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Understanding the benefits of whole life insurance




                                                    | insure | investStrategies|
                                                          Insurance | retire
Life insurance is the cornerstone of any sound financial
                                                              plan. When you buy life insurance, you help to protect
                                                              your family’s financial security, since the money your
Contents                                                      beneficiaries receive in the event of your death can
 1 | Introduction
                                                              replace lost income, and help to pay their expenses at an
 3 | How does Whole Life work?
                                                              extremely difficult time. Consequently, a life insurance
 8 | Dividends
                                                              policy can provide your family with greater peace of mind.
14 | Other features and benefits




                      NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION • NOT FDIC OR NCUA INSURED
             NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY ANY BANK OR CREDIT UNION


The information provided in this brochure is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any
Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek
advice from their own tax or legal counsel.
Insurance for your lifetime

Life insurance can also help to protect a business, by providing cash that
will help to ensure the continuity of the firm’s day-to-day operations – and
often, the business itself – through the policy’s death benefit.


Living and death benefits
Whole life insurance is primarily purchased for the death benefit
protection. The cash payment that is made due to the death of the insured
offers unique protection for a family or business. Whole life insurance
provides a death benefit that is guaranteed as long as the premiums are
paid when due.1
                                                                                                      With its guarantees, cash
Whole life also offers guaranteed, tax-deferred cash value accumulation –
sometimes referred to as a “living benefit” – that can help provide financial
                                                                                                      value accumulation and
security while the insured is still alive. Whole life policy cash values can                          potential to earn dividends,
be borrowed from the policy for any purpose – supplemental retirement                                 whole life insurance can
income, education funding or even a means of ready cash for emergencies.2                             become the foundation of
While loans that have not been repaid will reduce the death benefit (when                              your financial plan.
it is eventually paid), access to your whole life policy’s cash value offers
comfort for you while you are living – and security for your family or
business after your death.


Mutual versus stock companies
Whole life insurance purchased from a mutual insurance company offers
the policy owner an additional advantage. With a mutual insurance
company, customers who purchase certain “participating” products, like
whole life insurance, are eligible to receive a portion of the company’s
surplus in the form of (non-guaranteed) dividends.




1
    Guarantees are based on the claims-paying ability of the issuing company.
2
    Distributions under your policy (including cash dividends and partial/full surrenders) are not
    subject to taxation up to the amount paid into the policy (your cost basis). If the policy is a
    Modified Endowment Contract, policy loans and/or distributions are taxable to the extent
    of gain and are subject to a 10% tax penalty. Access to cash values through borrowing or
    partial surrenders can reduce the policy’s cash value and death benefit, increase the
    chance the policy will lapse, and may result in a tax liability if the policy terminates before
    the death of the insured.
                                                                                                                                     1
The other common form of insurance company structure is a publicly
                                 traded stock company, which is owned by its shareholders. Unlike a
                                 mutual company, a typical stock company generally pays a percentage of
                                 its corporate profits to its shareholders. Consequently, a stock insurance
                                 company must balance the interests of its policyholders against the
                                 earnings expectations of its shareholders. Shareholders may judge a
                                 company’s performance based on projected earnings for the next quarter
                                 or the next year. These expectations might conflict with the long-term
                                 interests of policyholders.


                                 Life insurance tax advantages
                                 Life insurance proceeds (the death benefit), when paid, are generally free
    Whole life insurance’s
                                 of income taxes. In addition, if properly arranged, life insurance proceeds
    guaranteed cash value does
                                 may not be included in an insured’s estate for Federal estate tax purposes.
    not go up or down as a
                                 Policy cash values accumulate tax-deferred (meaning you do not pay taxes
    result of events in the      each year on any gain) and you have access to those policy values on a tax-
    financial markets.            favored basis, by withdrawing dividends (up to your cost basis, which
                                 equals the total of premiums paid) or through policy loans.2


                                 Long-term value
                                 Whole life insurance’s guaranteed cash value does not go up or down as a
                                 result of events in the financial markets. Buying whole life insurance is not
                                 a way to get rich quick. But with its basic guarantees, cash value accumu-
                                 lation and potential to earn dividends, whole life insurance – the protection
                                 and value it offers – can become the foundation of your financial plan.

                                 As long as your premiums are paid, whole life insurance guarantees
                                 benefits for your lifetime. At MassMutual, that’s what we mean by long-
                                 term value.




2
How does Whole Life work?
Whole life is a permanent life insurance product.
Unlike term insurance, which provides coverage
for a temporary need, whole life does exactly
what its name says – it provides life insurance
protection for a lifetime.




                                                3
How does Whole Life compare to Term insurance?

                                                Whole Life Insurance                         Term Life Insurance

                                      Whole life insurance provides a death           Term insurance provides a death
                                      benefit for the insured’s lifetime.              benefit only for the specified period.

                                      Permanent insurance products build cash         Term insurance provides pure death
                                      value that can be used as a benefit while        protection and generally does not
                                      the insured is living.                          build any cash value.

                                      A whole life contract provides a guarantee      Term insurance does not generally
                                      that the policy’s cash value will be equal to   have any cash value.
                                      the face amount at the insured’s age 100 or
                                      121. This guaranteed cash value is unique
                                      to whole life.

                                      Participating whole life has the potential to   Term insurance does not increase in
                                      earn dividends, which can be used to buy        death benefit; you must purchase
                                      additional paid up insurance and provide        additional coverage instead.
                                      death benefit growth.




                                   The difference between term and permanent insurance can be compared to

    With whole life insurance,     the difference between renting an apartment and owning a home. Both

    you build equity that can be   renting and owning provide a place to live, and both term and permanent

    used as a means of             insurance provide a death benefit. When you pay your rent, you are paying

    available cash in case of      for just the roof over your head. Similarly, when you pay your term
    emergency, or when you         insurance premiums, you are purchasing pure death benefit protection. But
    need cash for any reason.      neither your apartment nor your term insurance policy will build any
                                   equity for you. Conversely, if you own a home, each time you make a
                                   mortgage payment, you are building equity in your home – and that equity
                                   can be used as a means of available cash in case of emergency, or when
                                   you need cash for any reason. The same is true of a whole life policy. Each
                                   premium you pay helps you to build equity in the form of the policy’s cash
                                   value, which you can use as a living benefit should the need ever arise.




4
Whole life guarantees
Whole life insurance offers three guarantees: guaranteed premium,
guaranteed cash value and guaranteed death benefit. While other insurance
products may offer one or sometimes two of these features, whole life is
unique in providing all three.

Guaranteed premium – A whole life policy is issued with a fixed, guaran-
teed premium. The premium is based on your age, gender and health at the
time your policy is issued, and is guaranteed not to increase, no matter
what happens in the financial markets. You won’t see any surprise
increases in premium as you get older or if your health should change – or
as interest rates rise and fall.

Guaranteed cash value – A whole life policy is issued with a schedule that
tells you the guaranteed cash value increase each and every year. Each
schedule is set so that the guaranteed cash value is equal to the policy’s face
amount, or death benefit purchased at issue, when the insured becomes 100 or
121 years old. The guaranteed cash value’s growth is based on a fixed interest
rate that is also guaranteed. Whole life is the only insurance product that
guarantees a cash value increase each and every year.

Guaranteed death benefit – A whole life policy is issued with a guarantee
that as long as the premiums are paid when due, the death benefit that was
originally purchased (minus any outstanding policy loan and loan interest)
will be paid at death to the beneficiaries.1 You can arrange your finances
with the peace of mind of knowing your family will be protected after
your death.




                                                                                  5
Take a closer look at the guarantees of whole life insurance

                                                                              The diagram below represents whole life’s guaranteed level premium
                                                                              versus the premium of an annually renewable term policy, which
    The diagram below represents the design of a whole life                   increases each year as the insured gets older. The term premium ends
    insurance policy.                                                         (as does the coverage) when the term policy expires.

