FIN 101

Life Insurance Planning Activity

1. The "dying-too-soon" problem refers to the risk that a person will die prematurely, before
they have had a chance to fully enjoy their retirement savings or provide for their
dependents. This can leave their loved ones financially vulnerable and can result in unused
savings that could have been put to better use during their lifetime. On the other hand,
"living-too-long" problem, on the other hand, refers to the risk that a person will outlive
their retirement savings. This can occur if a person underestimates their life expectancy or
if they experience unexpected expenses or investment losses that deplete their savings.

One way to address the "dying-too-soon" problem in finance is through life insurance. By
purchasing a life insurance policy, a person can ensure that their dependents will be
financially secure if they die prematurely. To address the "living-too-long" problem in
finance, individuals can plan for a longer retirement by saving more money and investing
in assets that have the potential to generate income over time, such as dividend-paying
stocks and annuities.

2. Term life insurance provides coverage for a specific period of time, typically 10-30 years.
It is designed to provide financial protection for your loved ones in the event of your
untimely death. Term life insurance is generally more affordable than permanent life
insurance. On the other hand, Permanent life insurance, as the name suggests, provides
lifetime coverage. It is designed to provide not only a death benefit but also an investment
component that builds cash value over time. Permanent life insurance is generally more
expensive than term life insurance, and the investment component may not provide the
same returns as other investment options.

3. The owner of a life insurance policy is the person who owns the policy and is responsible
for paying the premiums. The owner can be the same person as the insured or a different
person, such as a spouse, parent, or business partner.

The insured is the person whose life is being insured by the policy. In other words, the
insured is the person whose death would trigger the payment of the death benefit.

The beneficiary is the person or entity designated to receive the death benefit when the
insured dies. The beneficiary can be a person, such as a spouse, child, or friend, or it can be
an entity, such as a charity or a business.

A contingent beneficiary is a person or entity designated to receive the death benefit if the
primary beneficiary is unable or unwilling to receive it. The contingent beneficiary can be
changed by the policy owner at any time.
4. In Lump-sum payment, the beneficiary receives the entire death benefit in one lump sum
payment.
In Installment payment, the beneficiary receives the death benefit in regular installments,
either over a fixed period of time or until the entire benefit has been paid out.
In Interest income, the beneficiary receives the death benefit in the form of interest income,
with the principal remaining intact. The interest rate may be fixed or variable.
In Life income, the beneficiary receives regular payments for the rest of their life, with the
amount determined by the size of the death benefit and the beneficiary's life expectancy.
In Life income with period certain, the beneficiary receives regular payments for the rest of
their life, with a guaranteed minimum period of payments. If the beneficiary dies before the
end of the minimum period, the remaining payments are made to their designated
beneficiary.
If I am an eligible beneficiary, I would pick installment payments so that I can budget the
money that I may be getting with all the expenses I may have in my daily life and have
extra money on the side. I can also keep track of my expenses and not overspend any
money I get.

5. Here are the 3 non-forfeiture options in an insurance policy:

In Cash surrender value, this option allows the policyholder to surrender the policy for its
current cash value, which is the amount of money the policy has accrued over time.

In Reduced paid-up insurance, this option allows the policyholder to stop making premium
payments and convert the policy into a paid-up policy with a reduced death benefit.

In Extended term insurance, this option allows the policyholder to stop making premium
payments and use the cash value of the policy to purchase term insurance for the same
death benefit amount.

6. An automatic premium loan is a provision that allows the insurance company to

automatically borrow from the policy's cash value to pay for any outstanding premium
payments that the policyholder has not paid. This helps ensure that the policy remains in
force even if the policyholder misses a payment but it must be repaid with interest.

While A waiver of premium is a provision that allows the policyholder to stop making
premium payments if they become totally disabled and unable to work. The insurance
company will waive the premium payments for as long as the policyholder remains
disabled, allowing them to keep the policy in force without having to repay any amount.
7. Designating a minor as an irrevocable beneficiary is not recommended due to several
potential issues it can create. Firstly, minors are legally incapable of managing their own
finances and require a court-appointed guardian or trustee to manage the funds. Secondly,
the policyholder cannot control how the funds are used once they are paid out to the minor
beneficiary. Thirdly, the insurance company may need to hold the funds until a guardian or
trustee is appointed, which can delay payment of the proceeds. Additionally, there may be
tax implications, and changing circumstances of the parties involved can complicate
matters. It is better to consider setting up a trust or naming a trusted adult as the
beneficiary, who can manage the funds on behalf of the minor, ensuring that the insurance
proceeds are used for the minor's benefit in a responsible and effective manner.