{"id":301,"date":"2018-11-16T20:48:26","date_gmt":"2018-11-16T20:48:26","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/?post_type=chapter&#038;p=301"},"modified":"2018-11-16T20:48:26","modified_gmt":"2018-11-16T20:48:26","slug":"10-3-insuring-your-income","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/chapter\/10-3-insuring-your-income\/","title":{"raw":"10.3 Insuring Your Income","rendered":"10.3 Insuring Your Income"},"content":{"raw":"<div id=\"navbar-top\" class=\"navbar\">\r\n<div class=\"navbar-part left\"><\/div>\r\n<\/div>\r\n<div id=\"book-content\">\r\n<div id=\"fwk-134226-ch10_s03\" class=\"section\" xml:lang=\"en\">\r\n<div id=\"fwk-134226-ch10_s03_n01\" class=\"learning_objectives editable block\">\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ol id=\"fwk-134226-ch10_s03_l01\" class=\"orderedlist\">\r\n \t<li>Describe the purposes, coverage, and costs of disability insurance.<\/li>\r\n \t<li>Compare the appropriate uses of term life and whole life insurance.<\/li>\r\n \t<li>Explain the differences among variable, adjustable, and universal whole life policies and the use of riders.<\/li>\r\n \t<li>List the factors that determine the premiums for whole life policies.<\/li>\r\n<\/ol>\r\n<\/div>\r\n&nbsp;\r\n\r\n<\/div>\r\n<p id=\"fwk-134226-ch10_s03_p01\" class=\"para editable block\">As you have learned, assets such as a home or car should be protected from the risk of a loss of value, because assets store wealth, so a loss of value is a loss of wealth.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_p02\" class=\"para editable block\">Your health is also valuable, and the costs of repairing it in the case of accident or illness are significant enough that it also requires insurance coverage. In addition, however, you may have an accident or illness that leaves you permanently impaired or even dead. In either case, your ability to earn income will be restricted or gone. Thus, your income should be insured, especially if you have dependents who would bear the consequences of losing your income. Disability insurance and life insurance are ways of insuring your income against some limitations.<\/p>\r\n\r\n<div id=\"fwk-134226-ch10_s03_s01\" class=\"section\">\r\n<h2 class=\"title editable block\">Disability Insurance<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s01_p01\" class=\"para editable block\"><strong>Disability insurance<\/strong>[footnote]Insurance to protect the insured against the risk of being unable to earn wages or salary as a result of injury or illness.[\/footnote] is designed to insure your income should you survive an injury or illness impaired. The definition of \u201cdisability\u201d is a variable feature of most policies. Some define it as being unable to pursue your regular work, while others define it more narrowly as being unable to pursue any work. Some plans pay partial benefits if you return to work part-time, and some do not. As always, you should understand the limits of your plan\u2019s coverage.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s01_p02\" class=\"para editable block\">The costs of disability insurance are determined by the features and\/or conditions of the plan, including the following:<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s01_l01\" class=\"itemizedlist editable block\">\r\n \t<li>Waiting period<\/li>\r\n \t<li>Amount of benefits<\/li>\r\n \t<li>Duration of benefits<\/li>\r\n \t<li>Cause of disability<\/li>\r\n \t<li>Payments for loss of vision, hearing, speech, or use of limbs<\/li>\r\n \t<li>Inflation-adjusted benefits<\/li>\r\n \t<li>Guaranteed renewal or noncancelable clause<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s01_p03\" class=\"para editable block\">In general, the greater the number of these features or conditions that apply, the higher your premium.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s01_p04\" class=\"para editable block\">All plans have a waiting period from the time of disability to the collection of benefits. Most are between 30 and 90 days, but some are as long as 180 days. The longer the waiting period is, generally, the less the premium.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s01_p05\" class=\"para editable block\">Plans also vary in the amount and duration of benefits. Benefits are usually offered as a percent of your current wages or salary. The more the benefits or the longer the insurance pays out, the higher the premium. Some plans offer lifetime benefits, while others end benefits at age sixty-five (the age of Medicare eligibility).<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s01_p06\" class=\"para editable block\">In addition, some plans offer benefits in the following cases, all of which carry higher premiums:<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s01_l02\" class=\"itemizedlist editable block\">\r\n \t<li>Disability due to accident or illness<\/li>\r\n \t<li>Loss of vision, hearing, speech, or the use of limbs, regardless of disability<\/li>\r\n \t<li>Benefits that automatically increase with the rate of inflation<\/li>\r\n \t<li>Guaranteed renewal, which insures against losing your coverage if your health deteriorates<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s01_p07\" class=\"para editable block\">You may already have some disability insurance through your employer, although in many cases the coverage is minimal. You may also be eligible for Social Security benefits from the federal government or workers\u2019 compensation benefit from your state if the disability is due to an on-the-job accident. Other providers of disability benefits include the following:<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s01_l03\" class=\"itemizedlist editable block\">\r\n \t<li>The Veterans\u2019 Administration (if you are a veteran)<\/li>\r\n \t<li>Automobile insurance (if the disability is due to a car accident)<\/li>\r\n \t<li>Labor unions (if you are a member)<\/li>\r\n \t<li>Civil service provisions (if you are a government employee)<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s01_p08\" class=\"para editable block\">You should know the coverage available to you and if you find it\u2019s not adequate, supplement it with private disability insurance.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fwk-134226-ch10_s03_s02\" class=\"section\">\r\n<h2 class=\"title editable block\">Life Insurance<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s02_p01\" class=\"para editable block\"><strong>Life insurance<\/strong>[footnote]Insurance to compensate beneficiaries against the financial consequences of the death of the insured.[\/footnote] is a way of insuring that your income will continue after your death. If you have a spouse, children, parents, or siblings who are dependent on your income or care, your death would create new financial burdens for them. To avoid that, you can insure your dependents against your loss, at least financially.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_p02\" class=\"para editable block\">There are many kinds of life insurance policies. Before purchasing one, you should determine what it is you want the insurance to accomplish for your survivors. What do you want it to do?<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s02_l01\" class=\"itemizedlist editable block\">\r\n \t<li>Pay off the mortgage?<\/li>\r\n \t<li>Put your kids through college?<\/li>\r\n \t<li>Provide income so that your spouse can be home with the kids and not be forced out into the workplace?<\/li>\r\n \t<li>Provide alternative care for your elderly parents or dependent siblings?<\/li>\r\n \t<li>Cover the costs of your medical expenses and funeral?