    Guaranteed Face Amount                                                    Face Amount

                                             e
                                         Valu
                                    Cash                                         Whole life premium
                               teed
                         Guaran
                                                                                          ium
                                                                                      prem
                                                                                 Term

    Age at Issue                              Age 100          Age 121        Age at Issue                                                 Age 121




                                                              Guaranteed cash value and policy reserves
                                                              The Society of Actuaries has developed Commissioner’s Standard Ordinary
                                                              (CSO) mortality tables. The tables are approved and adopted by each state’s
                                                              Insurance Department and the National Association of Insurance Commis-
                                                              sioners (NAIC), and are used as the actuarial basis to determine guaranteed
                                                              policy values. We’ve stated earlier that the guaranteed cash value of a whole
                                                              life policy can equal the face amount at the insured’s age 100 or 121 and it
                                                              increases at a set schedule each year to achieve this. The amount that a whole
                                                              life policy’s guaranteed cash value will increase each year, as well as its level
                                                              premium structure, is based in part on the mortality charges (based on the
                                                              CSO Tables) and the policy’s minimum guaranteed interest rate, also reflect-
                                                              ing the Company’s loads and expenses.

                                                              In order to credit the cash value increase (which is known and scheduled)
                                                              and adequately prepare for payment of the benefit at the time of the
                                                              insured’s death (which is unknown), insurance companies must
                                                              accumulate money that is held in reserve. The guaranteed cash value of a
                                                              whole life insurance policy is held in reserve by the insurance company
                                                              and invested in the general investment account of the company, which
                                                              includes assets that earn interest at a fixed rate. The reserves are held until
                                                              they are paid out, either as part of the death benefit or cash surrender value
                                                              (if the policy is surrendered, or cancelled by the owner).

6
To refer back to the apartment/house analogy, the guaranteed cash value of
a whole life policy is available to you in the form of a policy loan, just as a
home equity loan provides you with cash borrowed against the equity of
your house. If you choose to borrow part of the value of your whole life
policy, the guaranteed cash value will continue to increase every year as
scheduled. Also, your policy will continue to earn dividends, if they are
paid. (See Policy Loans and Direct Recognition for more information on
policy loans and how they can affect dividends.)


Loans and withdrawals
If a loan is taken, you will be billed annually for the interest. Loan interest
can be paid out-of-pocket, or, if you do not pay the interest bill, as long as
the policy has sufficient cash value, a policy loan is processed to pay the
interest. The policy loan amount will then be equal to the previous loan
amount plus the accrued interest. Any loan and interest outstanding will be
deducted from the benefit paid at the time of the insured’s death, or the
cash surrender value if the policy is surrendered. Please note that loans can
create the potential for policy lapse if, together with accrued loan interest,
they grow faster than the cash value.

A whole life policy can provide liquidity for financial needs during your
lifetime with the use of policy loans and/or withdrawal of dividends left in
the policy, as well as a permanent death benefit (net of any loans taken or
dividends withdrawn).




                                                                                  7
Dividends
    We’ve stated earlier that whole life insurance
    purchased from a mutual company offers the
    policy owner an additional advantage –
    customers who purchase certain “participating”
    products, like whole life insurance, are eligible
    to receive a portion of the company’s
    earnings, known as “divisible surplus,” in
    the form of dividends.




8
This surplus comes primarily from three sources: mortality savings,
investment earnings and savings on expenses:

    • Mortality savings – Insurance companies must anticipate the death
      claims they expect to pay out in the future and make sure their
      policies’ premiums are priced appropriately. Mortality savings
      occurs when actual mortality levels (claims paid) are lower than
      what was expected in the product pricing.
    • Investment earnings – Insurance companies must set aside
      reserves – money that is earmarked to pay claims when due. That
      money is invested in order to help meet the financial commitment
                                                                                   An insurance company
      for guaranteed cash value and death benefits. Investment earnings
      surplus occurs when the insurance company’s investment returns               must achieve a surplus in
      exceed the guaranteed interest rate the company requires for death           order to pay dividends.
      benefit reserves and to meet its contractual obligations.
    • Savings on expenses – Insurance companies must factor their
      expenses into their life insurance policy pricing. Expense savings
      occurs when the company’s actual expenses are less than those
      assumed in the premium rate.

Unlike whole life’s guaranteed premium, death benefit and cash value, payment
of annual dividends is not guaranteed. In order to pay dividends, a surplus must
be achieved. MassMutual has paid policyowner dividends consistently since the
late 1800’s but, like any mutual insurance company, we cannot guarantee that
we will always achieve a surplus that enables us to pay dividends.

Because dividends are comprised of an investment component, a mortality
component and an expense component, dividend interest rates should not
be the sole basis for comparing insurers or policy performance.

The balance among the three dividend components changes over the
length of time the policy is active:

    • The interest component increases in significance with duration.
    • The mortality component decreases in significance with duration.
    • The expense component is typically negative in most years because
      expenses are part of the pricing of the policy’s premium




                                                                                                               9
How are MassMutual’s dividends calculated?
      Dividend calculations explained                                           If you are a participating whole life policyholder, the size of the
                                                                                dividend you may receive is determined by the “Contribution
     The chart below shows an example of the dividend component                 Principle,” which states that divisible surplus is returned to
     percentage, assuming a policy with a 4.5% guaranteed interest rate.
                                                                                policyholders in the same proportion as the policyholders
        Policy                                                                  contributed to the surplus. The Contribution Principle treats all
         Year        Interest      Mortality     Expense         Total
                                                                                policyholders equitably in determining their share of dividends.
            5          45%            80%            -25%        100%
                                                                                Dividend interest rate
          10           55%            54%            -9%         100%           For many insurance companies, including MassMutual, the
                                                                                dividend interest component is determined by using a
          20           65%            42%            -7%         100%           portfolio-average method that reflects the earnings on all
                                                                                investments within the portfolio, including those purchased

     The pie charts below further illustrate the effect of policy duration on
                                                                                in prior years. Because of this averaging process, the yield
     the dividend component percentage, again assuming the same                 of the portfolio as a whole will tend to lag behind changes
     policy with a 4.5% guaranteed interest rate.
                                                                                in the yields on new investments alone.
                 { Expense { Interest { Mortality
                                                                                If yields on new investments are lower than yields on older
                                                                                investments, the lag generally will result in a portfolio rate
                             30%                                                higher than current market rates. Conversely, if yields on new
                                                                                investments rise above the yields on older investments, the
          Year 5                             53%
                                                                                portfolio rate generally will be below prevailing market rates.
                                17%
                                                                                Compared to a new-money-rate method, the portfolio-
                                                                                average method typically results in less fluctuation in the
                                                                                dividend schedule over the life of an insurance contract.
                                                                                This stabilizing effect is among the reasons MassMutual
                                                                                and many other insurers use the portfolio-average method.
                             46%
        Year 10                                46%                              Under the new-money or investment-year method, insurers
                                                                                vary the credited rate among policies based on when the
                                   8%                                           policies were issued or when premiums were received (or
                                                                                funds transferred). These rates reflect the performance of the
                                                                                specific investments purchased to back those policy classes.

                                                                                Both the portfolio-average and new-money methods are
                                                                                universally regarded as valid ways of allocating investment
                            37%                57%                              income to classes of policyholders. The results achieved
        Year 20
                                                                                under the two methods tend to vary over the short term,
                                    6%                                          particularly if interest rates fluctuate during that time. They
                                                                                are likely to converge, however, if the span of years is
                                                                                lengthened or interest rates remain stable.
10
MassMutual’s dividend interest rates vs. Treasury rates

      The stabilizing effect of the portfolio average method over time is among the reasons MassMutual and many other insurers use this approach to
      determine their dividend interest rates (DIRs). This method reflects the earnings on all investments within the portfolio,including those purchased
      in prior years.
      This graph shows the relationship of MassMutual’s DIR to three Treasury “rates”:
      • The 10-year rolling weighted average of medium-term Treasuries and spreads of BBB corporate bonds, with expense and credit adjustments,
          for the year preceding the dividend interest rate shown. The 10-year rolling average is a simple representation of a hypo-thetical portfolio
          having a similar duration to the MassMutual portfolios supporting the company’s traditional products.
      • The yearly weighted average of medium-term Treasuries for the year preceding the dividend interest rate shown and one-year Treasury rates.
          These rates show the volatility of new-money rates compared to portfolio average rates, which lag both the upward and downward
          movements of new-money rates.

