Transcription
Life Insurance Basics for Military s material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of FamilyReadiness Policy, U.S. Department of Defense under Award Numbers 2014-48770-22587 and 2015-48770-24368. 1
MFLN IntroConnecting military family service providersto research and to each otherthrough innovative online programmingwww.extension.org/militaryfamilies2Sign up for webinar email notifications at www.extension.org/62831
MFLN IntroConnecting military family service providersto research and to each otherthrough innovative online programmingJoin the Conversation Online!3
PFSMSiconsPF SMS iconsJoin the Conversation Online!MFLN Personal FinanceMFLN Personal Finance @MFLNPFMilitary Families Learning NetworkMFLN Group https://www.linkedin.com/groups/84098444
Today’s PresentersDr. Barbara O’Neill Financial Resource Management Specialist forRutgers Cooperative ExtensionHas been a professional, financial educator andauthor for more than 35 years.Has written more than 1,500 articles foracademic journals, conference proceedings &other professional publications.Ruth Berkheimer Insurance Specialist on the VA Insurance ServiceProgram Administration and Oversight Staff.Ruth has been actively involved with theimplementation of numerous program changesand enhancements, including the FamilyServicemembers’ Group Life Insurance Programand the Servicemembers’ Group Life InsuranceTraumatic Injury Protection Program.5
Workshop Topics Basic insurance principles and terminology Life insurance characteristics Life insurance needs analysis process Life insurance needs of military families SGLI life insurance for service members6
Question #1:What life insurance errors do youfrequently see with your clients orstudents?7
Life is Full of Risks Many HaveFinancial Consequences Damage to car in an accident Loss of home and/or possessions Loss of income due to disability Loss of a household earner’s income Loss of a homemaker’s services Large medical bills for disease or injury A court judgment of liability for damages8
Five Ways to ManageLife’s Financial Risks Do nothing and hope for the best Risk avoidance Risk reduction Risk acceptance Risk transfer (insurance)9
RiskAvoidanceRiskShiftingWays toManageRiskBuy InsuranceSelf InsuranceRiskAssumptionSource: Kapoor, Dlabay, Hughes, & Hart(2016). Focus on Personal FinanceDon’t stop at aconvenience store ina bad part of townafter midnightRiskReductionWear seatbeltsInstall analarm system10
Common Financial Risks Personal Risks– Loss of income or life– Illness and disability Property Risks– Losses to property– Caused by perils such as fire or theft Liability Risks– Losses caused by negligence– Resulting in injury or property damage to others11
How Insurance WorksInsurance Policy – Contract between aperson buying insurance (the insured) and aninsurance company (the insurer)12
The Essence of Insurance Insurance consists of two basic elements:– Reduction of risk– Sharing of losses Law of Large Numbers –As the number of members in a group increases,predictions about the group’s behavior becomeincreasingly more accurate13
An Insurable Interest Must Existto Buy InsuranceInsurable Interest – When a person or organizationstands to suffer a financial loss from a specific risk– Example #1: The person who lives in an housethat is insured– Example #2: The spouse of person who iscovered by life insurance14
Insurance Basics Protect against risk by paying a premium “Large Loss Principle” (size of loss matters) Major “large-loss” risks:– Loss of income due to disability– Loss of a household earner’s income– Destruction of one’s home (fire, flood, etc.)– Liability losses due to a court judgment– Large medical expenses (e.g., cancer treatment)15
Loss Severity and Loss FrequencySource: Garman & Forgue (2008). Personal Finance16
Common Insurance Errors Not following the “large loss principle” Unfamiliarity with employer-provided (and public)insurance benefits Lack of disability insurance Lack of adequate liability insurance Not checking credit rating of insurance companies17