<\/li>\r\n \t<li>Avoid estate taxes?<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s02_p03\" class=\"para editable block\">These are uses of life insurance. Your goals for your life insurance will determine how much benefit you need and what kind of policy you need. Weighed against that are its costs\u2014the amount of premium that you pay and how that fits into your current budget.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_p04\" class=\"para editable block\">Sam and Maggie have two children, ages three and five. Maggie works as a credit analyst in a bank. Sam looks after the household and the children and Maggie\u2019s elderly mother, who lives a couple of blocks away. He does her grocery shopping, cleans her apartment, does her laundry, and runs any errands that she may need done. Sam and Maggie live in a condo they bought, financed with a mortgage. They have established college savings accounts for each child, and they try to save regularly.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_p05\" class=\"para editable block\">Sam and Maggie need to insure both their lives, because the loss of either would cause the survivors financial hardship. With Maggie\u2019s death, her earnings would be gone, which is how they pay the mortgage and save for their children\u2019s education. Insurance on her life should be enough to pay off the mortgage and fund their children\u2019s college educations, while providing for the family\u2019s living expenses, unless Sam returns to the workforce. With Sam\u2019s death, Maggie would have to hire someone to keep house and care for their children, and also someone to keep her mother\u2019s house and provide care for her. Insurance on Sam\u2019s life should be enough to maintain everyone\u2019s quality of living.<\/p>\r\n\r\n<div id=\"fwk-134226-ch10_s03_s02_s01\" class=\"section\">\r\n<h2 class=\"title editable block\">Term Insurance<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p01\" class=\"para editable block\">Maggie\u2019s income provides for three expenditures: the mortgage, education savings, and living expenses. While living expenses are an ongoing or permanent need, the mortgage payment and the education savings are not: eventually, the mortgage will be paid off and the children educated. To cover permanent needs, Maggie and Sam should consider permanent insurance, also known as <strong>whole life<\/strong>[footnote]Life insurance providing coverage until the insured\u2019s death; it can also be used as an investment instrument.[\/footnote], straight life, or cash value insurance. To insure those two temporary goals of paying the mortgage and college tuitions, Maggie and Sam could consider temporary or term insurance.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p02\" class=\"para editable block\"><strong>Term insurance<\/strong>[footnote]Life insurance providing coverage for a specified period of time.[\/footnote] is insurance for a limited time period, usually one, five, ten, or twenty years. After that period, the coverage stops. It is used to cover financial needs for a limited time period\u2014for example, to cover the balance due on a mortgage, or education costs. Premiums are lower for term insurance, because the coverage is limited. The premium is based on the amount of coverage and the length of the time period covered.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p03\" class=\"para editable block\">A term insurance policy may have a renewability option, so that you can renew the policy at the end of its term, or it may have a conversion option, so that you can convert it to a whole life policy and pay a higher premium. If it is multiyear level term or straight term, the premium will remain the same over the term of coverage.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p04\" class=\"para editable block\">Decreasing term insurance pays a decreasing benefit as the term progresses, which may make sense in covering the balance due on a mortgage, which also decreases with payments over time. On the other hand, you could simply buy a one-year term policy with a smaller benefit each year and have more flexibility should you decide to make a change.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p05\" class=\"para editable block\">A return-of-premium (ROP) term policy will return the premiums you have paid if you outlive the term of the policy. On the other hand, the premiums on such policies are higher, and you may do better by simply buying the regular term policy and saving the difference between the premiums.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s01_p06\" class=\"para editable block\">Term insurance is a more affordable way to insure against a specific risk for a specific time. It is pure insurance, in that it provides risk shifting for a period of time, but unlike whole life, it does not also provide a way to save or invest.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fwk-134226-ch10_s03_s02_s02\" class=\"section\">\r\n<h2 class=\"title editable block\">Whole Life Insurance<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p01\" class=\"para editable block\">Whole life insurance is permanent insurance. That is, you pay a specified premium until you die, at which time your specified benefit is paid to your beneficiary. The amount of the premium is determined by the amount of your benefit and your age and life expectancy when the policy is purchased.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p02\" class=\"para editable block\">Unlike term insurance, where your premiums simply pay for your coverage or risk shifting, a whole life insurance policy has a <strong>cash surrender value<\/strong>[footnote]The value of a whole life policy\u2014the cash available for the policyholder\u2014if the policy is canceled before the death of the insured.[\/footnote] or cash value that is the value you would receive if you canceled the policy before you die. You can \u201ccash out\u201d the policy and receive that cash value before you die. In that way, the whole life policy is also an investment vehicle; your premiums are a way of saving and investing, using the insurance company as your investment manager. Whole life premiums are more than term life premiums because you are paying not only to shift risk but also for investment management.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p03\" class=\"para editable block\">A <strong>variable life<\/strong>[footnote]Life insurance that provides a guaranteed minimum benefit with potential to be greater depending on investment performance.[\/footnote] insurance policy has a minimum death benefit guaranteed, but the actual death benefit can be higher depending on the investment returns that the policy has earned. In that case, you are shifting some risk, but also assuming some risk of the investment performance.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p04\" class=\"para editable block\">An <strong>adjustable life<\/strong>[footnote]Benefits and premium can be adjusted without cancellation of the policy.[\/footnote] policy is one where you can adjust the amount of your benefit, and your premium, as your needs change.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p05\" class=\"para editable block\">A <strong>universal life<\/strong>[footnote]Benefits and premiums are flexible, in terms of both timing and amounts.[\/footnote] policy offers flexible premiums and benefits. The benefit can be increased or decreased without canceling the policy and getting a new one (and thus losing the cash value, as in a basic whole life policy). Premiums are added to the policy\u2019s cash value, as are investment returns, while the insurer deducts the cost of insurance (COI) and any other policy fees.