      10%
       9
       8
       7
       6
       5
       4
       3
       2

       1

       0
                    2000          2001         2002        2003         2004         2005           2006          2007        2008         2009



      Dividend schedule                           2000       2001      2002       2003       2004          2005    2006     2007       2008       2009*

      MassMutual dividend interest rate1         8.20%      8.20%      8.05%     7.90%      7.50%      7.00%      7.40%     7.50%     7.90%       7.60%

      Treasuries (10-year average) 2             6.89%      6.72%      6.54%     6.33%      6.13%      5.84%      5.61%     5.47%     5.44%       5.34%

      Treasuries (one-year average) 3            5.73%      6.12%      4.99%     4.51%      3.85%      4.17%      4.29%     4.85%     4.65%       3.49%

      One-year Treasury rate 4                   5.07%      6.08%      3.50%     2.16%      1.41%      2.85%      4.40%     4.81%     3.21%       1.79%



1
  Refers to the MM-TBCC block of business, which comprises policies issued after the merger of Massachusetts Mutual Life Insurance Company and the
  former Connecticut Mutual Life Insurance Company in 1996.
2
  10-year rolling weighted average of medium-term Treasuries and spreads of BBB corporate bonds, with expense and credit adjustments, for the year
  preceding the dividend interest rate shown.
3
  Yearly weighted average of medium-term Treasuries for the year preceding the dividend interest rate shown.
4
  One-year Treasury rate for the year preceding the dividend interest rate shown.
*2009 Treasury rates as of Sept. 26, 2008.
Note: The dividend interest rate is not the rate of return on the policy. Dividends are composed of an investment component, a mortality component and
an expense component. Therefore, dividend interest rates should not be the sole basis for comparing insurers or policy performance.



                                                                                                                                                           11
Dividend options
                                   You may elect to receive your dividends in cash or, depending on the type
                                   of policy you purchased, you may use dividends as you wish under one of
                                   these options:

                                       • Reduce premiums – Your annual dividend can be used to pay some
                                         or all of your annual premiums due. If the dividend exceeds the
                                         billed premium, any excess can be sent to you in cash, used to
                                         purchase additional insurance, left to accumulate and earn interest,
                                         or used to repay any policy loan.
                                       • Paid up insurance – Your annual dividend can be used to purchase
                                         paid up additional insurance coverage, adding to your policy’s death
                                         benefit and total cash value. If you choose this option, the additional
                                         insurance will also earn dividends. This additional coverage can be
                                         surrendered (cancelled) unless needed as security for a policy loan,
                                         and the cash value from the paid up additional insurance can be used
                                         by the policy owner for any purpose.
     Dividend options, which           • Accumulate at interest – Your annual dividend can be left in the
     can be changed at any time,         policy to accumulate at interest.The interest credited each year is
     help to provide flexibility          treated as taxable income, which MassMutual must report to the
     for a whole life policy.            Internal Revenue Service. Policy owners who select this dividend
                                         option will receive a 1099 form for the taxable interest after the end
                                         of each tax year.
                                       • One-year term – Your annual dividend can be used to purchase one-
                                         year term insurance, supplementing your policy’s death benefit for
                                         that one-year period. Any excess dividend not needed to purchase
                                         one-year term insurance may be used to reduce premiums, purchase
                                         paid up additional insurance, or repay a policy loan.
                                       • Loan repayment – Your annual dividend can be used to repay a
                                         policy loan and policy loan interest.

                                   If you do not choose a dividend option when your policy is issued, your
                                   dividends will be used to purchase paid up additional insurance. Dividend
                                   options can be changed at the request of the policy owner. Dividends left
                                   in the policy to purchase additional insurance or accumulate at interest can
                                   be withdrawn (partially or totally) at any time at the request of the policy
                                   owner, unless they are needed to secure a policy loan.




12
The effect of using annual dividends to purchase paid up additional insurance




      The diagram on the right shows the
      effect of using annual dividends to
      purchase paid up additional insurance,
      which, if left in the policy, adds to the
      policy’s total cash value and total death
      benefit. Since dividends are not
      guaranteed, the additional insurance
      purchased by dividends is not
                                                                      Add
                                                                         ition
                                                                              s De
                                                                                  ath B
                                                                                       enefi


                                                                            Additions Ca

                                                       Guaranteed Face Amount

                                                                               GUARANTEED
                                                                                            t


                                                                                         sh Value
                                                                                                               }      Paid up additional
                                                                                                                      insurance
                                                                                                                      purchased by
                                                                                                                      policy dividends.



                                                                                                               Base Policy
      considered part of the policy’s                                          CASH VALUE
      guaranteed death benefit even though
      it is paid up and does not require
      additional premium payments.
                                                       Age at Issue                                  Age 121




Tax status of dividends                                                 There are circumstances when dividends are considered first
Internal Revenue Code Sec. 72 states that a life insurance              to be a return of policy earnings and, therefore, are taxable.
policy dividend, when received, is a return of premium                  If a life insurance policy is a Modified Endowment
(investment) and, as such, is not considered to be taxable              Contract, or MEC, any dividends distributed to the policy
income until the total amount of dividends received (plus               owner are taxable as income to the extent that there is a gain
any other nontaxable distributions) exceed the policy’s cost            in the policy. Dividends that remain in the policy to
basis (the total of premiums paid).                                     purchase policy benefits – either applied to reduce the
                                                                        policy premium or to purchase additional insurance – are
Generally, dividends reduce the policy’s cost basis (but not
                                                                        not taxable to the policy owner.
below zero), unless they are applied to purchase policy
benefits. Therefore, cash dividends, dividend accumulations,
and dividends used to pay policy loans or loan interest all
reduce cost basis – while dividends applied to purchase paid
up additions or one-year term, or to reduce premiums on the
same policy have no net effect on cost basis. Surrenders of
paid up additions will reduce cost basis, unless applied to
reduce premiums. Distributions from dividend accumulations
have no effect on cost basis. If cost basis has been fully
recovered (zero basis), any dividend will become taxable
unless applied to purchase policy benefits.




                                                                                                                                           13
Other features and benefits
     Whole life insurance offers guarantees for
     death benefit protection along with solid cash
     value growth, and has the flexibility to meet
     your changing needs.




14
Policy loans and direct recognition
Once your whole life policy has been in force for 12 months, you may borrow
a portion of the cash value of the policy, including the cash value of dividend
additions left in the policy. Annual interest is charged on a policy loan at
either a fixed or an adjustable rate, selected at the time the policy is issued.3
If a policy loan is taken, loan interest is charged based on your interest rate
selection. Once chosen, the type of loan rate cannot be changed.

If no policy loan is ever taken, the choice of loan interest rate will not matter.
However, if you do choose to borrow from your policy, the loan interest rate
can have an effect on any dividends earned from that point on. This effect is
called direct recognition. Policies issued with a fixed loan interest rate are
subject to direct recognition if a loan is taken.

Under a direct recognition practice, the dividend interest rate that applies to
the borrowed portion of a policy’s cash value reflects the net earnings of
MassMutual’s loan portfolio, while non-loaned funds earn dividends at an
interest rate according to the return on MassMutual’s whole investment
portfolio (invested assets other than policy loans). Historically, MassMutual’s
investment portfolio has earned more than its loan portfolio, so under direct
recognition, dividends on loaned funds tend to be lower than dividends
earned on non-loaned policy cash value.

The mortality and expense portion of policy dividends are not affected by
direct recognition.

Automatic premium loan plan
Your whole life policy’s loan provision offers an additional form of protection
in the event that your annual premium is not paid when due. If the Automatic
Premium Loan feature is selected, at the end of the grace period, as long as
your policy has sufficient cash value, a policy loan in the amount of the
premium due is automatically processed to pay your outstanding premium.

This Automatic Premium Loan feature may be turned on or off at the
request of the policy owner. An Automatic Premium Loan, like a loan
requested by a policy owner, can be repaid at any time in any amount. If
not repaid, any loan amount, in addition to the loan’s accrued interest, will
be deducted from the death benefit or cash value when paid.



3
    State law may dictate the available loan rate.
                                                                                     15
Rate of return
                                     Whole life insurance provides a guaranteed minimum rate of return on the
                                     policy’s cash value, but whole life should never be bought solely for its
                                     rate of return. You should choose a policy based on the protection it offers.

                                     It’s relatively easy to calculate the annual rate of return. Starting with the
                                     amount you paid in the beginning of the year, use the cash value at the end
                                     of the year to calculate your return rate for the year.