Parts of an Insurance Contract Declarations page Insuring Agreements Exclusions Endorsements and Riders18
Policy Featuresthat Limit Insurance Coverage Benefit coordination clauses Deductible Elimination period Co-payment Co-insurance Policy limit19
Generally Unnecessary Insurance Policies Credit insurance for individually purchased items(e.g., life, disability, unemployment) Cancer insurance “Double Indemnity” insurance riders Hospital indemnity policies Flight insurance Car rental collision-damage waivers20
Question #2:Do YOU have a life insurancepolicy? Why or why not?21
Question #3:Does a young unmarriedadult without children needlife insurance?Why or why not?22
Question #4:Do minor children need lifeinsurance? Why or why not?23
Why Do People Need Life Insurance? Income-Replacement Needs– Financial losses resulting from premature death: lostincome and employee benefits Major Expenses– Two examples are a mortgage and children’s collegeexpenses Final Expenses– One-time medical and funeral expenses occurring justprior to or after a death Readjustment-Period Needs– Allows surviving spouse/family members to pay ongoingexpenses24
Powerful Life Insurance Video:A Legacy of Lovehttps://www.youtube.com/watch?v ZKHftmGWoEM25
Financial Planning With Life InsurancePrimary Purposes of Life Insurance: Protect someone who depends on you (or owes moneyon your behalf) from financial losses related to your death Reduce financial burdens of survivors Insurance company promises to pay a lump sum(death benefit) to a named beneficiary at the time of thepolicy holder’s death Some policies pay benefits while a policyholder is stillalive26
Other Reasons Why PeopleBuy Life Insurance Pay off a mortgage or debts Lump-sum endowments for children Make charitable donations Accumulate savings Establish a regular income for survivors Set up an estate plan (e.g., fund trusts with lifeinsurance benefits) Pay estate and gift taxes (e.g., business owners)27
How Life Insurance Works Life insurance is obtained by purchasing a policy28
More About Life Insurance Mortality Tables- Provide odds of people dying, based onage and gender Premium is based on life expectancy and projections forpayouts for persons who die (called actuarial tables)– Older people pay more because they will die sooner Face Amount- Dollar value of protection listed in the policyand amount used to calculate the premium (e.g., 100,000) Group Term Insurance- Issued to people as members of agroup rather than as individuals29
Estimating Life Insurance Need Multiple of Salary Method– A multiple (7x, 10x) of a deceased person’s salary The DINK Method– Dual income, no kids, similar incomes– Assumes spouse’s earnings will continue– Cover funeral ½ of mortgage and other debts The “Family Need” Method– More thorough than the first two methods– Considers employer-provided insurance, family goals,Social Security benefits, spouse’s income and assets30
Question #5:What resources do YOU useto help clients calculate their lifeinsurance need?31
Life Insurance Calculators32
Life Insurance Worksheet df33
Life Insurance Worksheet #234
Online Life Insurance Calculators Morgan qh-media.pdf Life iew/life-insurance/calculate-your-needs/ State urces/life-needscalculator nsurance/life-insurancecalculator.aspx35
Question #6:Do you recommendTerm life insurance?Whole life insurance? Or both?36
Term Life InsuranceTerm Life– Protection for a specified period of time– Like “renting insurance”– Ends at the end of term (or if you stop paying premiums)Renewable Term- Can renew; higher premium chargedMultiyear Level Term- Same premium for a long set periodConversion Term- Allows change to permanent policyDecreasing Term- Face value decreases over time37
More About Term Life Insurance Often provided as employee benefit (e.g., 1.5 x salary) Least expensive type of life insurance coverage No cash value Gets more expensive with age May not be able to renew after 65 or with health“issues”38
