Term
| What are the risks associated with premature death? |
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Definition
(1)Inadequate Financial Resources a. Providing income for readjustment period b.Providing financial support for dependents c. Earmarking funds for specific goals (2) Estate Preservation a. Medical expenses prior to death b. Disposal and ceremonial expenses c.Probate expenses d. Taxes e.Debt retirement |
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Term
| Measure the needs related to premature death |
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Definition
(1) Human Life Value Approach (2) The Financial Needs Approach (3) The Capital Retention Approach (see cards 25-30 for more detail) |
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Term
| Determine disability income and long-term care needs |
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Definition
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Term
List and define the various types of whole life insurance |
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Definition
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Term
| List and define the various types of term life insurance: |
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Definition
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Term
| List and define the various types of universal life insurance |
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Definition
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Term
| Distinguish between term, whole life, universal life insurance, and explain the advantages and disadvantages of each |
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Definition
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Term
| List and Define the various types of annuities |
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Definition
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Term
| Explain the differences between annuities and life insurance contracts |
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Definition
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Term
| Describe the tax treatment of life insurance and annuities |
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Definition
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Term
| Describe the important policy provisions and contractual features of life and annuity contracts |
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Definition
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Term
| Understand the taxation of life insurance and annuities |
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Definition
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Term
| Be familiar with important policy provisions and major contractual features of individual health coverage |
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Definition
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Term
| Discuss health savings accounts (HSAs) and high-deductible health plans (HDHPs) |
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Definition
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Term
| Describe the important policy provisions and major contractual features of long-term care insurance |
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Definition
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Term
| Describe the important policy provisions and major contractual features of individual health and disability coverage |
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Definition
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Term
| List and describe the primary types of employer-provided group health insurance |
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Definition
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Term
| Be familiar with the history of managed care and understand today's prevalent methods of health care delivery |
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Definition
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Term
| Explain how group health coverage may be continued or transferred when employment terminates |
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Definition
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Term
| List and describe the primary types of employer-provided health and disability coverage |
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Definition
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Term
| Discuss the various business uses of life insurance |
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Definition
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Term
Describe the types of nonqualified benefits often provided to key employees of a company |
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Definition
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Term
Be familiar with other employee benefits such as Section 125 plans, flexible spending accounts, fringe benefits, voluntary employee benefit associations (VABAs), and prepaid legal services |
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Definition
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Term
| Human Life Value Approach |
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Definition
Step 1: Calculate the family's share of earnings (FSE) Example:Annual Earnings $70,000 = Annual taxes = $70,000 x .20 = $14,000 Personal Consumption = (After-tax income x consumption %) =[($70,000 - $14,000) x .10)] =($56,000 x .10) =$5,600 FSE = Annual earnings -(annual taxes + annual personal consumption) = $70,000 -($14,000+$5,600) = $70,000 - $19,600 =$50,400 Step 2: Calculate work life expectancy (WLE) WLE= Expected age of retirement - current age = 65 - 45 =20 Years Step 3: Determine human life value (HLV) FV = 0 PMT = $50,400 i = .7678% [(1.05/1.042) -1] x 100] n = 20 Human Life Value = $938,270 |
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Term
| The Financial Needs Approach |
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Definition
Evaluates the income replacement needs of one's survivors in the event of untimely death; Family that loses an income producer is likely to have the following needs: 1. Lump-sum (cash needs) 2.Final expenses and debts 3.Mortgage liquidation or payment fund 4. Education expenses 5. Emergency expenses 6. Income (cash flow) needs 7. Readjustment period 8. Dependency period 9. Spousal life income (pre- and post-retirement) |
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Term
| Cleanup Fund or final expense fund |
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Definition
| Fund requiring immediate access by survivors to pay for final expenses and debts of the decedent. |
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Term
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Definition
| The period of time that lasts for one to two years following the death of a breadwinner |
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Term
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Definition
| The period of time during which others (the deceased's spouse, children and, in some cases, parents) would have been dependent on the deceased had she lived |
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Term
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Definition
| The period of time beginning when Social Security benefits to the surviving spouse are discontinued (usually when the last child reaches 16) and ending when the spouse begins to receive Social Security retirement benefits at age 60 or later. |
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Term
| Steps in Financial Needs Approach |
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Definition
Step 1:Calculate the family's income (cash flow) needs (see text for table, p. 326) Step 2: Caluculate the family's lump-sum needs Final Expenses and debts $ 15,000 Education Fund needed (in today's dollars) $180,000 Emergency Fund $ 15,000 Total lump-sum funding needs $210,000 Step 3: Calculate the life insurace death benefit needed Total needs $1,306,446 ($1,096,446+$210,000) Less Life Insurance already in Place -$200,000 Less liquid assets -$100,000 Net Death benefit needed $1,006,446 |
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Term
| Capital Retention Approach |
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Definition
| Provideds a death benefit amount that, along with the family's other assets, is sufficient to provide a level of investment income that covers the projected needs of the family without having to invade the death benefit principal. |
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Term
| Steps of Capital Retention Approach |
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Definition
1. Prepare a personal balance sheet--Prepare a list of all assets and liabilities to arrive at a projected balance sheet at death. Assets should include any life insurance from other sources, such as existing personal policies, coverage trhough employers, or death benefits available though retirement plans. 2. Calculate the capital available for income--Subtract liabilities, cash needs, and non-income-producing capital from total assets. 3. Determine the amount of additional capital required--Compare the family's income objectives with other sources of income available, such as Social Security. |
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