                                     A whole life insurance policy’s guaranteed cash value increases each year
                                     at a fixed, guaranteed interest rate. That rate alone, however, does not
     The internal rate of return     represent the rate of return on the policy. Dividends also have an interest
     on a whole life policy is the   rate component that is set each year by the company’s Board of Directors,
     interest rate at which          but that is not the rate of return on the policy, either. Because a whole life
     premium payments paid up        policy has both a living (cash value) and death benefits, a rate of return on
     to the current year must be     both the cash value and death benefit can be calculated.
     compounded at each and          The rate of return on a policy’s death benefit is based on the total amount
     every year to equal either      of premiums paid into the policy and the amount of death benefit paid out.
     the total cash value or the     If the death benefit is paid in the early years of the policy, the amount of
     total death benefit.             premiums paid may be low in relation to the amount of death benefit paid
                                     out. Consequently, the rate of return on a policy’s death benefit is very
                                     high when a policy is new.

                                     The rate of return on a policy’s cash value is based on the total amount of
                                     premiums paid into the policy and the amount of cash value at the end of
                                     the year. The rate of return on a policy’s cash value can be negative in the
                                     early years as the policy’s cash value builds gradually over time.




16
Buy term and “invest the difference”?
Some financial professionals believe that permanent life insurance – with
its cash value as a built-in savings component – may not be a good choice
for either long-term protection or investment purposes. These individuals
advise clients to buy term insurance (which tends to have a lower premium
than whole life insurance) for death benefit protection and invest the
premium savings for a potentially higher return.

Keeping in mind that whole life insurance should not be purchased solely
as an “investment,” following are several reasons why “buy term and
invest the difference” may not be a sound strategy:

    • Term insurance is typically purchased for a temporary need, since it
      expires at the end of a specified time period. Often, term insurance
      expires when the insured reaches an age at which he or she is more
      likely to die (than at a younger age) – an age when life insurance
      would be needed most. For most people, the need for life insurance
      does not disappear; it changes as their financial situation changes.
    • Premiums for term insurance increase as the insured gets older and
      can be substantially higher at older ages, making the cost of
      continuing coverage prohibitive. The increasing cost of the premium
      could erode the alternative investment into which premium savings
      have been invested.
    • Taxable annual income may be incurred from the growth in the
      alternative investment. Also, funds withdrawn from investments are
      often taxable if a gain is recognized.
    • Many people do not have the discipline to invest a specified amount
      of money at the same time every year. If one or more years’
      investments are missed, the objective of achieving higher returns
      may not be realized.
    • All investments have some inherent risk and may need to be
      managed on an ongoing basis. An investment that goes down in
      value might not provide sufficient funds to meet the financial
      objective of family or business protection. Investment management
      requires advisory skills that the owner may have to pay for
      separately, affecting the rate of return.




                                                                             17
Whole Life versus Universal Life
                                          Universal life and whole life are both types of permanent insurance, and
                                          both offer death benefit protection and the potential for cash value
                                          accumulation. However, they are designed very differently. With universal
                                          life insurance, net premium payments are credited to the policy’s account,
                                          which is credited with interest and from which policy charges, including
                                          cost of insurance (mortality charges) and administration charges are
                                          deducted monthly. The account value earns interest at a rate that changes
                                          monthly (subject to a guaranteed minimum rate), reflecting the experience
     What guarantees can                  of the company’s general investment account. Insurance charges increase
     Universal Life offer?                annually with the insured’s age and generally cease when the insured
     Most universal life policies offer   reaches age 100.
     a guaranteed minimum interest
                                          Universal life policyholders can choose a premium amount and change it,
     rate credited to the policy’s
                                          within certain limits. Unlike whole life, universal life premiums do not have
     account value. Some policies
                                          to be paid to maintain the policy. As long as the policy has sufficient account
     offer a guaranteed death benefit,
                                          value to cover the monthly charges, the policy will stay in force to provide a
     based on cumulative premiums
                                          death benefit. Universal life is often purchased for this premium flexibility.
     plus interest, or a sufficient
                                          However, keep in mind that the death benefit is not guaranteed solely because
     account value. Universal life
                                          premiums are paid; the death benefit is only payable if the policy remains in
     policies also offer guarantees on
                                          force because there is sufficient account value to pay monthly charges. These
     the maximum mortality and policy
                                          charges tend to rise over time, as the cost of insurance increases with age.
     charges that can be deducted
                                          Additionally, if a universal life insurance policy is surrendered, a separate
     from the account value.
                                          surrender charge is assessed for up to 20 years.

                                          A universal life policy illustration, can show how much of the premium is
                                          applied to policy charges, including cost of insurance, and how much is
                                          remaining in the policy’s account value to earn interest, using current
                                          assumptions of insurance cost and a hypothetical credited interest rate.

                                          A whole life policy’s premium, by contrast, is “bundled” so that the cost of
                                          the insurance coverage cannot be determined as part of the fixed, guaran-
                                          teed premium. Because a whole life policy’s guaranteed cash value is
                                          scheduled to increase at a fixed, guaranteed interest rate (so that it can
                                          equal the original face amount at the insured’s age 100 or 121), it is not
                                          subject to fluctuations in short-term interest rates, as is universal life’s
                                          account value. While some universal life policies can offer guarantees,
                                          whole life is the only insurance product that guarantees a cash value
                                          increase each and every year.


18
Riders and additional benefits
A life insurance rider allows certain provisions (for example, additional
coverage or benefits) to be added to a life insurance policy that may not be
included in the basic coverage. Riders generally incur a cost that is added
to the base policy premium.

The type of benefits provided by riders that may be attached to whole life
policies include:
    • Disability coverage – A “waiver of premium” rider allows the
      policy’s premiums to be waived if the insured becomes totally
      disabled, as defined by the rider.
    • Insurability protection – This rider guarantees the right to purchase
      specified amounts of additional life insurance coverage on the
      insured on a pre-determined schedule, without submitting medical
      evidence of current health status.
    • Paid up additional insurance – This rider gives the owner the right
      to purchase paid up coverage within limits set at issue. This
      additional insurance adds to the policy’s cash value and death
      benefit, and will earn its own dividends, when payable.
    • Term insurance – Additional lower-cost coverage can be obtained
      by attaching a term insurance rider to a base whole life policy. This
      type of rider must be renewed periodically and the cost will increase
      with the insured’s age.

Another type of rider provides premium flexibility:
    • Life Insurance Supplement – Provides a combination of term
      insurance and paid up additional whole life insurance funded by
      both premiums and policy dividends, if paid, which can add lower-
      cost coverage to the base whole life policy.

Riders can often be added or dropped, as a policy owner’s needs change.
Some riders added after the policy is issued may require that evidence of
insurability be provided.




                                                                              19
Non-forfeiture options                                          Fundamental insurance planning questions
A whole life policy’s cash value provides protection if you     As the foundation of your financial strategy, life insurance
decide not to pay any more premiums out-of-pocket. Under        offers a unique form of protection. A whole life insurance
a Non-forfeiture Option, coverage under the original policy     policy can provide benefits both during and after your life-
is not entirely forfeited if premium payments stop.             time to meet your needs over the long term. Although it
                                                                may be impossible to predict what will happen to you over
Reduced Paid Up Option – Whole life insurance offers a
                                                                the next 10, 20, 30 or 40 years, you can purchase a whole
contractual provision under which the death benefit can be
                                                                life insurance policy that will fit your needs under many
reduced with no further premiums required. This is referred
                                                                different circumstances. Ask yourself these questions:
to as the reduced paid up option.
                                                                    • What will happen if I live too long?
The reduced paid up option takes your policy’s total cash
                                                                    • What will happen if I die too early?
value (minus any debt), including that of any paid up addi-
tions, and uses it as a single premium for a paid up policy.    Can you protect yourself, your family or your business from
The policy’s death benefit is reduced to an amount that can      the adverse financial consequences of these occurrences?
be purchased by the policy’s cash value as a single premium     Yes, you can. You can buy a whole life policy today and be
based on the insured’s attained age. No further premium         confident that the protection it offers will be there over the
payments are required, and no policy charges are deducted       long term for those you care about the most.
from the cash value, as they are with universal life. Your
policy will continue to earn annual dividends, if paid, which
can be taken in cash or used to increase the policy’s cash
value and death benefits. Loans are available on reduced
paid up policies, and if a loan is taken, dividends can be
used to reduce loan balances and interest.

While often triggered by non-payment of premium, the
reduced paid up option can be exercised by the policy
owner at any time. You can maintain a reduced amount of
whole life insurance with no additional premium payments.

Extended Term Option – Another non-forfeiture option,
extended term, provides term coverage in an amount equal
to the policy’s current death benefit for as long as the cash
value (net of debt) will cover the term charges. The length
of the term coverage is determined by the amount of cash
value in the policy at the time this option is triggered.