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p06\" class=\"para editable block\">When purchased, universal life policies may be offered with a single premium payment, a fixed (and regular) premium payment until you die, or a flexible premium where you can determine the amount of each premium, so long as the cash value in the account can cover the insurer\u2019s COI.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p07\" class=\"para editable block\"><a class=\"xref\" href=\"#fwk-134226-ch10_s03_s02_s02_f01\">Figure 10.14 \"Life Insurance Options\"<\/a> shows the life insurance options.<\/p>\r\n\r\n<div id=\"fwk-134226-ch10_s03_s02_s02_f01\" class=\"figure large medium-height editable block\">\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"1051\"]<img src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3745\/2018\/11\/14182954\/c71247ba31efca4dc21e711552ae4ade.jpg\" alt=\"image\" width=\"1051\" height=\"521\" \/> Figure 10.14 Life Insurance Options[\/caption]\r\n\r\n<\/div>\r\n<p id=\"fwk-134226-ch10_s03_s02_s02_p08\" class=\"para editable block\">So, is it term or whole life? When you purchase a term life policy, you purchase and pay for the insurance only. When you purchase a whole life policy, you purchase insurance plus investment management. You pay more for that additional service, so its value should be greater than its cost (in additional premiums). Whole life policies take some analysis to figure out the real investment returns and fees, and the insurer is valuable to you only if it is a better investment manager than you could have otherwise. There are many choices for investment management. Thus, the additional cost of a whole life policy must be weighed against your choices among investment vehicles. If it\u2019s better than your other choices, then you should buy the whole life. If not, then buy term life and save or invest the difference in the premiums.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fwk-134226-ch10_s03_s02_s03\" class=\"section\">\r\n<h2 class=\"title editable block\">Choosing a Policy<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p01\" class=\"para editable block\">All life insurance policies have basic features, which then can be customized with a <strong>rider<\/strong>[footnote]A clause to a policy that adds specific benefits under specific conditions.[\/footnote]\u2014a clause that adds benefits under certain conditions. The standard features include provisions that protect the insured and beneficiaries in cases of missed premium payments, fraud, or suicide. There are also loan provisions granted, so that you can borrow against the cash value of a whole life policy.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p02\" class=\"para editable block\">Riders are actually extra insurance that you can purchase to cover less common circumstances. Commonly offered riders include<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s02_s03_l01\" class=\"itemizedlist editable block\">\r\n \t<li>a waiver of premium payment if the insured becomes completely disabled,<\/li>\r\n \t<li>a double benefit for accidental death,<\/li>\r\n \t<li>guaranteed insurability allowing you to increase your benefit without proof of good health,<\/li>\r\n \t<li>cost of living protection that protects your benefit from inflation,<\/li>\r\n \t<li>accelerated benefits that allow you to spend your benefit before your death if you need to finance long-term care.<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p03\" class=\"para editable block\">Finally, you need to consider the settlement options offered by the policy: the ways that the benefit is paid out to your beneficiaries. The three common options are<\/p>\r\n\r\n<ul id=\"fwk-134226-ch10_s03_s02_s03_l02\" class=\"itemizedlist editable block\">\r\n \t<li>as a lump sum, paid out all at once;<\/li>\r\n \t<li>in installments, paid out over a specified period;<\/li>\r\n \t<li>as interest payments, so that a series of interest payments is made to the beneficiaries until a specified time when the benefit itself is paid out.<\/li>\r\n<\/ul>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p04\" class=\"para editable block\">You would choose the various options depending on your beneficiaries and their anticipated needs. Understanding these features, riders, and options can help you to identify the appropriate insurance product for your situation. As with any purchase, once you have identified the product, you need to identify the market and the financing.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p05\" class=\"para editable block\">Many insurers offer many insurance products, usually sold through brokers or agents. Agents are paid on commission, based on the amount of insurance they sell. A captive agent sells the insurance of only one company, while an independent agent sells policies from many insurers. You want a licensed agent that is responsive and will answer questions patiently and professionally. If you die, this may be the person on whom your survivors will have to depend to help them receive their benefits in a troubling time.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p06\" class=\"para editable block\">You will have to submit an application for a policy and may be required to have a physical exam or release medical records to verify your physical condition. Factors that influence your riskiness are your family medical history, age and weight, and lifestyle choices such as smoking, drinking, and drug use. Your risks will influence the amount of your premiums.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s03_p07\" class=\"para editable block\">Having analyzed the product and the market, you need to be sure that the premium payments are sustainable for you, that you can add the expense in your operating budget without creating a budget deficit.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fwk-134226-ch10_s03_s02_s04\" class=\"section\">\r\n<h2 class=\"title editable block\">Life Insurance as a Financial Planning Decision<\/h2>\r\n<p id=\"fwk-134226-ch10_s03_s02_s04_p01\" class=\"para editable block\">Unlike insuring property and health, life insurance can combine two financial planning functions: shifting risk and saving to build wealth. The decision to buy life insurance involves thinking about your choices for both and your opportunity cost in doing so.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s04_p02\" class=\"para editable block\">Life insurance is about insuring your earnings even after your death. You can create earnings during your lifetime by selling labor or capital. Your death precludes your selling labor or earning income from salary or wages, but if you have assets that can also earn income, they may be able to generate some or even enough income to insure the continued comfort of your dependents, even without your salary or wages.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s04_p03\" class=\"para editable block\">In other words, the larger your accumulated asset base, the greater its earnings, and the less dependent you are on your own labor for financial support. In that case, you will need less income protection and less life insurance. Besides life insurance, another way to protect your beneficiaries is to accumulate a large enough asset base with a large enough earning potential.