Permanent Life Insurance Combines coverage and investment (cash value) Can borrow against the cash value Major types: whole life, universal life, variable life Usually need to hold a long time for cash value tobecome a large dollar amount39
Cash-Value Life InsuranceSource: Garman & Forgue (2008). Personal Finance40
Permanent Life Insurance Details Straight-Life or Whole-Life Insurance– Pay the premium as long as you live– Premium depends on age when you start the policy– Accumulates a cash value you can borrow against– Look carefully at the rate of return your money earns Limited Payment Policy– You pay premiums for a stipulated period– Policy is then “paid up” and you remain insured for life Variable Life - Fixed premiums; investment subaccounts Universal Life- Can change premium, time period, benefit41
Buy Term Life Insurance and Investthe Difference?Source: Garman and Forgue (2008). Personal Finance42
Key Provisions in a Life Insurance Policy Beneficiary and contingent beneficiaries (those who will receive benefitsupon the insured’s death) Incontestability clause Æ after policy has been in force for a specifiedperiod, company can’t dispute its validity for any reason (usually 2 years) Length of grace period for late payments Reinstatement rules for a lapsed policy Non-forfeiture clause allows you to keep accrued benefits in a whole lifepolicy if you drop the policy Misstatement of age provision (benefits paid on real age) Policy loan provision to borrow against cash value Suicide clause during first two years (only get back premiums) Policy rider modifies coverage by adding or altering benefits43
Life Insurance Settlement OptionsSettlement Options: Choices of how an insurancebenefit is paid out– Lump-Sum Payment Most common method– Limited Installment Plan Equal installments for a specific number of years afterdeath (10-year certain)– Life Income Option Payments to the beneficiary for life– Proceeds Left with the Company Pays interest to the beneficiary44
Buying Life Insurance:Factors to Consider Present and future sources of income fordependents– Other savings and income protection– Group life insurance– Pension benefits– Social Security benefits Financial strength of the insurance company45
Buying Life Insurance: Gathering DataDetermine from whom to buy your policy– Research the company’s rating by major ratingcompanies: A. M. BestThe image part with relationship ID rId1 was not found in the file. Standard and Poor’s Duff & Phelps Moody’s Weiss Research– Talk to family, friends, colleagues, advisors– Online premium quote services46
Sample Life Insurance EstimateMale, born 1/1/1980; 190 lb;Living in New York State 400,000 terminsurance – 10 yearsPreferred (best health);never smoked; 55 per quarter ( 220/yr)Standard, current smoker 155 per quarter( 620/yr)Source: www.directquote.com47
Types of Life Insurance Companiesand Policies2 Types of Life Insurance CompaniesType of CompanyOwned byStock life InsuranceShareholdersMutual life insurancePolicyholdersSource: Kapoor, Dlabay, Hughes, & Hart (2016). Focus on Personal Finance
Mutual Life Insurance Companies Owned by policyholders Participating policy premiums are higher than nonparticipating policies Part of the participating premium is refunded topolicyholders annually in the form of a dividend Examples: Mutual Benefit Life Insurance, LibertyMutual, Massachusetts Mutual Life Insurance49
Should You Ever Switch Policies?It Depends! Switch if benefits exceed costs of getting anotherphysical and paying policy set-up costs The older you are, the higher the premium Are you still insurable? Can you get all the provisions you want? Don’t cancel an old policy until new policy is in hand50
Choosing an Insurance Agent Ask friends, family, colleagues, and neighbors forrecommendations. Does an agent belong to professional organizations? Is the agent a Chartered Life Underwriter (CLU)? Is the agent willing to take the time to answerquestions and find a policy that is right for you? Do you feel pressured? Is the agent available when needed?
