[Objective 1]
Define life insurance and describe its purpose and principle. Life insurance is a contract between an insurance company and a policyholder under which the company agrees to pay a specified sum to a beneficiary upon the insured's death. Most people buy life insurance to protect someone who depends on them from financial losses caused by their death. Fundamental to the life insurance principle is the predictable mortality experience of a large group of individuals.

[Objective 2]
Determine your life insurance needs. In determining your life insurance needs, you must first determine your insurance objectives and then use the easy method, the DINK method, the "nonworking" spouse method, or the "family need" method. The "family need" method is recommended. You should consider a number of factors before you buy insurance, including your present and future sources of income, other savings and income protection, group life insurance, group annuities (or other pension benefits), and Social Security.

[Objective 3]
Distinguish between the two types of life insurance companies and analyze various types of life insurance policies these companies issue. The two types of life insurance companies are stock companies, owned by stockholders, and mutual companies, owned by policyholders. In general, stock companies sell nonparticipating policies and mutual companies sell participating policies. The three basic types of life insurance are term, whole life, and endowment policies. Many variations and combinations of these types are available. You should check with both stock and mutual companies to determine which type offers the best policy for your particular needs at the lowest price. Nevertheless, as with other forms of insurance, price should not be your only consideration in choosing a life insurance policy. You should also consider the financial stability, reliability, and service the insurance company provides.

[Objective 4]
Select important provisions in life insurance contracts. The naming of the beneficiary, the grace period, policy reinstatement, the incontestability clause, the suicide clause, automatic premium loans, the misstatement of age provision, and the policy loan provision are important provisions in most life insurance policies. Common riders in life insurance policies are the waiver of premium disability benefit, the accidental death benefit, the guaranteed insurability option, cost of living protection, and accelerated benefits.

[Objective 5]
Create a plan to buy life insurance. Before buying life insurance, consider your present and future sources of income, group life insurance, group annuities (or other pension benefits), and Social Security. Then compare the costs of several life insurance policies. Examine your policy before and after the purchase, and choose appropriate settlement options. The most common settlement options are lump-sum payment, limited installment payment, life income option, and proceeds left with the company. Online computer services provide a wealth of information about all topics related to life insurance.

[Objective 6]
Recognize how annuities provide financial security. An annuity is the opposite of life insurance: It pays while you live, whereas life insurance pays when you die. An annuity provides you with a regular income during your retirement years. The Tax Reform Act of 1986 gives annuities favorable income tax treatment. The appeal of fixed annuities has increased recently. With a fixed annuity, the annuitant receives a fixed amount of income over a certain period or for life. With a variable annuity, the monthly payments vary because they are based on the income received from stocks or other investments.