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s04_p04\" class=\"para editable block\">If you can afford the life insurance premiums, then the money that you will pay in premiums is currently part of your budget surplus and is being saved somehow. If it is currently contributing to your children\u2019s education savings or to your retirement plan, you will have to weigh the value of protecting current income against insuring your children\u2019s education or your future income in retirement. Or that surplus could be used toward generating that larger asset base.<\/p>\r\n<p id=\"fwk-134226-ch10_s03_s02_s04_p05\" class=\"para editable block\">These are tough decisions to weigh because life is risky. If you never have an accident or illness and simply go through life earning plenty and paying off your mortgage and saving for retirement and educating your children, then are all those insurance premiums just wasted? No. Since your financial strategy includes accumulating assets and earning income to satisfy your needs now or in the future, you need to protect those assets and income, at least by shifting the risk of losing them through a chance accident. At the same time, you must make risk-shifting decisions in the context of your other financial goals and decisions.<\/p>\r\n\r\n<div id=\"fwk-134226-ch10_s03_s02_s04_n01\" class=\"key_takeaways editable block\">\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Key Takeaways<\/h3>\r\n<ul id=\"fwk-134226-ch10_s03_s02_s04_l01\" class=\"itemizedlist\">\r\n \t<li>Disability insurance insures your income against an accident or illness that leaves your earning ability impaired.<\/li>\r\n \t<li>Disability insurance coverage and costs vary.<\/li>\r\n \t<li>Life insurance is designed to protect dependents against the loss of your income in the event of your death.<\/li>\r\n \t<li>Term insurance provides life insurance coverage for a specified period of time.<\/li>\r\n \t<li>Whole life insurance provides life insurance coverage until the insured\u2019s death.<\/li>\r\n \t<li>Whole life insurance has a cash surrender value and thus can be used as an investment instrument as well as a way of shifting risk.<\/li>\r\n \t<li>Variable, adjustable, and universal life policies offer more flexibility of benefits and premiums.<\/li>\r\n \t<li>Riders provide more specific coverage.<\/li>\r\n \t<li>Premiums are determined by the choice of benefits and riders and the risk of the insured, as assessed by medical history and lifestyle choices.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n<div id=\"fwk-134226-ch10_s03_s02_s04_n02\" class=\"exercises editable block\">\r\n<h3 class=\"title\">Exercises<\/h3>\r\n<ol id=\"fwk-134226-ch10_s03_s02_s04_l02\" class=\"orderedlist\">\r\n \t<li>Find out about workers\u2019 compensation at <a class=\"link\" href=\"http:\/\/www.dol.gov\/owcp\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.dol.gov\/owcp\/<\/a>. What does the federal Office of Workers\u2019 Compensation Programs do, and what specific disabilities are covered in the programs that the OWCP administers? Find out what programs are available in your state for workers\u2019 compensation covering industrial and workplace accidents at <a class=\"link\" href=\"http:\/\/www.ic.nc.gov\/ncic\/pages\/all50.htm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.ic.nc.gov\/ncic\/pages\/all50.htm<\/a>. What is the role of the U.S. Department of Labor\u2019s Occupational Safety &amp; Health Administration (OSHA) in preventing workplace illness and injury? Find out at <a class=\"link\" href=\"http:\/\/www.osha.gov\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.osha.gov\/<\/a>.<\/li>\r\n \t<li>\r\n<p class=\"para\">Find information about unemployment compensation at <a class=\"link\" href=\"http:\/\/www.dol.gov\/dol\/topic\/unemployment-insurance\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.dol.gov\/dol\/topic\/unemployment-insurance\/<\/a> and <a class=\"link\" href=\"http:\/\/www.policyalmanac.org\/social_welfare\/archive\/unemployment_compensation.shtml\" target=\"_blank\" rel=\"noopener\">http:\/\/www.policyalmanac.org\/social_welfare\/archive\/unemployment_compensation.shtml<\/a> to answer the following questions.<\/p>\r\n\r\n<ol id=\"fwk-134226-ch10_s03_s02_s04_l03\" class=\"orderedlist\">\r\n \t<li>If you are involuntarily unemployed, do the federal and state unemployment compensation programs replace your wages?<\/li>\r\n \t<li>Are you entitled to unemployment compensation if you choose to be unemployed temporarily?<\/li>\r\n \t<li>Does it matter what kind of a job you have or how much income you earn?<\/li>\r\n \t<li>What does it mean to be involuntarily unemployed?<\/li>\r\n \t<li>Where does the money come from?<\/li>\r\n \t<li>If you have seasonal employment, can you collect unemployment to cover the off-season?<\/li>\r\n \t<li>If you are eligible, how long can you collect unemployment?<\/li>\r\n \t<li>Is the money you receive from unemployment compensation taxable?<\/li>\r\n \t<li>If you became unemployed in your state, how would your income be insured, and what could you expect from your state unemployment compensation program?<\/li>\r\n<\/ol>\r\n<\/li>\r\n \t<li>Read advice on choosing insurance from The Motley Fool at <a class=\"link\" href=\"http:\/\/www.fool.com\/insurancecenter\/life\/life.htm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.fool.com\/insurancecenter\/life\/life.htm<\/a>. What are two situations in which purchasing life insurance might not be a good choice for you? According to the Insurance Information Institute (<a class=\"link\" href=\"http:\/\/www.iii.org\/individuals\/life\/buying\/pickacompany\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.iii.org\/individuals\/life\/buying\/pickacompany\/<\/a>), what factors should you consider when choosing a life insurance company?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<\/div>","rendered":"<div id=\"navbar-top\" class=\"navbar\">\n<div class=\"navbar-part left\"><\/div>\n<\/div>\n<div id=\"book-content\">\n<div id=\"fwk-134226-ch10_s03\" class=\"section\" xml:lang=\"en\">\n<div id=\"fwk-134226-ch10_s03_n01\" class=\"learning_objectives editable block\">\n<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ol id=\"fwk-134226-ch10_s03_l01\" class=\"orderedlist\">\n<li>Describe the purposes, coverage, and costs of disability insurance.<\/li>\n<li>Compare the appropriate uses of term life and whole life insurance.<\/li>\n<li>Explain the differences among variable, adjustable, and universal whole life policies and the use of riders.<\/li>\n<li>List the factors that determine the premiums for whole life policies.<\/li>\n<\/ol>\n<\/div>\n<p>&nbsp;<\/p>\n<\/div>\n<p id=\"fwk-134226-ch10_s03_p01\" class=\"para editable block\">As you have learned, assets such as a home or car should be protected from the risk of a loss of value, because assets store wealth, so a loss of value is a loss of wealth.<\/p>\n<p id=\"fwk-134226-ch10_s03_p02\" class=\"para editable block\">Your health is also valuable, and the costs of repairing it in the case of accident or illness are significant enough that it also requires insurance coverage. In addition, however, you may have an accident or illness that leaves you permanently impaired or even dead. In either case, your ability to earn income will be restricted or gone. Thus, your income should be insured, especially if you have dependents who would bear the consequences of losing your income. Disability insurance and life insurance are ways of insuring your income against some limitations.<\/p>\n<div id=\"fwk-134226-ch10_s03_s01\" class=\"section\">\n<h2 class=\"title editable block\">Disability Insurance<\/h2>\n<p id=\"fwk-134226-ch10_s03_s01_p01\" class=\"para editable block\"><strong>Disability insurance<\/strong><a class=\"footnote\" title=\"Insurance to protect the insured against the risk of being unable to earn wages or salary as a result of injury or illness.