20
MassMutual. We’ll help you get there.SM

                                          For over 150 years, MassMutual and its affiliated financial
                                          professionals have helped guide our policyholders toward
                                          greater security and financial freedom.
                                          One measure of a company’s value to its customers is its financial strength.
                                          MassMutual’s exceptional financial strength is underscored by ratings that
                                          are among the best in any industry:
                                               • A.M. Best Company . . . . . . . . . . . . . . . . . . . . . . . . . . A++ (Superior)
                                               • Moody’s Investors Service Inc. . . . . . . . . . . . . . . . . . Aa1 (Excellent)
                                               • Standard & Poor’s Corp.. . . . . . . . . . . . . . . AAA (Extremely Strong)
                                               • Fitch Ratings . . . . . . . . . . . . . . . . . . . . . AAA (Exceptionally Strong)

                                          Our commitment is to help you focus on what you value most, clarify
                                          what you want to achieve in life, and understand how life’s uncertainties
                                          could impact your plans and aspirations. We then help you implement
                                          flexible financial strategies that can help provide peace of mind for today
                                          and tomorrow.

                                          After all, it’s not about where life takes you…it’s about where you take life.
                                          Built on a foundation of integrity, strength, and reliability, MassMutual can
                                          help you get there.

                                          For more information on MassMutual’s suite of whole life insurance
                                          products, contact your MassMutual Financial Professional.




Ratings are as of October 1, 2008 and are subject to change. Ratings are for Massachusetts Mutual Life Insurance Company, C.M. Life
Insurance Company and MML Bay State Life Insurance Company.
Massachusetts Mutual Life Insurance Company and its affiliated insurance
                                                    companies have received certification from IMSA, an industry organization
                                            dedicated to promoting ethical conduct in all customer contacts involving sales and
                                                   service of individual life insurance and annuity and long term care products.


The decision to purchase life insurance should be based on long-term financial goals and the need for a death benefit. Life insurance is not an appropriate
vehicle for short-term savings or short-term investment strategies. While the policy allows for access to the cash value in the short-term, such as through
loans or partial surrenders, these transactions will impact the policy’s death benefit if the values are not restored prior to the insured’s death. You should
know that there may be little to no cash value available for loans in the policy’s early years.
Whole life insurance policies are issued by Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001.




© 2008 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a       LI1301 1008
marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.             CRN201010-110443

