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