\" id=\"return-footnote-301-1\" href=\"#footnote-301-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a> is designed to insure your income should you survive an injury or illness impaired. The definition of \u201cdisability\u201d is a variable feature of most policies. Some define it as being unable to pursue your regular work, while others define it more narrowly as being unable to pursue any work. Some plans pay partial benefits if you return to work part-time, and some do not. As always, you should understand the limits of your plan\u2019s coverage.<\/p>\n<p id=\"fwk-134226-ch10_s03_s01_p02\" class=\"para editable block\">The costs of disability insurance are determined by the features and\/or conditions of the plan, including the following:<\/p>\n<ul id=\"fwk-134226-ch10_s03_s01_l01\" class=\"itemizedlist editable block\">\n<li>Waiting period<\/li>\n<li>Amount of benefits<\/li>\n<li>Duration of benefits<\/li>\n<li>Cause of disability<\/li>\n<li>Payments for loss of vision, hearing, speech, or use of limbs<\/li>\n<li>Inflation-adjusted benefits<\/li>\n<li>Guaranteed renewal or noncancelable clause<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s01_p03\" class=\"para editable block\">In general, the greater the number of these features or conditions that apply, the higher your premium.<\/p>\n<p id=\"fwk-134226-ch10_s03_s01_p04\" class=\"para editable block\">All plans have a waiting period from the time of disability to the collection of benefits. Most are between 30 and 90 days, but some are as long as 180 days. The longer the waiting period is, generally, the less the premium.<\/p>\n<p id=\"fwk-134226-ch10_s03_s01_p05\" class=\"para editable block\">Plans also vary in the amount and duration of benefits. Benefits are usually offered as a percent of your current wages or salary. The more the benefits or the longer the insurance pays out, the higher the premium. Some plans offer lifetime benefits, while others end benefits at age sixty-five (the age of Medicare eligibility).<\/p>\n<p id=\"fwk-134226-ch10_s03_s01_p06\" class=\"para editable block\">In addition, some plans offer benefits in the following cases, all of which carry higher premiums:<\/p>\n<ul id=\"fwk-134226-ch10_s03_s01_l02\" class=\"itemizedlist editable block\">\n<li>Disability due to accident or illness<\/li>\n<li>Loss of vision, hearing, speech, or the use of limbs, regardless of disability<\/li>\n<li>Benefits that automatically increase with the rate of inflation<\/li>\n<li>Guaranteed renewal, which insures against losing your coverage if your health deteriorates<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s01_p07\" class=\"para editable block\">You may already have some disability insurance through your employer, although in many cases the coverage is minimal. You may also be eligible for Social Security benefits from the federal government or workers\u2019 compensation benefit from your state if the disability is due to an on-the-job accident. Other providers of disability benefits include the following:<\/p>\n<ul id=\"fwk-134226-ch10_s03_s01_l03\" class=\"itemizedlist editable block\">\n<li>The Veterans\u2019 Administration (if you are a veteran)<\/li>\n<li>Automobile insurance (if the disability is due to a car accident)<\/li>\n<li>Labor unions (if you are a member)<\/li>\n<li>Civil service provisions (if you are a government employee)<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s01_p08\" class=\"para editable block\">You should know the coverage available to you and if you find it\u2019s not adequate, supplement it with private disability insurance.<\/p>\n<\/div>\n<div id=\"fwk-134226-ch10_s03_s02\" class=\"section\">\n<h2 class=\"title editable block\">Life Insurance<\/h2>\n<p id=\"fwk-134226-ch10_s03_s02_p01\" class=\"para editable block\"><strong>Life insurance<\/strong><a class=\"footnote\" title=\"Insurance to compensate beneficiaries against the financial consequences of the death of the insured.\" id=\"return-footnote-301-2\" href=\"#footnote-301-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a> is a way of insuring that your income will continue after your death. If you have a spouse, children, parents, or siblings who are dependent on your income or care, your death would create new financial burdens for them. To avoid that, you can insure your dependents against your loss, at least financially.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_p02\" class=\"para editable block\">There are many kinds of life insurance policies. Before purchasing one, you should determine what it is you want the insurance to accomplish for your survivors. What do you want it to do?<\/p>\n<ul id=\"fwk-134226-ch10_s03_s02_l01\" class=\"itemizedlist editable block\">\n<li>Pay off the mortgage?<\/li>\n<li>Put your kids through college?<\/li>\n<li>Provide income so that your spouse can be home with the kids and not be forced out into the workplace?<\/li>\n<li>Provide alternative care for your elderly parents or dependent siblings?<\/li>\n<li>Cover the costs of your medical expenses and funeral?<\/li>\n<li>Avoid estate taxes?<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s02_p03\" class=\"para editable block\">These are uses of life insurance. Your goals for your life insurance will determine how much benefit you need and what kind of policy you need. Weighed against that are its costs\u2014the amount of premium that you pay and how that fits into your current budget.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_p04\" class=\"para editable block\">Sam and Maggie have two children, ages three and five. Maggie works as a credit analyst in a bank. Sam looks after the household and the children and Maggie\u2019s elderly mother, who lives a couple of blocks away. He does her grocery shopping, cleans her apartment, does her laundry, and runs any errands that she may need done. Sam and Maggie live in a condo they bought, financed with a mortgage. They have established college savings accounts for each child, and they try to save regularly.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_p05\" class=\"para editable block\">Sam and Maggie need to insure both their lives, because the loss of either would cause the survivors financial hardship. With Maggie\u2019s death, her earnings would be gone, which is how they pay the mortgage and save for their children\u2019s education. Insurance on her life should be enough to pay off the mortgage and fund their children\u2019s college educations, while providing for the family\u2019s living expenses, unless Sam returns to the workforce. With Sam\u2019s death, Maggie would have to hire someone to keep house and care for their children, and also someone to keep her mother\u2019s house and provide care for her. Insurance on Sam\u2019s life should be enough to maintain everyone\u2019s quality of living.<\/p>\n<div id=\"fwk-134226-ch10_s03_s02_s01\" class=\"section\">\n<h2 class=\"title editable block\">Term Insurance<\/h2>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p01\" class=\"para editable block\">Maggie\u2019s income provides for three expenditures: the mortgage, education savings, and living expenses. While living expenses are an ongoing or permanent need, the mortgage payment and the education savings are not: eventually, the mortgage will be paid off and the children educated. To cover permanent needs, Maggie and Sam should consider permanent insurance, also known as <strong>whole life<\/strong><a class=\"footnote\" title=\"Life insurance providing coverage until the insured\u2019s death; it can also be used as an investment instrument.