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Whole Story Life

  • 1. A Type of Piece Technical Guide for Consumers Audience The whole line Headline 1 story( Understanding the benefits of whole life insurance | insure | investStrategies| Insurance | retire
  • 2. Life insurance is the cornerstone of any sound financial plan. When you buy life insurance, you help to protect your family’s financial security, since the money your Contents beneficiaries receive in the event of your death can 1 | Introduction replace lost income, and help to pay their expenses at an 3 | How does Whole Life work? extremely difficult time. Consequently, a life insurance 8 | Dividends policy can provide your family with greater peace of mind. 14 | Other features and benefits NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION • NOT FDIC OR NCUA INSURED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY ANY BANK OR CREDIT UNION The information provided in this brochure is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
  • 3. Insurance for your lifetime Life insurance can also help to protect a business, by providing cash that will help to ensure the continuity of the firm’s day-to-day operations – and often, the business itself – through the policy’s death benefit. Living and death benefits Whole life insurance is primarily purchased for the death benefit protection. The cash payment that is made due to the death of the insured offers unique protection for a family or business. Whole life insurance provides a death benefit that is guaranteed as long as the premiums are paid when due.1 With its guarantees, cash Whole life also offers guaranteed, tax-deferred cash value accumulation – sometimes referred to as a “living benefit” – that can help provide financial value accumulation and security while the insured is still alive. Whole life policy cash values can potential to earn dividends, be borrowed from the policy for any purpose – supplemental retirement whole life insurance can income, education funding or even a means of ready cash for emergencies.2 become the foundation of While loans that have not been repaid will reduce the death benefit (when your financial plan. it is eventually paid), access to your whole life policy’s cash value offers comfort for you while you are living – and security for your family or business after your death. Mutual versus stock companies Whole life insurance purchased from a mutual insurance company offers the policy owner an additional advantage. With a mutual insurance company, customers who purchase certain “participating” products, like whole life insurance, are eligible to receive a portion of the company’s surplus in the form of (non-guaranteed) dividends. 1 Guarantees are based on the claims-paying ability of the issuing company. 2 Distributions under your policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (your cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty. Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. 1
  • 4. The other common form of insurance company structure is a publicly traded stock company, which is owned by its shareholders. Unlike a mutual company, a typical stock company generally pays a percentage of its corporate profits to its shareholders. Consequently, a stock insurance company must balance the interests of its policyholders against the earnings expectations of its shareholders. Shareholders may judge a company’s performance based on projected earnings for the next quarter or the next year. These expectations might conflict with the long-term interests of policyholders. Life insurance tax advantages Life insurance proceeds (the death benefit), when paid, are generally free Whole life insurance’s of income taxes. In addition, if properly arranged, life insurance proceeds guaranteed cash value does may not be included in an insured’s estate for Federal estate tax purposes. not go up or down as a Policy cash values accumulate tax-deferred (meaning you do not pay taxes result of events in the each year on any gain) and you have access to those policy values on a tax- financial markets. favored basis, by withdrawing dividends (up to your cost basis, which equals the total of premiums paid) or through policy loans.2 Long-term value Whole life insurance’s guaranteed cash value does not go up or down as a result of events in the financial markets. Buying whole life insurance is not a way to get rich quick. But with its basic guarantees, cash value accumu- lation and potential to earn dividends, whole life insurance – the protection and value it offers – can become the foundation of your financial plan. As long as your premiums are paid, whole life insurance guarantees benefits for your lifetime. At MassMutual, that’s what we mean by long- term value. 2
  • 5. How does Whole Life work? Whole life is a permanent life insurance product. Unlike term insurance, which provides coverage for a temporary need, whole life does exactly what its name says – it provides life insurance protection for a lifetime. 3
  • 6. How does Whole Life compare to Term insurance? Whole Life Insurance Term Life Insurance Whole life insurance provides a death Term insurance provides a death benefit for the insured’s lifetime. benefit only for the specified period. Permanent insurance products build cash Term insurance provides pure death value that can be used as a benefit while protection and generally does not the insured is living. build any cash value. A whole life contract provides a guarantee Term insurance does not generally that the policy’s cash value will be equal to have any cash value. the face amount at the insured’s age 100 or 121. This guaranteed cash value is unique to whole life. Participating whole life has the potential to Term insurance does not increase in earn dividends, which can be used to buy death benefit; you must purchase additional paid up insurance and provide additional coverage instead. death benefit growth. The difference between term and permanent insurance can be compared to With whole life insurance, the difference between renting an apartment and owning a home. Both you build equity that can be renting and owning provide a place to live, and both term and permanent used as a means of insurance provide a death benefit. When you pay your rent, you are paying available cash in case of for just the roof over your head. Similarly, when you pay your term emergency, or when you insurance premiums, you are purchasing pure death benefit protection. But need cash for any reason. neither your apartment nor your term insurance policy will build any equity for you. Conversely, if you own a home, each time you make a mortgage payment, you are building equity in your home – and that equity can be used as a means of available cash in case of emergency, or when you need cash for any reason. The same is true of a whole life policy. Each premium you pay helps you to build equity in the form of the policy’s cash value, which you can use as a living benefit should the need ever arise. 4
  • 7. Whole life guarantees Whole life insurance offers three guarantees: guaranteed premium, guaranteed cash value and guaranteed death benefit. While other insurance products may offer one or sometimes two of these features, whole life is unique in providing all three. Guaranteed premium – A whole life policy is issued with a fixed, guaran- teed premium. The premium is based on your age, gender and health at the time your policy is issued, and is guaranteed not to increase, no matter what happens in the financial markets. You won’t see any surprise increases in premium as you get older or if your health should change – or as interest rates rise and fall. Guaranteed cash value – A whole life policy is issued with a schedule that tells you the guaranteed cash value increase each and every year. Each schedule is set so that the guaranteed cash value is equal to the policy’s face amount, or death benefit purchased at issue, when the insured becomes 100 or 121 years old. The guaranteed cash value’s growth is based on a fixed interest rate that is also guaranteed. Whole life is the only insurance product that guarantees a cash value increase each and every year. Guaranteed death benefit – A whole life policy is issued with a guarantee that as long as the premiums are paid when due, the death benefit that was originally purchased (minus any outstanding policy loan and loan interest) will be paid at death to the beneficiaries.1 You can arrange your finances with the peace of mind of knowing your family will be protected after your death. 5
  • 8. Take a closer look at the guarantees of whole life insurance The diagram below represents whole life’s guaranteed level premium versus the premium of an annually renewable term policy, which The diagram below represents the design of a whole life increases each year as the insured gets older. The term premium ends insurance policy. (as does the coverage) when the term policy expires. Guaranteed Face Amount Face Amount e Valu Cash Whole life premium teed Guaran ium prem Term Age at Issue Age 100 Age 121 Age at Issue Age 121 Guaranteed cash value and policy reserves The Society of Actuaries has developed Commissioner’s Standard Ordinary (CSO) mortality tables. The tables are approved and adopted by each state’s Insurance Department and the National Association of Insurance Commis- sioners (NAIC), and are used as the actuarial basis to determine guaranteed policy values. We’ve stated earlier that the guaranteed cash value of a whole life policy can equal the face amount at the insured’s age 100 or 121 and it increases at a set schedule each year to achieve this. The amount that a whole life policy’s guaranteed cash value will increase each year, as well as its level premium structure, is based in part on the mortality charges (based on the CSO Tables) and the policy’s minimum guaranteed interest rate, also reflect- ing the Company’s loads and expenses. In order to credit the cash value increase (which is known and scheduled) and adequately prepare for payment of the benefit at the time of the insured’s death (which is unknown), insurance companies must accumulate money that is held in reserve. The guaranteed cash value of a whole life insurance policy is held in reserve by the insurance company and invested in the general investment account of the company, which includes assets that earn interest at a fixed rate. The reserves are held until they are paid out, either as part of the death benefit or cash surrender value (if the policy is surrendered, or cancelled by the owner). 6
  • 9. To refer back to the apartment/house analogy, the guaranteed cash value of a whole life policy is available to you in the form of a policy loan, just as a home equity loan provides you with cash borrowed against the equity of your house. If you choose to borrow part of the value of your whole life policy, the guaranteed cash value will continue to increase every year as scheduled. Also, your policy will continue to earn dividends, if they are paid. (See Policy Loans and Direct Recognition for more information on policy loans and how they can affect dividends.) Loans and withdrawals If a loan is taken, you will be billed annually for the interest. Loan interest can be paid out-of-pocket, or, if you do not pay the interest bill, as long as the policy has sufficient cash value, a policy loan is processed to pay the interest. The policy loan amount will then be equal to the previous loan amount plus the accrued interest. Any loan and interest outstanding will be deducted from the benefit paid at the time of the insured’s death, or the cash surrender value if the policy is surrendered. Please note that loans can create the potential for policy lapse if, together with accrued loan interest, they grow faster than the cash value. A whole life policy can provide liquidity for financial needs during your lifetime with the use of policy loans and/or withdrawal of dividends left in the policy, as well as a permanent death benefit (net of any loans taken or dividends withdrawn). 7
  • 10. Dividends We’ve stated earlier that whole life insurance purchased from a mutual company offers the policy owner an additional advantage – customers who purchase certain “participating” products, like whole life insurance, are eligible to receive a portion of the company’s earnings, known as “divisible surplus,” in the form of dividends. 8
  • 11. This surplus comes primarily from three sources: mortality savings, investment earnings and savings on expenses: • Mortality savings – Insurance companies must anticipate the death claims they expect to pay out in the future and make sure their policies’ premiums are priced appropriately. Mortality savings occurs when actual mortality levels (claims paid) are lower than what was expected in the product pricing. • Investment earnings – Insurance companies must set aside reserves – money that is earmarked to pay claims when due. That money is invested in order to help meet the financial commitment An insurance company for guaranteed cash value and death benefits. Investment earnings surplus occurs when the insurance company’s investment returns must achieve a surplus in exceed the guaranteed interest rate the company requires for death order to pay dividends. benefit reserves and to meet its contractual obligations. • Savings on expenses – Insurance companies must factor their expenses into their life insurance policy pricing. Expense savings occurs when the company’s actual expenses are less than those assumed in the premium rate. Unlike whole life’s guaranteed premium, death benefit and cash value, payment of annual dividends is not guaranteed. In order to pay dividends, a surplus must be achieved. MassMutual has paid policyowner dividends consistently since the late 1800’s but, like any mutual insurance company, we cannot guarantee that we will always achieve a surplus that enables us to pay dividends. Because dividends are comprised of an investment component, a mortality component and an expense component, dividend interest rates should not be the sole basis for comparing insurers or policy performance. The balance among the three dividend components changes over the length of time the policy is active: • The interest component increases in significance with duration. • The mortality component decreases in significance with duration. • The expense component is typically negative in most years because expenses are part of the pricing of the policy’s premium 9
