Page 562 - Introduction to Business

536 PART 5 Finance

premiums. In general, you should buy permanent insurance only if you can
maintain the policy for at least 20 years.
• Whole life insurance provides protection for an insured’s entire life, and the
premiums remain the same for the life of the policy. It does include a savings
element. Any premiums paid in excess of administrative expenses (commis-
sions, selling, and marketing expenses) and mortality costs are added to accu-
mulated cash values that earn interest.
• Variable life insurance is a permanent insurance contract with level premiums.
The cash reserve is maintained in a separate account and the policyholder deter-
mines how it is to be invested (equity funds, bond funds, or money market funds).
The death benefits vary with the investment return in the separate account, but
the death proceeds cannot be less than the policy’s original face amount.
• Universal life insurance is flexible premium insurance that includes monthly
renewable term insurance and an investment component. Administrative
expenses are deducted from each premium payment, and any remainder is
added to the policy’s accumulated cash value. This type of insurance defers
current income taxes on policy earnings. If interest rates drop significantly,
your premiums will rise.
• Universal variable life insurance combines the flexible features of universal life
and variable life policies. You may be able to invest in stocks.
• Single-premium life insurance involves paying a one-time premium for a
specified amount of life insurance protection. Earnings on the investment
grow and are tax-deferred as long as they are not withdrawn or borrowed.
Property and Casualty. Property and casualty insurance coverage should
include 100 percent of the replacement cost of your home and belongings. If you
are a renter, then you will need insurance that covers only your belongings. If you
have to file a claim after a fire or theft, you will need valid evidence of what was in
your home. Videotape or photograph the contents of your home or have an inven-
tory prepared of your household goods. Store such evidence outside of your home,
for example, in a safe deposit box.

Automobile. In addition to insurance on your home and belongings in your
home, you will need automobile insurance. Automobile insurance is a necessary
expense that comes with owning a car. It includes coverage for damages to your car
(collision and comprehensive) and for damages your car causes to others (liability),
both car repairs and bodily injury.
Shop around for insurance and compare products of different companies. Ask
the agent about his or her commissions. An insurance agent is in the business to
make money and may sell you the insurance that gives the most commissions and
not necessarily the best performance. Consider buying a policy directly from the
insurer without sales commissions.

reality Do you have a budget? Do you have insurance?
CH ECK

Living on One Income

LEARNING OBJECTIVE 4
Explain the key considerations in deciding to live on one income.
This section addresses an issue that confronts many working couples when one
wage earner, either involuntarily or voluntarily, no longer has a job. Involuntarily

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