Life Insurance, Principles of Insurance Video Lecture | Study Principles of Insurance - B Com | Best Video for B Com

hi my name is mark Chandhok and i'd like
to spend a few minutes talking to you
about the basics of life insurance the
purchase of life insurance may be one of
the most important decisions you ever
make in your financial life however it's
a decision that most of us will put off
until something happens that hits close
to home that's really not too surprising
since we all have a built-in mechanism
that avoids thinking about death but
that kind of procrastination can be
devastating to a family or business let
me explain
there are three basic questions to be
asked and they have to be asked and
answered in the right sequence or all
the answers will be wrong the three
questions are do I need life insurance
how much do I need what kind should I
buy let's take them one at a time first
do I need life insurance the quick and
easy answer is that someone will suffer
financially when you die you need life
insurance that could mean your family
perhaps aging parents or maybe even your
business partner and employees
sometimes we might be inclined to say
well they'll be ok and maybe that's true
but it's important to remember that we
don't get a chance to change our minds
once we're gone we need to face reality
well we can do something about it the
second question is how much should I
have some experts recommend a rule of
thumb that runs anywhere from five to
twenty times your annual income
obviously with that kind of spread the
rule of thumb isn't very helpful so how
do you determine if you need a hundred
thousand two hundred and fifty thousand
five hundred thousand or more in life
insurance coverage the best way to
figure out what you need is to have an
insurance professional conduct what's
called a financial needs analysis here's
how it works
you'll start by gathering all of your
personal financial information and
estimating what your family members
would need after you're gone to meet
their financial obligations to calculate
this figure you'll need to think through
three types of expenses first your
immediate expenses such as funeral
expenses uncovered medical costs taxes
and outstanding debts you want paid when
you die such as automobile debt and
credit card bills
second is ongoing expenses which is
basically money for your family to live
on for a specific period of time it
helped pay for everyday living expenses
like food clothing transportation
mortgage or rent payments and finally
life insurance proceeds could be used to
fund future expenses such as money to
fund a college or retirement savings
plan after you've figured out your
family's needs you'll then want to tally
up all of the resources that your
surviving family members can draw and to
support themselves this would include
things like your spouse's income savings
you've accumulated and any life
insurance you already own the difference
between your family's needs and the
resources in place to meet those needs
is your need for additional life
insurance let me share a story with you
that illustrates the value of properly
calculating the need for life insurance
in a very powerful way early in my
career I was working with a physician in
Southern California who is very busy and
didn't give me any time to help him
determine the amount of life insurance
that was appropriate for his family
rather he asked me to simply sell him a
$500,000 policy I complied with his
request only to read several months
later they had been killed by a
hit-and-run driver while changing the
tire on the side of the freeway I took
great pride in being able to deliver the
much-needed cash to the family only to
be shocked to learn that the doctor had
nine children three of whom were in
college at the time I distinctly
remember sitting in a room with his wife
and all of his children when they
collectively asked me is this all there
is I felt badly that I hadn't found some
way to break through to the man and
convinced him to approach the process
the proper way I vowed never again to
shortcut the process and to always
calculate the real need for life
insurance I never have shortcut the
process sense and you shouldn't either
there are no do-overs with life
insurance there's nothing more important
than buying the right amount of coverage
and you need to get it right the first
time
so after you've figured out how much you
need you're now ready to focus on what
kind to buy there are two fundamental
considerations that go into answering
this question first how long will you
need the insurance and second how much
money do you have in your budget for
this expense
now how long you need a question will
help you decide if you want term
insurance or permanent insurance term
insurance lasts for a specified period
of time say five years or ten twenty or
maybe even thirty years if your only
need is for funds to pay off a 20-year
mortgage at your death a twenty year
term policy would probably be the answer
for you or if you're concerned about
providing funds to take care of your
aging parents in their later years a
five or ten year term policy might do
the job the shorter the period of time
the policy lasts the lower the premium
but once the term period is over you'll
have to pay a considerably higher price
to maintain it if you want to do so and
you may well have to take another
insurance physical to qualify all over
again
that means your health must still be
good and that you haven't taken a
piloting skydiving or vehicle racing
declining health or a dangerous job or
hobby can significantly increase the
cost of insurance and sometimes can make
coverage unaffordable or even
unavailable that leads me to the second
kind of insurance permanent insurance
permanent insurance is what the name
implies it's with you for life no matter
how old you are when you die the
premiums are projected to remain level
over your lifetime and in some cases can
be designed to stop at retirement while
your coverage remains in force for life
permanent policies build a cash
surrender value that is available if
needed in the event of emergencies
opportunities or college for the kids of
course these benefits come with a price
the initial premium for permanent
insurance is three to ten times higher
than it is for an equivalent amount of
term insurance so if your budget is
limited be sure you buy as much as you
need even if it's all term insurance but
if you have some room in your budget it
usually makes sense to include some
permanent insurance in your program and
as time goes on it will probably make
sense to convert some of your term
insurance to permanent insurance you
know one of the biggest mistakes I see
my clients make is under estimating how
long they'll need life insurance this
was painfully true immediately for many
after the dot-com bubble burst in 2000
all of a sudden you had
people who experienced a significant
loss in their retirement assets and they
were no longer able to retire on time
life insurance fills the financial gap
that exists between your financial needs
and your financial realities the fact
that people had to work additional years
necessitated owning life insurance for a
longer period of time and many were
caught unprepared by owning both types
of life insurance term and permanent
you're better prepared for the
unexpected things that happen in life
let's face it our financial lives never
go as smoothly as the financial press
would have us believe so far we've
looked at life insurance from the
context of your personal needs however
life insurance is a tool that is also
utilized by almost every small business
in America businesses especially smaller
closely held businesses utilize life
insurance to protect their companies in
case of the premature death of an active
owner life insurance is used to purchase
a deceased partners interest and provide
an income stream to the surviving family
life insurance also may be left to the
company to provide a financial cushion
to the company in the case of a loss of
an active owner or key employee life
insurance is also utilized to provide
cash to equalize the inheritance of a
family where only one of the children
inherits the company and finally to
provide cash to pay federal estate tax
so that the company doesn't have to be
sold to pay the tax liability these uses
of life insurance keep businesses in
business families financially secure and
Americans employed so there you have it
a properly designed life insurance
program is as essential to a sound
financial plan as a strong foundation is
to a home do it right in the future
secure