  • 12. How are MassMutual’s dividends calculated? Dividend calculations explained If you are a participating whole life policyholder, the size of the dividend you may receive is determined by the “Contribution The chart below shows an example of the dividend component Principle,” which states that divisible surplus is returned to percentage, assuming a policy with a 4.5% guaranteed interest rate. policyholders in the same proportion as the policyholders Policy contributed to the surplus. The Contribution Principle treats all Year Interest Mortality Expense Total policyholders equitably in determining their share of dividends. 5 45% 80% -25% 100% Dividend interest rate 10 55% 54% -9% 100% For many insurance companies, including MassMutual, the dividend interest component is determined by using a 20 65% 42% -7% 100% portfolio-average method that reflects the earnings on all investments within the portfolio, including those purchased The pie charts below further illustrate the effect of policy duration on in prior years. Because of this averaging process, the yield the dividend component percentage, again assuming the same of the portfolio as a whole will tend to lag behind changes policy with a 4.5% guaranteed interest rate. in the yields on new investments alone. { Expense { Interest { Mortality If yields on new investments are lower than yields on older investments, the lag generally will result in a portfolio rate 30% higher than current market rates. Conversely, if yields on new investments rise above the yields on older investments, the Year 5 53% portfolio rate generally will be below prevailing market rates. 17% Compared to a new-money-rate method, the portfolio- average method typically results in less fluctuation in the dividend schedule over the life of an insurance contract. This stabilizing effect is among the reasons MassMutual and many other insurers use the portfolio-average method. 46% Year 10 46% Under the new-money or investment-year method, insurers vary the credited rate among policies based on when the 8% policies were issued or when premiums were received (or funds transferred). These rates reflect the performance of the specific investments purchased to back those policy classes. Both the portfolio-average and new-money methods are universally regarded as valid ways of allocating investment 37% 57% income to classes of policyholders. The results achieved Year 20 under the two methods tend to vary over the short term, 6% particularly if interest rates fluctuate during that time. They are likely to converge, however, if the span of years is lengthened or interest rates remain stable. 10
  • 13. MassMutual’s dividend interest rates vs. Treasury rates The stabilizing effect of the portfolio average method over time is among the reasons MassMutual and many other insurers use this approach to determine their dividend interest rates (DIRs). This method reflects the earnings on all investments within the portfolio,including those purchased in prior years. This graph shows the relationship of MassMutual’s DIR to three Treasury “rates”: • The 10-year rolling weighted average of medium-term Treasuries and spreads of BBB corporate bonds, with expense and credit adjustments, for the year preceding the dividend interest rate shown. The 10-year rolling average is a simple representation of a hypo-thetical portfolio having a similar duration to the MassMutual portfolios supporting the company’s traditional products. • The yearly weighted average of medium-term Treasuries for the year preceding the dividend interest rate shown and one-year Treasury rates. These rates show the volatility of new-money rates compared to portfolio average rates, which lag both the upward and downward movements of new-money rates. 10% 9 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Dividend schedule 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* MassMutual dividend interest rate1 8.20% 8.20% 8.05% 7.90% 7.50% 7.00% 7.40% 7.50% 7.90% 7.60% Treasuries (10-year average) 2 6.89% 6.72% 6.54% 6.33% 6.13% 5.84% 5.61% 5.47% 5.44% 5.34% Treasuries (one-year average) 3 5.73% 6.12% 4.99% 4.51% 3.85% 4.17% 4.29% 4.85% 4.65% 3.49% One-year Treasury rate 4 5.07% 6.08% 3.50% 2.16% 1.41% 2.85% 4.40% 4.81% 3.21% 1.79% 1 Refers to the MM-TBCC block of business, which comprises policies issued after the merger of Massachusetts Mutual Life Insurance Company and the former Connecticut Mutual Life Insurance Company in 1996. 2 10-year rolling weighted average of medium-term Treasuries and spreads of BBB corporate bonds, with expense and credit adjustments, for the year preceding the dividend interest rate shown. 3 Yearly weighted average of medium-term Treasuries for the year preceding the dividend interest rate shown. 4 One-year Treasury rate for the year preceding the dividend interest rate shown. *2009 Treasury rates as of Sept. 26, 2008. Note: The dividend interest rate is not the rate of return on the policy. Dividends are composed of an investment component, a mortality component and an expense component. Therefore, dividend interest rates should not be the sole basis for comparing insurers or policy performance. 11
  • 14. Dividend options You may elect to receive your dividends in cash or, depending on the type of policy you purchased, you may use dividends as you wish under one of these options: • Reduce premiums – Your annual dividend can be used to pay some or all of your annual premiums due. If the dividend exceeds the billed premium, any excess can be sent to you in cash, used to purchase additional insurance, left to accumulate and earn interest, or used to repay any policy loan. • Paid up insurance – Your annual dividend can be used to purchase paid up additional insurance coverage, adding to your policy’s death benefit and total cash value. If you choose this option, the additional insurance will also earn dividends. This additional coverage can be surrendered (cancelled) unless needed as security for a policy loan, and the cash value from the paid up additional insurance can be used by the policy owner for any purpose. Dividend options, which • Accumulate at interest – Your annual dividend can be left in the can be changed at any time, policy to accumulate at interest.The interest credited each year is help to provide flexibility treated as taxable income, which MassMutual must report to the for a whole life policy. Internal Revenue Service. Policy owners who select this dividend option will receive a 1099 form for the taxable interest after the end of each tax year. • One-year term – Your annual dividend can be used to purchase one- year term insurance, supplementing your policy’s death benefit for that one-year period. Any excess dividend not needed to purchase one-year term insurance may be used to reduce premiums, purchase paid up additional insurance, or repay a policy loan. • Loan repayment – Your annual dividend can be used to repay a policy loan and policy loan interest. If you do not choose a dividend option when your policy is issued, your dividends will be used to purchase paid up additional insurance. Dividend options can be changed at the request of the policy owner. Dividends left in the policy to purchase additional insurance or accumulate at interest can be withdrawn (partially or totally) at any time at the request of the policy owner, unless they are needed to secure a policy loan. 12
  • 15. The effect of using annual dividends to purchase paid up additional insurance The diagram on the right shows the effect of using annual dividends to purchase paid up additional insurance, which, if left in the policy, adds to the policy’s total cash value and total death benefit. Since dividends are not guaranteed, the additional insurance purchased by dividends is not Add ition s De ath B enefi Additions Ca Guaranteed Face Amount GUARANTEED t sh Value } Paid up additional insurance purchased by policy dividends. Base Policy considered part of the policy’s CASH VALUE guaranteed death benefit even though it is paid up and does not require additional premium payments. Age at Issue Age 121 Tax status of dividends There are circumstances when dividends are considered first Internal Revenue Code Sec. 72 states that a life insurance to be a return of policy earnings and, therefore, are taxable. policy dividend, when received, is a return of premium If a life insurance policy is a Modified Endowment (investment) and, as such, is not considered to be taxable Contract, or MEC, any dividends distributed to the policy income until the total amount of dividends received (plus owner are taxable as income to the extent that there is a gain any other nontaxable distributions) exceed the policy’s cost in the policy. Dividends that remain in the policy to basis (the total of premiums paid). purchase policy benefits – either applied to reduce the policy premium or to purchase additional insurance – are Generally, dividends reduce the policy’s cost basis (but not not taxable to the policy owner. below zero), unless they are applied to purchase policy benefits. Therefore, cash dividends, dividend accumulations, and dividends used to pay policy loans or loan interest all reduce cost basis – while dividends applied to purchase paid up additions or one-year term, or to reduce premiums on the same policy have no net effect on cost basis. Surrenders of paid up additions will reduce cost basis, unless applied to reduce premiums. Distributions from dividend accumulations have no effect on cost basis. If cost basis has been fully recovered (zero basis), any dividend will become taxable unless applied to purchase policy benefits. 13
  • 16. Other features and benefits Whole life insurance offers guarantees for death benefit protection along with solid cash value growth, and has the flexibility to meet your changing needs. 14
  • 17. Policy loans and direct recognition Once your whole life policy has been in force for 12 months, you may borrow a portion of the cash value of the policy, including the cash value of dividend additions left in the policy. Annual interest is charged on a policy loan at either a fixed or an adjustable rate, selected at the time the policy is issued.3 If a policy loan is taken, loan interest is charged based on your interest rate selection. Once chosen, the type of loan rate cannot be changed. If no policy loan is ever taken, the choice of loan interest rate will not matter. However, if you do choose to borrow from your policy, the loan interest rate can have an effect on any dividends earned from that point on. This effect is called direct recognition. Policies issued with a fixed loan interest rate are subject to direct recognition if a loan is taken. Under a direct recognition practice, the dividend interest rate that applies to the borrowed portion of a policy’s cash value reflects the net earnings of MassMutual’s loan portfolio, while non-loaned funds earn dividends at an interest rate according to the return on MassMutual’s whole investment portfolio (invested assets other than policy loans). Historically, MassMutual’s investment portfolio has earned more than its loan portfolio, so under direct recognition, dividends on loaned funds tend to be lower than dividends earned on non-loaned policy cash value. The mortality and expense portion of policy dividends are not affected by direct recognition. Automatic premium loan plan Your whole life policy’s loan provision offers an additional form of protection in the event that your annual premium is not paid when due. If the Automatic Premium Loan feature is selected, at the end of the grace period, as long as your policy has sufficient cash value, a policy loan in the amount of the premium due is automatically processed to pay your outstanding premium. This Automatic Premium Loan feature may be turned on or off at the request of the policy owner. An Automatic Premium Loan, like a loan requested by a policy owner, can be repaid at any time in any amount. If not repaid, any loan amount, in addition to the loan’s accrued interest, will be deducted from the death benefit or cash value when paid. 3 State law may dictate the available loan rate. 15
