LIFE INSURANCE

CERTAINTY DURING
UNCERTAIN TIMES
INSURANCE

 Form of risk management

primarily used to hedge against
the risk of a contingent loss
 Equitable transfer of the risk of a
loss, from one entity to another,
in exchange for a premium
 Guaranteed small loss to
prevent a large, possibly
catastrophic loss
INSURANCE

 RISK MANAGEMENT : practice

of appraising and controlling
risks
 INSURANCE BUSINESS
MODEL : Insurers earn through
Underwriting ( process by which
risks are selected and premiums
are decided) and Investing
(earning on “float”)
INSURANCE

 UNDERWRITING : Actuarial
Science uses statistics and
probability to analyze the risks
with the range of perils
 INVESTING : Earning from the
money on hand that has been
accepted as premium payments
but hasn’t been paid out as
claims
LIFE INSURANCE
 Only thing certain during uncertain
times
 Policy contract binds the insurer to
the insured on an agreed amount of
protection that will be realized upon
an agreed event provided that that
insured keeps his end of the contract
: pay the premiums
 The only investment that does not
rely on time and is there SELF-
COMPLETING.
LIFE INSURANCE

 Role of the Life Insurance

Agent:
1) Identify the needs of the client
2) Evaluate the options
3) Encourage the client to
purchase sufficient and
appropriate insurance
protection
4) Help minimize the risk of client
LIFE INSURANCE

 Why should I buy life insurance

when I can save regularly?

Saving money is like taking the

stairs when you can take the
elevator ( when you buy LIFE
INSURANCE) !
LIFE INSURANCE
 Why should I buy life insurance
when I have a business that can take
care of my family?

A business is something to take care

of.
( needs skills & expertise to run,
worries about profits & losses, time
away from family & other pursuits,
etc.)
LIFE INSURANCE

 A business is something to take

care of
 Life Insurance is something that
will take care of them
 Life Insurance substitutes
CERTAINTY for uncertainty
LIFE INSURANCE

 After the insured passes the

underwriting requirements and
is accepted by the insurer, the
RISK is passed on to the insurer
in exchange for a premium
obligation from the insured
 RISK - Dying too soon
- Living too long
LIFE INSURANCE

2 Sources of Income:

Man-at-Work
vs
Capital-at-Work
LIFE INSURANCE
 MAN-at-WORK : earn from salaries,
bonuses, commissions, profits from
business, etc.
 CAPITAL-at-WORK : earn interest
income, rental income, dividend
income, other investment income
 Through LIFE INSURANCE, once
Man-at-Work steps out of the picture,
MONEY-at-WORK steps in to fill the
gap.
LIFE INSURANCE

 Identify the need: What is the

risk being addressed? How
much is needed to cover the
risk?
 Evaluate the options: What
financial instrument can cover
the risk? If life insurance, what
type?
LIFE INSURANCE
 Help client purchase sufficient and
appropriate insurance protection :
How much is client willing to pay?
For how long?
 Help minimize the risk of heavy
financial loss : Explain the reason
why a guaranteed small loss ( fixed
premium payment over a fixed
period of time) to prevent a large,
devastating loss ( death/disability of
a breadwinner, outliving your
retirement)
LIFE INSURANCE

 People are looking for

GUARANTEES – safe, secure form
of protecting themselves against loss
 As such, Life Insurance is never
considered an Investment (chance of
losing and winning)
 Investment – risk is shared by the
insured ( choice of investment
product)