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Ch2 term life insurance (There are several types of life insurance,…

- - - - Joint first-to-die contracts usually terminate upon the death of the first person to die. However,
        some contracts give the surviving life insured the choice of continuing the same level of coverage
        on their own life under a new policy, without having to provide proof of insurability.
        
        so son can get the coverage without tax
  - - - If husband dies first, his share will go to the wife and it will not
        trigger a capital gain because of the spousal rollover rules. However, when
        the wife dies after him, a joint last-to-die insurance policy would ensure that the estate has enough money to pay this tax bill.
- - - - They buy a policy with a level death benefit because it is simple, what they
        are most familiar with, and most often promoted. However, this means they may be under-insured
        or over-insured at some point during the term.
  - - - Ex banks commonly
        encouraged their mortgage customers to buy “mortgage insurance,” which essentially is
        decreasing term insurance
  - - - Increasing term insurance is useful in situations where the amount at risk is expected to increase
        over time, perhaps due to inflation, investment returns or salary increases.
        
        One of the benefits of increasing term insurance is that the coverage increases even if the life
        insured experiences a decline in his health. The death benefit will continue to increase, up to the
        cap specified by the policy, as long as the policyholder pays the increased premiums, and the
        premium increases are known in advance.
- - - - mortality cost is estimated by multiplying the policy’s face amount by the life insured’s probability of death during the year
        
        mortality experience(estimate the life insured’s probability of death by classifying him in a group by age, gender, and health status.)
    - - cost of selling the
        policy (e.g., marketing, salaries or commissions to agents), underwriting the policy (e.g.,
        processing applications, undertaking medical exams), issuing and administering the policy,
        investigating claims, paying death benefits
- - - - Renewable policies are more expensive than non-renewable policies since the insurance company is taking the added risk
  - - - a renewable policy that
        can be subject to two different renewal rate schedules: a guaranteed renewal rate and a lower
        rate that is adjusted for the good health of the life insured.
        
        The life insurance company will reassess the health of the life insured at the time of renewal. If he
        is in great health, he will qualify for lower premiums on renewal. If his health has deteriorated, he
        still has the right to renew the policy, but the guaranteed renewal rates are higher than those for a
        renewable policy that does not have the re-entry provision.
        
        The advantage of a renewable policy with a re-entry provision is that the initial premium tends to
        be lower, This is because the
        policyholder is retaining a portion of the risk;(like good health condition)
        
        Re-entry policies may be a good deal if coverage is only required for a term or two, or if the life
        insured has reason to expect continued good health, perhaps due to his family’s excellent health
        history. If the policyholder thinks he may want to renew the policy beyond that timeframe, he
        would assume less risk by purchasing a regular renewable term insurance policy
- - - - Convertible term insurance is more expensive because it exposes the insurance company to additional risk beyond the
        original term. In fact, the people who are most likely to convert the policy are those who have
        experienced a decline in their health, which would make a new life insurance policy too expensive
        or even impossible to get.
        The insurance company may also restrict the age at which conversion is permitted
  - - - Original-age conversions would result in lower premiums for the permanent life insurance, which
        would appear to be advantageous. However, the initial premiums for an original-age convertible
        term policy will be higher than the premiums for an attained-age convertible term policy. This is
        because the insurance company is taking on the risk of providing lifetime coverage at a lower rate
        if the original-age conversion is exercised
        
        in the case of an original-age conversion, the policyholder would have to pay the insurer a lump sum equal to catch up.this is why most insurers either do not offer original-age convertible
        policies
- - - - Term insurance is particularly suited for short-term risks of known duration. If there is a risk could beyond the anticipated duration, the policyholder should choose a
        renewable policy.
        
        Felix made a $100,000 loan and pay interest for 5 years
        need A $100,000 5-year term insurance policy with the lender named as the beneficiary.
    - - Decreasing term insurance may be well suited for covering risks that diminish over time, such as
        mortgages or other loans that are repaid over a known amortization period.
        
        Mohammed quit job at age 55, and he
        will receive a full pension starting at age 60. The pension will continue
        undiminished, payable to his spouse Helena, if he dies while receiving the
        pension.
        In the meantime, Mohammed is self-employed as a consultant,
        earning $100,000 per year and he plans to retire at age 60, when his pension
        from ABC Ltd. starts. Because he no longer works for ABC Ltd., he is no
        longer covered by their group life insurance plan. Mohammed wants to protect
        Helena from the loss of his income if he should die prior to retirement.
        Mohammed can purchase a 5-year, $500,000 decreasing term policy to
        address this risk.