\" id=\"return-footnote-301-3\" href=\"#footnote-301-3\" aria-label=\"Footnote 3\"><sup class=\"footnote\">[3]<\/sup><\/a>, straight life, or cash value insurance. To insure those two temporary goals of paying the mortgage and college tuitions, Maggie and Sam could consider temporary or term insurance.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p02\" class=\"para editable block\"><strong>Term insurance<\/strong><a class=\"footnote\" title=\"Life insurance providing coverage for a specified period of time.\" id=\"return-footnote-301-4\" href=\"#footnote-301-4\" aria-label=\"Footnote 4\"><sup class=\"footnote\">[4]<\/sup><\/a> is insurance for a limited time period, usually one, five, ten, or twenty years. After that period, the coverage stops. It is used to cover financial needs for a limited time period\u2014for example, to cover the balance due on a mortgage, or education costs. Premiums are lower for term insurance, because the coverage is limited. The premium is based on the amount of coverage and the length of the time period covered.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p03\" class=\"para editable block\">A term insurance policy may have a renewability option, so that you can renew the policy at the end of its term, or it may have a conversion option, so that you can convert it to a whole life policy and pay a higher premium. If it is multiyear level term or straight term, the premium will remain the same over the term of coverage.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p04\" class=\"para editable block\">Decreasing term insurance pays a decreasing benefit as the term progresses, which may make sense in covering the balance due on a mortgage, which also decreases with payments over time. On the other hand, you could simply buy a one-year term policy with a smaller benefit each year and have more flexibility should you decide to make a change.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p05\" class=\"para editable block\">A return-of-premium (ROP) term policy will return the premiums you have paid if you outlive the term of the policy. On the other hand, the premiums on such policies are higher, and you may do better by simply buying the regular term policy and saving the difference between the premiums.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s01_p06\" class=\"para editable block\">Term insurance is a more affordable way to insure against a specific risk for a specific time. It is pure insurance, in that it provides risk shifting for a period of time, but unlike whole life, it does not also provide a way to save or invest.<\/p>\n<\/div>\n<div id=\"fwk-134226-ch10_s03_s02_s02\" class=\"section\">\n<h2 class=\"title editable block\">Whole Life Insurance<\/h2>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p01\" class=\"para editable block\">Whole life insurance is permanent insurance. That is, you pay a specified premium until you die, at which time your specified benefit is paid to your beneficiary. The amount of the premium is determined by the amount of your benefit and your age and life expectancy when the policy is purchased.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p02\" class=\"para editable block\">Unlike term insurance, where your premiums simply pay for your coverage or risk shifting, a whole life insurance policy has a <strong>cash surrender value<\/strong><a class=\"footnote\" title=\"The value of a whole life policy\u2014the cash available for the policyholder\u2014if the policy is canceled before the death of the insured.\" id=\"return-footnote-301-5\" href=\"#footnote-301-5\" aria-label=\"Footnote 5\"><sup class=\"footnote\">[5]<\/sup><\/a> or cash value that is the value you would receive if you canceled the policy before you die. You can \u201ccash out\u201d the policy and receive that cash value before you die. In that way, the whole life policy is also an investment vehicle; your premiums are a way of saving and investing, using the insurance company as your investment manager. Whole life premiums are more than term life premiums because you are paying not only to shift risk but also for investment management.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p03\" class=\"para editable block\">A <strong>variable life<\/strong><a class=\"footnote\" title=\"Life insurance that provides a guaranteed minimum benefit with potential to be greater depending on investment performance.\" id=\"return-footnote-301-6\" href=\"#footnote-301-6\" aria-label=\"Footnote 6\"><sup class=\"footnote\">[6]<\/sup><\/a> insurance policy has a minimum death benefit guaranteed, but the actual death benefit can be higher depending on the investment returns that the policy has earned. In that case, you are shifting some risk, but also assuming some risk of the investment performance.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p04\" class=\"para editable block\">An <strong>adjustable life<\/strong><a class=\"footnote\" title=\"Benefits and premium can be adjusted without cancellation of the policy.\" id=\"return-footnote-301-7\" href=\"#footnote-301-7\" aria-label=\"Footnote 7\"><sup class=\"footnote\">[7]<\/sup><\/a> policy is one where you can adjust the amount of your benefit, and your premium, as your needs change.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p05\" class=\"para editable block\">A <strong>universal life<\/strong><a class=\"footnote\" title=\"Benefits and premiums are flexible, in terms of both timing and amounts.\" id=\"return-footnote-301-8\" href=\"#footnote-301-8\" aria-label=\"Footnote 8\"><sup class=\"footnote\">[8]<\/sup><\/a> policy offers flexible premiums and benefits. The benefit can be increased or decreased without canceling the policy and getting a new one (and thus losing the cash value, as in a basic whole life policy). Premiums are added to the policy\u2019s cash value, as are investment returns, while the insurer deducts the cost of insurance (COI) and any other policy fees.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p06\" class=\"para editable block\">When purchased, universal life policies may be offered with a single premium payment, a fixed (and regular) premium payment until you die, or a flexible premium where you can determine the amount of each premium, so long as the cash value in the account can cover the insurer\u2019s COI.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p07\" class=\"para editable block\"><a class=\"xref\" href=\"#fwk-134226-ch10_s03_s02_s02_f01\">Figure 10.14 &#8220;Life Insurance Options&#8221;<\/a> shows the life insurance options.<\/p>\n<div id=\"fwk-134226-ch10_s03_s02_s02_f01\" class=\"figure large medium-height editable block\">\n<div style=\"width: 1061px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3745\/2018\/11\/14182954\/c71247ba31efca4dc21e711552ae4ade.jpg\" alt=\"image\" width=\"1051\" height=\"521\" \/><\/p>\n<p class=\"wp-caption-text\">Figure 10.14 Life Insurance Options<\/p>\n<\/div>\n<\/div>\n<p id=\"fwk-134226-ch10_s03_s02_s02_p08\" class=\"para editable block\">So, is it term or whole life? When you purchase a term life policy, you purchase and pay for the insurance only. When you purchase a whole life policy, you purchase insurance plus investment management. You pay more for that additional service, so its value should be greater than its cost (in additional premiums). Whole life policies take some analysis to figure out the real investment returns and fees, and the insurer is valuable to you only if it is a better investment manager than you could have otherwise. There are many choices for investment management. Thus, the additional cost of a whole life policy must be weighed against your choices among investment vehicles. If it\u2019s better than your other choices, then you should buy the whole life. If not, then buy term life and save or invest the difference in the premiums.