When determining the cost of life insurance, four major factors must be considered:
1.Annual premiums
2.Cash values
3.Dividends
4.Time value of money
The cost of a life insurance policy is
the difference between what you pay and what you get back (MEMORIZE)
Traditional net cost method
The cash value and expected dividends are subtracted from annual premiums to obtain a net cost per year figure
(Method does not consider the TIME VALUE OF MONEY)
Why is money TODAY always more valuable?
Because if you were to receive $10,000 today, you could invest that and make more money! Whereas if you receive the 10,000 in 3 years you just missed out on so many investments!
interest-adjusted cost method
Is MORE ACCURATE because it considers the time value of money (TVM)
Which method is better? interest-adjusted cost method OR Traditional net cost method?
Interest-adjusted cost method (considers TVM)
Life Insurance Policy Illustration Model Act requires
Insurers to present certain information to applicants for life insurance
Linton Yield
The average annual rate of return on a cash-value policy if it is held for a specified number of years
Proceeds from a life insurance policy are included in the gross estate of the insured for federal estate-tax purposes if:
-the insured has any ownership interest
-they are payable to the estate
A federal estate tax is payable if the decedent's taxable estate exceeds _____ ______
certain limits
Ex. When people die there are tax brackets that they fall into and have to pay some money when they die, you pay more the more money you have
Gross Estate
Includes property you own, one-half of the value of property owned jointly with your spouse, life insurance death proceeds in which you have ownership interest
The tentative tax is reduced or eliminated by a tax credit called a _____ _____
Unified Credit
What are some good things to consider when buying Life Insurance?
What's the best type (term or whole life)?
How much?
Best type premium?
Do u want a policy that pays dividends?
Shop around
Deal with a competent agent
Consider the financial strength of the insurer?
Ex. Moodys S&P are AAA (best rated)