Insurance is Regulated at theState Government Level52
Life Insurance Video:What is Life Insurance?https://www.youtube.com/watch?v cazn9l4CEvk53
VA Life Insurance ProgramsMFLN WebinarApril 5, 2016VETERANS BENEFITS ADMINISTRATIONRuth Berkheimer, Insurance Specialist, VA Insurance Center
Customer Base – 6.3 million Insured 2.3 Million Servicemembers 2.8 Million Spouses/ChildrenThe image part with relationship IDrId1 was not found in the file. 429,000 Post-1992 Veterans 475,000 WWII, & Korean Era Veterans 272,000 Disabled VeteransVETERANS BENEFITS ADMINISTRATIONSource: Feb. 29, 2016 Exhibit of Insurance Inforce55
Face Amount of Coverage:VA vs. Private IndustryMet Life 4.4 TrillionRGA Group 1.9 TrillionAIG Life & ReZrement 1.5 TrillionAegon USA 1.5 TrillionLincoln Financial 1.3 TrillionSource: Best's Review September 2015VETERANS BENEFITS ADMINISTRATIONPrudenZal 3.8 TrillionScor Life 1.7 TrillionNorthwestern Mutual 1.5 TrillionVoya Financial 1.4 TrillionSwiss Life 1.3 TrillionVA 1.3 Trillion11th largest insurer56
VA-Supervised Life Insurance ProgramsVETERANS BENEFITS ADMINISTRATION57
Supervised Programs Servicemembers’ Group Life Insurance SGLI Family Coverage SGLI TraumaZc Injury ProtecZon SGLI Disability Extension Veterans’ Group Life InsuranceVETERANS BENEFITS ADMINISTRATION58
Servicemembers’ Group Life Insurance (SGLI) AcZve duty, Reservists and Guard automaZcally insured for 400,000 Member has opZon to decline or reduce the coverage in increments of 50,000 Coverage is 24/7, no restricZons 28 monthly premium, plus 1 for traumaZc injury coverage, deductedfrom pay Coverage conZnues for 120 days aaer discharge at no cost to member Member can apply for an extension of SGLI for up to 2 years if:– DisabiliZes prevent member from being gainfully employed, or– Member has certain statutory disabiliZesPages 30-34 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION59
Servicemembers’ Group Life Insurance (SGLI)Active DutyReady ReserveParticipation99%VETERANS BENEFITS ADMINISTRATIONPolicy Year 201593%60
SGLI Family Coverage (FSGLI) Spouse Coverage– AutomaZc coverage for non-military spouses (spouse must be registered inDEERS)– Spouses who are also in the military must apply– 100,000 maximum or amount of member’s coverage, whichever is less– Age-based premiums Child coverage– AutomaZc for all members covered by SGLI; member does not have to havespouse coverage to have child coverage– No charge to Servicemembers– Benefit for SZllbirth – EffecZve 10/10/2008 Servicemember is always beneficiaryPages 38-41 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION61
SGLI Family Coverage (FSGLI)FSGLI spouse coverage terminates 120 days aaer any of the following:– Member separates from the military– Divorce– Member elects in wriZng to terminate spouse SGLI coverage– Member elects in wriZng to terminate his/her SGLI coverage– Death of memberFSGLI child coverage terminates 120 days aaer any of the following:––––Member separates from the militaryMember elects in wriZng to terminate his/her SGLI coverageDeath of memberChild no longer qualifies as an insurable dependentConversion opZon– Spouse coverage can be converted to an individual policy within 120 daysof above events– Dependent child coverage cannot be convertedVETERANS BENEFITS ADMINISTRATION62
FSGLI – National Defense Authorization Act 2013NDAA 2013 repealed automaZc enrollment in FSGLI for members who aremarried to other members effecZve January 2, 2013 If marriage occurred before 1/2/2013 :– Spouse coverage is automaZcally issued to both spouses– Coverage is effecZve on the date of the marriage– Premium is owed from the date of marriage If marriage occurred on or aaer 1/2/2013:– Coverage is not automaZcally issued– If spouse coverage is desired, an applicaZon for spouse coverage must besubmiked (SGLV 8286A)– Coverage is effecZve on the date of applicaZon, if applicaZon is approved– Premium is due from the date of applicaZon if coverage is issuedVETERANS BENEFITS ADMINISTRATION63