<\/p>\n<\/div>\n<div id=\"fwk-134226-ch10_s03_s02_s03\" class=\"section\">\n<h2 class=\"title editable block\">Choosing a Policy<\/h2>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p01\" class=\"para editable block\">All life insurance policies have basic features, which then can be customized with a <strong>rider<\/strong><a class=\"footnote\" title=\"A clause to a policy that adds specific benefits under specific conditions.\" id=\"return-footnote-301-9\" href=\"#footnote-301-9\" aria-label=\"Footnote 9\"><sup class=\"footnote\">[9]<\/sup><\/a>\u2014a clause that adds benefits under certain conditions. The standard features include provisions that protect the insured and beneficiaries in cases of missed premium payments, fraud, or suicide. There are also loan provisions granted, so that you can borrow against the cash value of a whole life policy.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p02\" class=\"para editable block\">Riders are actually extra insurance that you can purchase to cover less common circumstances. Commonly offered riders include<\/p>\n<ul id=\"fwk-134226-ch10_s03_s02_s03_l01\" class=\"itemizedlist editable block\">\n<li>a waiver of premium payment if the insured becomes completely disabled,<\/li>\n<li>a double benefit for accidental death,<\/li>\n<li>guaranteed insurability allowing you to increase your benefit without proof of good health,<\/li>\n<li>cost of living protection that protects your benefit from inflation,<\/li>\n<li>accelerated benefits that allow you to spend your benefit before your death if you need to finance long-term care.<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p03\" class=\"para editable block\">Finally, you need to consider the settlement options offered by the policy: the ways that the benefit is paid out to your beneficiaries. The three common options are<\/p>\n<ul id=\"fwk-134226-ch10_s03_s02_s03_l02\" class=\"itemizedlist editable block\">\n<li>as a lump sum, paid out all at once;<\/li>\n<li>in installments, paid out over a specified period;<\/li>\n<li>as interest payments, so that a series of interest payments is made to the beneficiaries until a specified time when the benefit itself is paid out.<\/li>\n<\/ul>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p04\" class=\"para editable block\">You would choose the various options depending on your beneficiaries and their anticipated needs. Understanding these features, riders, and options can help you to identify the appropriate insurance product for your situation. As with any purchase, once you have identified the product, you need to identify the market and the financing.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p05\" class=\"para editable block\">Many insurers offer many insurance products, usually sold through brokers or agents. Agents are paid on commission, based on the amount of insurance they sell. A captive agent sells the insurance of only one company, while an independent agent sells policies from many insurers. You want a licensed agent that is responsive and will answer questions patiently and professionally. If you die, this may be the person on whom your survivors will have to depend to help them receive their benefits in a troubling time.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p06\" class=\"para editable block\">You will have to submit an application for a policy and may be required to have a physical exam or release medical records to verify your physical condition. Factors that influence your riskiness are your family medical history, age and weight, and lifestyle choices such as smoking, drinking, and drug use. Your risks will influence the amount of your premiums.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s03_p07\" class=\"para editable block\">Having analyzed the product and the market, you need to be sure that the premium payments are sustainable for you, that you can add the expense in your operating budget without creating a budget deficit.<\/p>\n<\/div>\n<div id=\"fwk-134226-ch10_s03_s02_s04\" class=\"section\">\n<h2 class=\"title editable block\">Life Insurance as a Financial Planning Decision<\/h2>\n<p id=\"fwk-134226-ch10_s03_s02_s04_p01\" class=\"para editable block\">Unlike insuring property and health, life insurance can combine two financial planning functions: shifting risk and saving to build wealth. The decision to buy life insurance involves thinking about your choices for both and your opportunity cost in doing so.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s04_p02\" class=\"para editable block\">Life insurance is about insuring your earnings even after your death. You can create earnings during your lifetime by selling labor or capital. Your death precludes your selling labor or earning income from salary or wages, but if you have assets that can also earn income, they may be able to generate some or even enough income to insure the continued comfort of your dependents, even without your salary or wages.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s04_p03\" class=\"para editable block\">In other words, the larger your accumulated asset base, the greater its earnings, and the less dependent you are on your own labor for financial support. In that case, you will need less income protection and less life insurance. Besides life insurance, another way to protect your beneficiaries is to accumulate a large enough asset base with a large enough earning potential.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s04_p04\" class=\"para editable block\">If you can afford the life insurance premiums, then the money that you will pay in premiums is currently part of your budget surplus and is being saved somehow. If it is currently contributing to your children\u2019s education savings or to your retirement plan, you will have to weigh the value of protecting current income against insuring your children\u2019s education or your future income in retirement. Or that surplus could be used toward generating that larger asset base.<\/p>\n<p id=\"fwk-134226-ch10_s03_s02_s04_p05\" class=\"para editable block\">These are tough decisions to weigh because life is risky. If you never have an accident or illness and simply go through life earning plenty and paying off your mortgage and saving for retirement and educating your children, then are all those insurance premiums just wasted? No. Since your financial strategy includes accumulating assets and earning income to satisfy your needs now or in the future, you need to protect those assets and income, at least by shifting the risk of losing them through a chance accident. At the same time, you must make risk-shifting decisions in the context of your other financial goals and decisions.<\/p>\n<div id=\"fwk-134226-ch10_s03_s02_s04_n01\" class=\"key_takeaways editable block\">\n<div class=\"textbox key-takeaways\">\n<h3>Key Takeaways<\/h3>\n<ul id=\"fwk-134226-ch10_s03_s02_s04_l01\" class=\"itemizedlist\">\n<li>Disability insurance insures your income against an accident or illness that leaves your earning ability impaired.<\/li>\n<li>Disability insurance coverage and costs vary.<\/li>\n<li>Life insurance is designed to protect dependents against the loss of your income in the event of your death.<\/li>\n<li>Term insurance provides life insurance coverage for a specified period of time.<\/li>\n<li>Whole life insurance provides life insurance coverage until the insured\u2019s death.