  • 18. Rate of return Whole life insurance provides a guaranteed minimum rate of return on the policy’s cash value, but whole life should never be bought solely for its rate of return. You should choose a policy based on the protection it offers. It’s relatively easy to calculate the annual rate of return. Starting with the amount you paid in the beginning of the year, use the cash value at the end of the year to calculate your return rate for the year. A whole life insurance policy’s guaranteed cash value increases each year at a fixed, guaranteed interest rate. That rate alone, however, does not The internal rate of return represent the rate of return on the policy. Dividends also have an interest on a whole life policy is the rate component that is set each year by the company’s Board of Directors, interest rate at which but that is not the rate of return on the policy, either. Because a whole life premium payments paid up policy has both a living (cash value) and death benefits, a rate of return on to the current year must be both the cash value and death benefit can be calculated. compounded at each and The rate of return on a policy’s death benefit is based on the total amount every year to equal either of premiums paid into the policy and the amount of death benefit paid out. the total cash value or the If the death benefit is paid in the early years of the policy, the amount of total death benefit. premiums paid may be low in relation to the amount of death benefit paid out. Consequently, the rate of return on a policy’s death benefit is very high when a policy is new. The rate of return on a policy’s cash value is based on the total amount of premiums paid into the policy and the amount of cash value at the end of the year. The rate of return on a policy’s cash value can be negative in the early years as the policy’s cash value builds gradually over time. 16
  • 19. Buy term and “invest the difference”? Some financial professionals believe that permanent life insurance – with its cash value as a built-in savings component – may not be a good choice for either long-term protection or investment purposes. These individuals advise clients to buy term insurance (which tends to have a lower premium than whole life insurance) for death benefit protection and invest the premium savings for a potentially higher return. Keeping in mind that whole life insurance should not be purchased solely as an “investment,” following are several reasons why “buy term and invest the difference” may not be a sound strategy: • Term insurance is typically purchased for a temporary need, since it expires at the end of a specified time period. Often, term insurance expires when the insured reaches an age at which he or she is more likely to die (than at a younger age) – an age when life insurance would be needed most. For most people, the need for life insurance does not disappear; it changes as their financial situation changes. • Premiums for term insurance increase as the insured gets older and can be substantially higher at older ages, making the cost of continuing coverage prohibitive. The increasing cost of the premium could erode the alternative investment into which premium savings have been invested. • Taxable annual income may be incurred from the growth in the alternative investment. Also, funds withdrawn from investments are often taxable if a gain is recognized. • Many people do not have the discipline to invest a specified amount of money at the same time every year. If one or more years’ investments are missed, the objective of achieving higher returns may not be realized. • All investments have some inherent risk and may need to be managed on an ongoing basis. An investment that goes down in value might not provide sufficient funds to meet the financial objective of family or business protection. Investment management requires advisory skills that the owner may have to pay for separately, affecting the rate of return. 17
  • 20. Whole Life versus Universal Life Universal life and whole life are both types of permanent insurance, and both offer death benefit protection and the potential for cash value accumulation. However, they are designed very differently. With universal life insurance, net premium payments are credited to the policy’s account, which is credited with interest and from which policy charges, including cost of insurance (mortality charges) and administration charges are deducted monthly. The account value earns interest at a rate that changes monthly (subject to a guaranteed minimum rate), reflecting the experience What guarantees can of the company’s general investment account. Insurance charges increase Universal Life offer? annually with the insured’s age and generally cease when the insured Most universal life policies offer reaches age 100. a guaranteed minimum interest Universal life policyholders can choose a premium amount and change it, rate credited to the policy’s within certain limits. Unlike whole life, universal life premiums do not have account value. Some policies to be paid to maintain the policy. As long as the policy has sufficient account offer a guaranteed death benefit, value to cover the monthly charges, the policy will stay in force to provide a based on cumulative premiums death benefit. Universal life is often purchased for this premium flexibility. plus interest, or a sufficient However, keep in mind that the death benefit is not guaranteed solely because account value. Universal life premiums are paid; the death benefit is only payable if the policy remains in policies also offer guarantees on force because there is sufficient account value to pay monthly charges. These the maximum mortality and policy charges tend to rise over time, as the cost of insurance increases with age. charges that can be deducted Additionally, if a universal life insurance policy is surrendered, a separate from the account value. surrender charge is assessed for up to 20 years. A universal life policy illustration, can show how much of the premium is applied to policy charges, including cost of insurance, and how much is remaining in the policy’s account value to earn interest, using current assumptions of insurance cost and a hypothetical credited interest rate. A whole life policy’s premium, by contrast, is “bundled” so that the cost of the insurance coverage cannot be determined as part of the fixed, guaran- teed premium. Because a whole life policy’s guaranteed cash value is scheduled to increase at a fixed, guaranteed interest rate (so that it can equal the original face amount at the insured’s age 100 or 121), it is not subject to fluctuations in short-term interest rates, as is universal life’s account value. While some universal life policies can offer guarantees, whole life is the only insurance product that guarantees a cash value increase each and every year. 18
  • 21. Riders and additional benefits A life insurance rider allows certain provisions (for example, additional coverage or benefits) to be added to a life insurance policy that may not be included in the basic coverage. Riders generally incur a cost that is added to the base policy premium. The type of benefits provided by riders that may be attached to whole life policies include: • Disability coverage – A “waiver of premium” rider allows the policy’s premiums to be waived if the insured becomes totally disabled, as defined by the rider. • Insurability protection – This rider guarantees the right to purchase specified amounts of additional life insurance coverage on the insured on a pre-determined schedule, without submitting medical evidence of current health status. • Paid up additional insurance – This rider gives the owner the right to purchase paid up coverage within limits set at issue. This additional insurance adds to the policy’s cash value and death benefit, and will earn its own dividends, when payable. • Term insurance – Additional lower-cost coverage can be obtained by attaching a term insurance rider to a base whole life policy. This type of rider must be renewed periodically and the cost will increase with the insured’s age. Another type of rider provides premium flexibility: • Life Insurance Supplement – Provides a combination of term insurance and paid up additional whole life insurance funded by both premiums and policy dividends, if paid, which can add lower- cost coverage to the base whole life policy. Riders can often be added or dropped, as a policy owner’s needs change. Some riders added after the policy is issued may require that evidence of insurability be provided. 19
  • 22. Non-forfeiture options Fundamental insurance planning questions A whole life policy’s cash value provides protection if you As the foundation of your financial strategy, life insurance decide not to pay any more premiums out-of-pocket. Under offers a unique form of protection. A whole life insurance a Non-forfeiture Option, coverage under the original policy policy can provide benefits both during and after your life- is not entirely forfeited if premium payments stop. time to meet your needs over the long term. Although it may be impossible to predict what will happen to you over Reduced Paid Up Option – Whole life insurance offers a the next 10, 20, 30 or 40 years, you can purchase a whole contractual provision under which the death benefit can be life insurance policy that will fit your needs under many reduced with no further premiums required. This is referred different circumstances. Ask yourself these questions: to as the reduced paid up option. • What will happen if I live too long? The reduced paid up option takes your policy’s total cash • What will happen if I die too early? value (minus any debt), including that of any paid up addi- tions, and uses it as a single premium for a paid up policy. Can you protect yourself, your family or your business from The policy’s death benefit is reduced to an amount that can the adverse financial consequences of these occurrences? be purchased by the policy’s cash value as a single premium Yes, you can. You can buy a whole life policy today and be based on the insured’s attained age. No further premium confident that the protection it offers will be there over the payments are required, and no policy charges are deducted long term for those you care about the most. from the cash value, as they are with universal life. Your policy will continue to earn annual dividends, if paid, which can be taken in cash or used to increase the policy’s cash value and death benefits. Loans are available on reduced paid up policies, and if a loan is taken, dividends can be used to reduce loan balances and interest. While often triggered by non-payment of premium, the reduced paid up option can be exercised by the policy owner at any time. You can maintain a reduced amount of whole life insurance with no additional premium payments. Extended Term Option – Another non-forfeiture option, extended term, provides term coverage in an amount equal to the policy’s current death benefit for as long as the cash value (net of debt) will cover the term charges. The length of the term coverage is determined by the amount of cash value in the policy at the time this option is triggered. 20
  • 23. MassMutual. We’ll help you get there.SM For over 150 years, MassMutual and its affiliated financial professionals have helped guide our policyholders toward greater security and financial freedom. One measure of a company’s value to its customers is its financial strength. MassMutual’s exceptional financial strength is underscored by ratings that are among the best in any industry: • A.M. Best Company . . . . . . . . . . . . . . . . . . . . . . . . . . A++ (Superior) • Moody’s Investors Service Inc. . . . . . . . . . . . . . . . . . Aa1 (Excellent) • Standard & Poor’s Corp.. . . . . . . . . . . . . . . AAA (Extremely Strong) • Fitch Ratings . . . . . . . . . . . . . . . . . . . . . AAA (Exceptionally Strong) Our commitment is to help you focus on what you value most, clarify what you want to achieve in life, and understand how life’s uncertainties could impact your plans and aspirations. We then help you implement flexible financial strategies that can help provide peace of mind for today and tomorrow. After all, it’s not about where life takes you…it’s about where you take life. Built on a foundation of integrity, strength, and reliability, MassMutual can help you get there. For more information on MassMutual’s suite of whole life insurance products, contact your MassMutual Financial Professional. Ratings are as of October 1, 2008 and are subject to change. Ratings are for Massachusetts Mutual Life Insurance Company, C.M. Life Insurance Company and MML Bay State Life Insurance Company.
  • 24. Massachusetts Mutual Life Insurance Company and its affiliated insurance companies have received certification from IMSA, an industry organization dedicated to promoting ethical conduct in all customer contacts involving sales and service of individual life insurance and annuity and long term care products. The decision to purchase life insurance should be based on long-term financial goals and the need for a death benefit. Life insurance is not an appropriate vehicle for short-term savings or short-term investment strategies. While the policy allows for access to the cash value in the short-term, such as through loans or partial surrenders, these transactions will impact the policy’s death benefit if the values are not restored prior to the insured’s death. You should know that there may be little to no cash value available for loans in the policy’s early years. Whole life insurance policies are issued by Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield, MA 01111-0001. © 2008 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a LI1301 1008 marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. CRN201010-110443