SGLI Traumatic Injury Protection (TSGLI) EffecZve Dec. 1, 2005; retroacZve to Oct. 7, 2001 regardless of geographic locaZonwhere injuries occurred Provides financial benefit to those suffering serious traumaZc injuries to help withexpenses during treatment and recovery AutomaZc for members who have SGLI (retroacZve regardless of SGLI coverage) Premium is 1/monthMust suffer qualifying loss due to a traumaZc injury to receive payment Benefit from 25K to 100K, depending on type of loss or length of recoveryperiod Branch of Service TSGLI Offices evaluate and cerZfy claims for their members Not just a combat benefitPages 35-37 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION64
SGLI Traumatic Injury Protection (TSGLI) Benefit ranges from 25K - 100K Examples of losses covered:ü Loss of limbsü Loss of vision, hearing, speechü Plegiasü Burnsü 15-day hospitalizaZon Types of losses not covered:ü Mental illness such as PTSDü Physical illness or diseaseVETERANS BENEFITS ADMINISTRATION65
TSGLI - Criteria for Payment Suffer a qualifying loss as the result of a traumaZc eventwhile in service Covered by SGLI when traumaZc event occurs (except forretroacZve period) TraumaZc event must occur prior to separaZon fromservice (loss can occur aaer separaZon) Loss is a direct result of the traumaZc event Loss occurs within 2 years (730 days) of traumaZc event Survive 7 days from date of traumaZc eventVETERANS BENEFITS ADMINISTRATION66
SGLI Disability Extension For separaZng Servicemembers who:– are unable to work due to their disabiliZes, or– have certain statutory condiZons Extends SGLI coverage free of charge for up to two years from separaZon orunZl able to maintain gainful employment Member must apply If approved for SGLI Disability Extension, automaZcally converted to VGLI atend of two years (VGLI premiums not waived) We call recently separated disabled Veterans to advise them of the full rangeof VA Life Insurance benefitsPage 32 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION67
Veterans’ Group Life Insurance (VGLI) IniZal Maximum Coverage Amount of SGLI at separaZon Member must apply unless on the SGLI Disability Extension 1 year and 120 days from separaZon to apply; if within 240 days ofseparaZon, no proof of health required Age-based premiums Can increase coverage by 25,000 on five-year anniversary date up to 400,000 maximum Great transiZon insurance; SeparaZng Servicemembers should beencouraged to apply unZl they obtain other coverageThe image part with relationship ID rId1 was not found in the file. Renewable for life, or convertPages 42-48 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION68
Beneficiary Financial Counseling Service (BFCS) No cost financial planning services available to beneficiaries ofSGLI, FSGLI, TSGLI and VGLI Service provided by FinancialPoint ObjecZve financial professionals – do not receive commission Beneficiaries can provide informaZon online and a financial planwill be prepared for them. Beneficiaries can request a face-to-face meeZng with a financialprofessional. Beneficiaries can call to get quick answers to financial quesZonsor to request a detailed financial plan.VETERANS BENEFITS ADMINISTRATION69
Online Will Preparation Online will preparaZon services are available tobeneficiaries at no cost to them. Service enables beneficiaries to prepare a will onlinewithout an akorney. Answer a series of quesZons and receive a legal will, valid inall 50 states, ready to print and sign. Documents how assets will be distributed in the event ofdeath.VETERANS BENEFITS ADMINISTRATION70
Accelerated Benefit Option (ABO) Member (or spouse for FSGLI) must be terminally ill with aprognosis of 9 months or less to live Insured can receive up to 50% of the face amount of coverage Reduces death benefit Non-taxableVETERANS BENEFITS ADMINISTRATION71
VA-Administered Life Insurance ProgramsVETERANS BENEFITS ADMINISTRATION72
Service-Disabled Veterans’ Insurance 10,000 maximum basic coverage Must have received a service-connected disability raZngfrom VA of at least 0% Must apply within two years of a raZng for a newservice-connected disabilityThe image part with relationship ID rId1 was not found in the file. Must be in good health except for service-connecteddisabiliZes Premiums can be waived if totally disabled If approved for waiver of premiums, Veteran maypurchase up to 30,000 of supplemental insurance(premiums cannot be waived on supplemental)Pages 23-26 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION73
