Insurance & Employee Benefits
Term insurance is a life insurance plan with a benefit payable to the insured’s beneficiaries if the insured dies within the terms and conditions of the policy. It is contracted for a limited period of time, such as 5, 10, 20, or 30 years at a fixed rate of premium payments. Term insurance policies are generally the least expensive type of life insurance, as the plans ordinarily do not build up cash value. Term insurance is often defined as temporary insurance because of the expiration and lack of equity buildup. Term policies are useful to provide immediate benefits to loved ones who need to pay off debts, mortgages and final expenses.
Whole life insurance is another type of life insurance that provides a death benefit – the face amount – paid to the beneficiaries upon the death of the insured, within the terms and conditions of the policy. Whole life plans also feature a cash value component, which is determined by how much the insured has paid in premiums, the dividend rates, interest accumulation, and paid-
Whole life premium payments are generally level and are usually guaranteed to remain so for the duration of the contract. Whole life insurance is there for you, so long as you continue to pay the premiums when due and there are no loans. Some whole life policies provide that the owner can have a “paid up” policy, with premiums that are due only for a certain period of time or until the insured reaches a certain age.
Most whole life policies build cash value by the accumulation of interest and dividends in the plan’s savings component. The gains in the policy accumulate on a tax deferred basis. Loans may be drawn on the funds while the insured is alive. Whole life policies are generally considered to be a form of permanent protection with certain guarantees that make them appealing for estate planning and wealth accumulation (3). Many prefer to have cash value components with their permanent life insurance policy because it adds an extra layer of protection and flexibility. They have the assurance that their family is taken care of, while having the added benefit of the cash value account.
Regular payments build value. You build the cash value of the policy whenever you make a premium payment. Part of the premium is applied to the death benefit fund, a small percent goes to administration, and the rest goes into an investment fund administered by the insurer (4). The more you put into the policy, the more becomes available to you prior to death.
Dividends and history. Although dividends are not guaranteed, the top mutual companies have generally paid dividends consistently through multiple economic downturns (5).
Tax benefits and estate planning. The cash growth inside of a life insurance policy is tax deferred, and if structured and treated properly, you will not pay taxes on the growth. Usually life insurance benefit sums are not taxed as income, but they might be subject to estate taxes. Well-
Guaranteed returns. The insurance company invests the whole life policy’s cash value alongside their own money. The result is a guaranteed minimum annual interest rate, plus the potential of additional interest earnings from excess interest rates declared by the company (5). While there are costs associated with permanent life insurance, there are also costs associated with investing in the open market; the difference is risks.
STARTAccess to your money. Generally, it is possible to withdraw limited amounts of cash from a life insurance policy. Whole life insurance provides three methods to access a policy’s cash value. First, you can Surrender, which is to terminate your policy and take the cash value. However, if you surrender the policy during the early years of ownership, surrender fees will likely be charged by the insurer. Next, you can get a Policy Loan, using your cash-
Key component of a diversified portfolio. For some, a whole life insurance policy that builds cash value is a very good idea. It provides a safe way to earn some returns, providing a safety net during tough economic times. Most investment professionals recommend a diversified portfolio including other investments. Be sure to consult with your investment professional who can help you plan your finances (8).
If a whole life plan is a good fit for your needs:
(1) LIMRA, “Facts About Life 2011”
(2) Group Coverage Inc., www.groupcoverage.net
(3) The Money Alert, “Whole Life Insurance”
(4) Group Coverage Inc., www.groupcoverage.net
(5) MassMutual Financial Group, “Unlocking the Value of Whole Life”; Wealthonomics, “Is Whole Life Insurance a Good Investment?”
(6) Investopedia, “Life Insurance in Estate Planning`”
(7) Investopedia, “Cashing in Your Life Insurance Policy”
(8) Lifeinsurance.org, “Life Insurance Recommended by Many Financial Planners”
Some of the
Carriers We Represent
John Hancock Life
Mass Mutual Life
William Penn Life
Genworth Life, etc.