<\/li>\n<li>Whole life insurance has a cash surrender value and thus can be used as an investment instrument as well as a way of shifting risk.<\/li>\n<li>Variable, adjustable, and universal life policies offer more flexibility of benefits and premiums.<\/li>\n<li>Riders provide more specific coverage.<\/li>\n<li>Premiums are determined by the choice of benefits and riders and the risk of the insured, as assessed by medical history and lifestyle choices.<\/li>\n<\/ul>\n<\/div>\n<\/div>\n<div id=\"fwk-134226-ch10_s03_s02_s04_n02\" class=\"exercises editable block\">\n<h3 class=\"title\">Exercises<\/h3>\n<ol id=\"fwk-134226-ch10_s03_s02_s04_l02\" class=\"orderedlist\">\n<li>Find out about workers\u2019 compensation at <a class=\"link\" href=\"http:\/\/www.dol.gov\/owcp\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.dol.gov\/owcp\/<\/a>. What does the federal Office of Workers\u2019 Compensation Programs do, and what specific disabilities are covered in the programs that the OWCP administers? Find out what programs are available in your state for workers\u2019 compensation covering industrial and workplace accidents at <a class=\"link\" href=\"http:\/\/www.ic.nc.gov\/ncic\/pages\/all50.htm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.ic.nc.gov\/ncic\/pages\/all50.htm<\/a>. What is the role of the U.S. Department of Labor\u2019s Occupational Safety &amp; Health Administration (OSHA) in preventing workplace illness and injury? Find out at <a class=\"link\" href=\"http:\/\/www.osha.gov\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.osha.gov\/<\/a>.<\/li>\n<li>\n<p class=\"para\">Find information about unemployment compensation at <a class=\"link\" href=\"http:\/\/www.dol.gov\/dol\/topic\/unemployment-insurance\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.dol.gov\/dol\/topic\/unemployment-insurance\/<\/a> and <a class=\"link\" href=\"http:\/\/www.policyalmanac.org\/social_welfare\/archive\/unemployment_compensation.shtml\" target=\"_blank\" rel=\"noopener\">http:\/\/www.policyalmanac.org\/social_welfare\/archive\/unemployment_compensation.shtml<\/a> to answer the following questions.<\/p>\n<ol id=\"fwk-134226-ch10_s03_s02_s04_l03\" class=\"orderedlist\">\n<li>If you are involuntarily unemployed, do the federal and state unemployment compensation programs replace your wages?<\/li>\n<li>Are you entitled to unemployment compensation if you choose to be unemployed temporarily?<\/li>\n<li>Does it matter what kind of a job you have or how much income you earn?<\/li>\n<li>What does it mean to be involuntarily unemployed?<\/li>\n<li>Where does the money come from?<\/li>\n<li>If you have seasonal employment, can you collect unemployment to cover the off-season?<\/li>\n<li>If you are eligible, how long can you collect unemployment?<\/li>\n<li>Is the money you receive from unemployment compensation taxable?<\/li>\n<li>If you became unemployed in your state, how would your income be insured, and what could you expect from your state unemployment compensation program?<\/li>\n<\/ol>\n<\/li>\n<li>Read advice on choosing insurance from The Motley Fool at <a class=\"link\" href=\"http:\/\/www.fool.com\/insurancecenter\/life\/life.htm\" target=\"_blank\" rel=\"noopener\">http:\/\/www.fool.com\/insurancecenter\/life\/life.htm<\/a>. What are two situations in which purchasing life insurance might not be a good choice for you? According to the Insurance Information Institute (<a class=\"link\" href=\"http:\/\/www.iii.org\/individuals\/life\/buying\/pickacompany\/\" target=\"_blank\" rel=\"noopener\">http:\/\/www.iii.org\/individuals\/life\/buying\/pickacompany\/<\/a>), what factors should you consider when choosing a life insurance company?<\/li>\n<\/ol>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-301\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Personal Finance. <strong>Provided by<\/strong>: Saylor Academy. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/saylordotorg.github.io\/text_personal-finance\">https:\/\/saylordotorg.github.io\/text_personal-finance<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-sa\/4.0\/\">CC BY-NC-SA: Attribution-NonCommercial-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section><hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-301-1\">Insurance to protect the insured against the risk of being unable to earn wages or salary as a result of injury or illness. <a href=\"#return-footnote-301-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-301-2\">Insurance to compensate beneficiaries against the financial consequences of the death of the insured. <a href=\"#return-footnote-301-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><li id=\"footnote-301-3\">Life insurance providing coverage until the insured\u2019s death; it can also be used as an investment instrument. <a href=\"#return-footnote-301-3\" class=\"return-footnote\" aria-label=\"Return to footnote 3\">&crarr;<\/a><\/li><li id=\"footnote-301-4\">Life insurance providing coverage for a specified period of time. <a href=\"#return-footnote-301-4\" class=\"return-footnote\" aria-label=\"Return to footnote 4\">&crarr;<\/a><\/li><li id=\"footnote-301-5\">The value of a whole life policy\u2014the cash available for the policyholder\u2014if the policy is canceled before the death of the insured. <a href=\"#return-footnote-301-5\" class=\"return-footnote\" aria-label=\"Return to footnote 5\">&crarr;<\/a><\/li><li id=\"footnote-301-6\">Life insurance that provides a guaranteed minimum benefit with potential to be greater depending on investment performance. <a href=\"#return-footnote-301-6\" class=\"return-footnote\" aria-label=\"Return to footnote 6\">&crarr;<\/a><\/li><li id=\"footnote-301-7\">Benefits and premium can be adjusted without cancellation of the policy. <a href=\"#return-footnote-301-7\" class=\"return-footnote\" aria-label=\"Return to footnote 7\">&crarr;<\/a><\/li><li id=\"footnote-301-8\">Benefits and premiums are flexible, in terms of both timing and amounts. <a href=\"#return-footnote-301-8\" class=\"return-footnote\" aria-label=\"Return to footnote 8\">&crarr;<\/a><\/li><li id=\"footnote-301-9\">A clause to a policy that adds specific benefits under specific conditions. <a href=\"#return-footnote-301-9\" class=\"return-footnote\" aria-label=\"Return to footnote 9\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":44985,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Personal Finance\",\"author\":\"\",\"organization\":\"Saylor Academy\",\"url\":\"https:\/\/saylordotorg.github.io\/text_personal-finance\",\"project\":\"\",\"license\":\"cc-by-nc-sa\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-301","chapter","type-chapter","status-publish","hentry"],"part":280,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapters\/301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/wp\/v2\/users\/44985"}],"version-history":[{"count":2,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapters\/301\/revisions"}],"predecessor-version":[{"id":569,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapters\/301\/revisions\/569"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/parts\/280"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapters\/301\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/wp\/v2\/media?parent=301"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/pressbooks\/v2\/chapter-type?post=301"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/wp\/v2\/contributor?post=301"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-personalfinance\/wp-json\/wp\/v2\/license?post=301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}