1 Personal Finance: Another Perspective Insurance 2: Life Insurance Tyler J Vongsawad, CLU, ChFC,...

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Personal Finance:Another Perspective

Insurance 2:

Life InsuranceTyler J Vongsawad, CLU, ChFC, CFP®

02/10/2011

ObjectivesA. 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

A. Understand Benefits of Life Insurance

What are some benefits of Life Insurance?

A. Understand Benefits of Life Insurance

• Death Benefit• Secure Insurability• Cash Value• Tax-deferred Growth• Estate Planning

1. Why Have Life Insurance?

2. How Does Life Insurance work?

3. Who Needs Life Insurance?

4. How Much Life Insurance is Needed?

5. Which Type of Life Insurance is Suitable?

1. Why Have Life Insurance

Life Insurance and Your Investment Plan

$1,000

$1,500

$2,000

Investments Term Permanent Total Protection

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.

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

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

• 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

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.

C. Understand the Different Types of Term Insurance

+ Premium Payments

Your Term Life Insurance Policy

- Mortality Costs

- (Low) Expense Costs

Term Insurance Comparisons

Level+/- Fixed Cost

+ Potential Long-term Savings

- Coverage May End Sooner than Needed

Annually Renewable+/- Increasing Cost (starts

smaller finishes larger)

+ Potential Short Term Savings

+ Coverage May Continue Without Evidence of

Insurability

Can it be Converted to Permanent?

D. Understand the Different Types of Permanent Insurance

+ Premium Payments

+ Investment Income

+ Dividends (if participating)

Your Permanent Insurance Policy

- Mortality Costs

- (high) Expense

A major benefit is to be able to borrow against your cash value portion of your policy tax-free

Policy Cash Value

D. Understand the Different Types of Permanent Insurance

Universal

Variable

Equity Indexed

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”

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

• Ratings Companies: • 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

• 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

• 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.”

• 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

Tyler Vongsawad, CLU, ChFC, CFP®

tyler.vongsawad@nmfn.com

Questions?

1 Personal Finance: Another Perspective Insurance 2: Life Insurance Tyler J Vongsawad, CLU, ChFC,...

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