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Chapter 9Managing Life, Health, and Disability Risks
9-2
Risks Associated with Premature Death
Inadequate financial resources• Income for readjustment period• Financial support for dependents• Earmarking funds for specific goals
Estate preservation• Expenses • Taxes • Debt retirement
9-3
Measuring Needs
Needs related to premature death• Human life value approach• Financial needs approach• Capital retention approach
Disability income needs
Long-term care needs
9-4
Term Life Insurance
Features
Types of polices
Term life policy riders
Advantages
Limitations
9-5
Whole Life Insurance
Characteristics
Types of whole life policies
Dividend options
Nonforfeiture options
Whole life insurance policy riders
Advantages and limitations
9-6
Universal Life Insurance
Overview
Death benefit options• Option A• Option B
Premium payments
Structure of a Universal Life Policy
9-8
Variable Universal Life
Flexible premiums and death benefits
Self-directed investment accounts
Policy structure
Registered security• Agents/brokers who sell VUL must have
license for insurance and securities
9-9
Modified Endowment Contracts (MECs)
7-pay test
Material change
LIFO treatment
10% penalty (< age 59½)
9-10
Universal Life and VUL: Other Features
Riders and optional benefits
Advantages
Limitations
Equity indexed universal life (EIUL)
9-11
Group Life Insurance
Group term
Group whole life insurance
Group universal life
Group variable life insurance
9-12
Life Insurance Policy Selection and Replacement
Policy selection
Policy illustrations
Policy replacement • Belth price of protection model
Policy Replacement
Belth price of protection model:
9-14
Life Insurance Policy Provisions
Grace period
Incontestability
Entire contract clause
Misstatement of age or gender
Assignment• Absolute• Collateral
Suicide
9-15
Life Insurance Policy Provisions (cont.)
Reinstatement
Policy loans and automatic premium loan
Beneficiary designations
Aviation and war exclusions
Survivorship clause
Simultaneous death
9-16
Life Insurance Settlement Options
Interest only
Fixed amount
Fixed period
Life income
Life income with period certain
Life income with refund
Joint and last survivor income
9-17
Annuity Contracts
Types of annuities• Immediate/deferred• Flexible premium/single premium• Fixed/variable/equity-indexed
Timing of annuity payments• Straight life• Life with period certain• Installment refund/cash refund • Joint and survivor
9-18
Taxation of Life Insurance and Annuities
Life insurance • Lifetime benefits• Death benefits
Viatical agreements• Terminal illness• Chronic illness
Annuities
9-19
Individual Health Insurance
Major medical insurance • Characteristics • Limitations
Medical expense insurance • Basic medical insurance coverage• Limitations
9-20
Health Savings Accounts and Long-Term Care Insurance
Health savings accounts (HSAs)• Eligibility• Contributions and distributions
Long-term care insurance • Levels of care • Benefits• Tax-qualified long-term care insurance
9-21
Disability Income Insurance
Characteristics
Taxation of benefits
Integration of benefits
Termination of benefits
Residual benefits
9-22
Health and Disability Insurance Policy Provisions
Preexisting conditions
Grace period
Reinstatement
Incontestability clause
Rights of renewability
9-23
Group Health and Disability Insurance
Eligibility
Characteristics
Health insurance and managed care
COBRA
Taxation of group health benefits
Portability (HIPAA)
9-24
Business Uses of Life Insurance and Other Employee Benefits
Buy-sell agreements
Nonqualified plans
Key person life insurance
Disability overhead expense insurance
Other employee benefits