Veterans’ Mortgage Life Insurance Up to 200,000 of mortgage coverage Must have received a specially-adapted housing grantfrom VA Coverage reduces with mortgage balance Payable only to the mortgage company Cannot be issued aaer age 69 Premiums based on Veteran’s or Servicemember’sage, mortgage balance, and length of mortgagePages 27-29 of VA Life Insurance HandbookVETERANS BENEFITS ADMINISTRATION74
Insurance Internet - Self-Servicewww.benefits.va.gov/insuranceVeterans can perform many funcZons themselves, including:Ø Access Policy informaZonØ Apply for Insurance on-lineØ Borrow from PoliciesØ Beneficiaries can learn how to getfinancial counselingØ Find and download Insurancerelated formsØ Learn how to convert from SGLI to VGLIØ Learn how to file a disability or Ø Change Address (VGLI insureds)death claimØ Pay premiums from credit card orchecking accountVETERANS BENEFITS ADMINISTRATION75
VA Insurance Websitewww.benefits.va.gov/insuranceVETERANS BENEFITS ADMINISTRATION
VA Life Insurance 2016 VALifeBook.pdfVETERANS BENEFITS ADMINISTRATION
VA Insurance Website - TrainingOn-Demand spVETERANS BENEFITS ADMINISTRATION
VA Insurance Website - s-forms.aspVETERANS BENEFITS ADMINISTRATION
Program Contact Informationfor SGLI, FSGLI, VGLI ClaimsOffice of Servicemembers’ Group Life Insurance (OSGLI)– Address: 80 Livingston Avenue, Roseland, NJ 07068– Telephone Numbers: 800-419-1473, Monday through Friday, 8:00 am to 5:00 pm Eastern Main Fax: (800) 236-6142 Claims Fax: (877) 832-4943– E-Mail: Claims Only (Death & TSGLI): osgli.claims@prudenZal.com TSGLI Appeals: tsgli.appeals.osgli@prudenZal.com All Other: osgli.osgli@prudenZal.comVETERANS BENEFITS ADMINISTRATION80
Program Contact Informationfor TSGLIBranch of Service TSGLI Offices Servicemembers should contact their Branch of ServiceTSGLI Office Contact informaZon for these offices can be found at:www.benefits.va.gov/insurance/forms/SGLV 8600 ed2014-06.pdfVETERANS BENEFITS ADMINISTRATION81
Program Contact Informationfor S-DVI, VMLIVA Insurance Center– Address: VA Insurance Center, P.O.Box 7208, Phila., PA19101– Telephone Numbers: 800-669-8477, Monday through Friday, 8:00 am to 6:00 pm Eastern Main Fax: (888) 748-5822 Claims Fax: (888) 748-5822– E-Mail: Go to ANS BENEFITS ADMINISTRATION82
Contact InformationRuth Berkheimer, Insurance SpecialistVA Insurance Center, Philadelphia, PAPhone: 215-842-2000, ext. 4275ruth.berkheimer@va.govVETERANS BENEFITS ADMINISTRATION83
QuesZons?VETERANS BENEFITS ADMINISTRATION84
What is one significant thingyou learned today?85
Evaluation and Continuing EducationCredits/Certificate of CompletionMFLN Personal Finance is offering 1.5 credit hours via acertificate of completion for today’s webinar from AFCPE forAFC-credentialed participants and FinCert for CPFCcredentialed participants.To receive a certificate of completion, please complete theevaluation and post-test at:https://vte.co1.qualtrics.com/jfe/form/SV 3x8v39pgTpMA8w5Must pass post-test with 80% or higher to receive certificate.86
Personal Finance Upcoming EventCredit Scores: What’s New? Date: Tuesday, May 3, 2016 Time: 11 a.m. Eastern Location: https://learn.extension.org/events/2488For more information on MFLN Personal Finance go rsonal-finance/87
www.extension.org/62581The image part with relationship ID rId1 was not found in the file.The image part with relationship ID rId1 was notfound in the file.The image part with relationship ID rId1 was notfound in the file.88This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of FamilyReadiness Policy, U.S. Department of Defense under Award Numbers 2014-48770-22587 and 2015-48770-24368.
Research and evidenced-basedprofessional developmentthrough engaged online communitieswww.extension.org/militaryfamiliesSign up for webinar email notifications at www.extension.org/6283189
Life Insurance Basics for Military Families 1 . Connecting military family service providers to research and to each other . Cancer insurance "Double Indemnity" insurance riders Hospital indemnity policies Flight insurance Car rental collision-damage waivers 20 .
