders Learning Group, LLC, Andover, KS
*Any
guarantees associated with payment of death benefits,

Universal Variable Life Insurance

A
combination
of
universal
and
variable
life.
You
may
pay
premiums
at
any
time,
in
any
amount (subject to limits), as long as policy
expenses and the cost of insurance
coverage are met.
The amount of insurance coverage can be
decreased, and the cash value goes up or
down based on the performance of
investments in the subaccounts.
A subaccount is a pool of investor funds
professionally managed to pursue a stated
investment objective.
The policy owner selects the subaccounts in
Saunders Learning Group, LLC, Andover, KS
which the cash value should be invested.

Summary of Policy Types

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Slide
31

Life Insurance Beneficiaries

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Choosing Beneficiaries
You must name a primary beneficiary to
receive
the
proceeds
of
your
insurance policy.
Your
beneficiary
may
be
a
person,
corporation, or other legal entity.
You may name multiple beneficiaries and
specify what percentage of the net death
benefit each is to receive.
If you name your minor child as a
beneficiary, be sure to designate an adult as
the child's guardian in your will.

Saunders Learning Group, LLC, Andover, KS

Irrevocable Beneficiary

Generally, you can change your beneficiary at any time.

Changing your beneficiary usually requires nothing more than
signing a new designation form and sending it to your
insurance company.
If you have named someone as an irrevocable (permanent)
beneficiary you will need that person's permission to adjust
any of the policy's provisions.

Saunders Learning Group, LLC, Andover, KS

Joint or Survivorship Life

Some
married
couples
choose to buy insurance together
within the same policy.
These policies take the form of
either a joint first-to-die or a joint
second-to-die (survivorship) design.
With first-to-die, the death benefit is
paid at the death of the spouse who
dies first.
With second-to-die, no death benefit
is paid until both spouses are
deceased.
Saunders Learning Group, LLC, Andover, KS

Life Insurance in Estate Planning

Second-to-die policies are commonly
used in estate planning to create a
pool of funds to pay estate taxes and
other expenses due at the death of the
second spouse.
Joint
and
survivorship
policies
are
generally available with any type of
permanent life insurance.
Other policy characteristics remain the
same.

Saunders Learning Group, LLC, Andover, KS

Where to Buy Life Insurance

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS

Where can you buy life insurance?

A group life insurance
plan offered thru your
employer.
Through
an
association
(which may
insurance)

offer

group

life

You can also buy

insurance through a
licensed
life
insurance agent or
broker.
Online directly from
an
insurance
company.
Saunders Learning Group, LLC, Andover, KS

Combining Group and Individual

Policies

Term Life
Whole Life
Universal Life
Variable
Universal Life

Saunders Learning Group, LLC, Andover, KS

Slide
39

Life Insurance Company Ratings

Any policy that you buy is only as good as

the company that issues it, so investigate
the company offering you the insurance.
Ratings services, such as A. M. Best,
Moody's, and Standard & Poor's, evaluate
an insurer's financial strength.
The company offering you coverage should
provide you with this information.
Saunders Learning Group, LLC, Andover, KS

Questions

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Thank You !

Saunders
Learning
Group,
LLC
Saunders Learning
Group, LLC,
Andover,
KS