Life insurance can be the foundation of your financial confidence and can provide comfort and stability for your family. The purpose of life insurance is to help provide your loved ones with financial protection after you die, in exchange for the premiums you pay to your insurer during your lifetime. Some life insurance policies can provide you with financial protection for the short term, while others accumulate cash value, offering a living benefit that can be used for supplemental retirement income, funding for a child’s education, or cash for emergencies1.
Term Life Insurance
Term life insurance provides coverage for a set period of time at a generally lower cost than permanent insurance. Many term life insurance products allow you to convert to a permanent policy, such as whole life insurance. The cost of insuring oneself increases over time, so it is important to understand your short- and long-term needs for financial confidence when you select a policy.
Permanent Life Insurance
Permanent life insurance provides you with financial protection for your entire life, as long as the policy remains in force. Because of the flexibility permanent life insurance offers, there are several types of policies you can purchase.
- Whole Life Insurance. The benefits of whole life insurance include guaranteed fixed premiums, a guaranteed death benefit and guaranteed cash value growth. This means that with whole life insurance, your premiums never increase as long as they’re paid, and you can also take advantage of “living benefits,” which enable you to borrow against the cash value of the policy for any purpose while you’re alive1. Borrowing cash from the policy can help in financing life-changing events or emergencies, and the policy’s cash value accumulates on a tax-deferred basis. One thing to keep in mind when purchasing whole life insurance is that loans reduce the death benefit of your policy, and loan interest should be repaid in order to prevent lapse.2
- Universal Life Insurance. Universal life insurance provides lifetime death benefit protection along with flexibility that gives you choices as your needs and finances change. It offers options such as coverage amounts that may be increased or decreased, and premiums that you can vary based on your finances as long as there is enough money in the account to pay for the monthly insurance and administrative charges.3
- Variable Universal Life Insurance. Variable universal life introduces an investment component. With variable universal life, you can allocate net premiums and account values among divisions of a separate account and guaranteed principal account4. You can direct a portion of your net premium payments to any of the investment options available through the separate account depending on the particular variable universal life product. Each investment option offers a different level of risk and growth potential. One feature of variable universal life insurance (and universal life) is its premium flexibility: you can skip payments as long as your policy has accumulated enough account value to meet the monthly deductions. Also, you can add numerous riders to your policy. Riders are available for an additional premium.5
- Survivorship Life Insurance. Survivorship life insurance is a form of permanent life insurance that covers two people on one policy and pays a death benefit after both people on the policy have died. The cost for survivorship life insurance is usually lower than the cost of two individual policies.
1) Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
2) Whole life insurance is intended to provide death benefit protection for an individual’s entire life. With payment of the required guaranteed premiums, you will receive a guaranteed death benefit and guaranteed cash values inside the policy. Guarantees are based on the claims-paying ability of the issuing insurance company. Dividends are not guaranteed and are declared annually by the issuing insurance company’s board of directors. Any loans or withdrawals reduce the policy’s death benefits and cash values, and affect the policy’s dividend and guarantees. Whole life insurance should be considered for its long term value. Early cash value accumulation and early payment of dividends depend upon policy type and/or policy design, and cash value accumulation is offset by insurance and company expenses. Consult with your financial representative and refer to your whole life insurance illustration for more information about your particular whole life insurance policy.
.3) Universal Life Insurance may lapse prematurely due to inadequate funding (low or no premium), increase in cost of insurance rates as the insured grows older, and a low interest crediting rate. This does not apply to universal life policies which have a secondary guarantee, but if the secondary guarantee requirements are not met the policy will most likely lapse.
4) Guarantees are based on the claims paying ability of the issuing company or companies.
5) Variable Universal Life policies provide death benefit protection and are long term investment vehicles with potential cash value accumulation. There are limitations, fees and expenses associated with the policy. All guarantees including the death benefit payments are dependent on the claims paying ability of the issuing company and do not apply to the investment performance or safety of the underlying investment options within the policy.
Investors are asked to consider the investment objectives, risks, charges and expenses of the underlying investment options carefully before completing application, investing, or sending money. Both the product prospectus and the underlying fund prospectuses contain this and other information about the product and underlying investment options. Please read the prospectuses carefully before investing.