Kfs life insurance

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  • Understanding Life Insurance: A Lesson in Traditional and Indexed Life Insurance
  • Kfs life insurance

    1. 1. © 2013 VSA, LP Valid only if used prior to January 1, 2014. The information,general principles and conclusions presented in this report are subject to local, stateand federal laws and regulations, court cases and any revisions of same. Whileevery care has been taken in the preparation of this report, neither VSA, L.P. norThe National Underwriter is engaged in providing legal, accounting, financial orother professional services. This report should not be used as a substitute for theprofessional advice of an attorney, accountant, or other qualified professional.A Lesson in Traditionaland Indexed Life InsuranceUnderstandingLife Insurance
    2. 2. Understanding Life Insurance: A Lesson in TraditionalYour Earning Power$ 50,000 $ 100,000 $ 250,000 $ 500,000$ 2,000,000 $ 4,000,000$10,000,000$20,000,000$ 1,500,000 $ 3,000,000 $ 7,500,000$15,000,000$ 1,000,000 $ 2,000,000 $ 5,000,000$10,000,000$ 500,000 $ 1,000,000 $ 2,500,000 $ 5,000,000$ 250,000 $ 500,000 $ 1,250,000 $ 2,500,000Your Future Earning PowerIf Your Family Income Averages:Years toAge 65:403020105If something happens to you, how willyour family replace your earning power?Only life insurance canguarantee to providethe funds required toreplace your earningpower exactly whenneeded at your death.Few people realize that a 30-year-old couple willearn 3.5 million dollars by age 65 if their totalfamily income averages $100,000 for their entirecareers, without any raises.Your IncomeSpouse’s IncomeOther IncomeInvestment IncomeYour ability to earn an income is your most valuable asset.
    3. 3. Life Insurance QuestionsUnderstanding Life Insurance: A Lesson in TraditionalIn purchasing life insurance, people generally ask:How much life insurance you need depends onyour individual needs and your financialobjectives for your family.This question is best answered through ananalysis of your family and financial situation, aswell as your financial goals and objectives.continued on next slideHow Much Life Insurance Do I Need?While life insurance cannot replaceyou, it can provide the funds to:pay final expensesreplace all or a portion of your incomekeep your family in their homeestablish a college education fundcover financial emergenciesprovide a child and/or home care fund
    4. 4. Life Insurance QuestionsUnderstanding Life Insurance: A Lesson in TraditionalAll life insurance falls into one of two categories of coverage. Each category has certaincharacteristics that make it more suitable for certain needs:What Type of Life Insurance Should I Buy?Term Life InsuranceProvides temporary protection forthe term of the policy.If the insured dies within the termperiod, the insurance companypays the death benefit.If the insured survives the termperiod, the coverage terminates.Cash Value Life InsuranceProvides lifetime protection, so long as thepolicy is kept in force.The insurance company pays the death benefitregardless of when death occurs, so long asthe policy is kept in force.The policy accumulates cash values that can beused during the insured’s lifetime (withdrawalsand loans will reduce the policy’s death benefitand cash value available for use).
    5. 5. Types of Term InsuranceUnderstanding Life Insurance: A Lesson in TraditionalRenewable TermInsurance Featureslevel death benefitincreasing premiums, if renewedno cash valuesmay have policy dividendsrenewable, may be subject to medicalqualificationsbest suited for level temporary needsDeath BenefitTerm PeriodPremiumDecreasing TermInsurance Featuresdecreasing death benefitlevel premiumno cash valuesmay have policy dividendsbest suited for decreasing needs thatultimately disappearDeath BenefitTerm PeriodPremiumcontinued on next slide
    6. 6. Types of Term InsuranceUnderstanding Life Insurance: A Lesson in TraditionalTerm Insurance Advantages Term Insurance Disadvantages+ -Low initial premium.Well suited to shorter-term, temporaryneeds.Most plans can be renewed, if you aremedically qualified.Premiums in future years may becomeprohibitively expensive.Insurance protection may cease beforedeath.Does not build any cash values.
    7. 7. Term Insurance VariationsUnderstanding Life Insurance: A Lesson in TraditionalLevel TermInsuranceA level term insurance policy provides an alternative to renewable terminsurance, which features a level death benefit and annual premiumsthat increase each year.level death benefitlevel premiums for the duration of the selectedterm period (e.g., 10, 20 or 30 years)increasing premiums, if renewed after the selectedterm periodno cash valuesmay have policy dividendsbest suited for level needs of a somewhat knowndurationWhile a level term insurance policy also provides a level death benefit, premiums are alsoguaranteed to remain level for the term period selected, such as 10, 20 or 30 years. If theinsurance protection is still needed at the end of the selected level term period, these policiesgenerally provide that the coverage can be renewed without evidence of insurability, withpremiums then increasing each year thereafter.continued on next slideDeath BenefitLevel Term PeriodPremium
    8. 8. Term Insurance VariationsUnderstanding Life Insurance: A Lesson in TraditionalReturn of PremiumFeatureWhen you purchase a level term insurance policy, your family receivesthe death benefit if you die during the term period. Chances are,however, that you’ll outlive the term period. If your term insurancepolicy includes a return of premium feature and you outlive the termperiod, the insurance company will then return to you all of thepremiums you’ve paid for the term insurance protection.Return of premium term insurance enables you to “hedge your bets”... if something doeshappen to you, you’ve provided for your loved ones. If you outlive the policy, the premiumsyou’ve paid will be returned to you.A return of premium term insurance policy costs more than a traditional level term insurancepolicy, so it’s important that you understand the conditions under which premiums will bereturned to you.All return of premium term insurance policies return 100% of the premiums you’ve paid atthe end of the term period, assuming the policy is in-force and no death benefit has beenpaid. If, however, you cancel the policy prior to the end of the term period, you may receiveback none or only a percentage of the premiums you’ve paid...check the return of premiumconditions before you purchase a return of premium term insurance policy.
    9. 9. Types of Cash Value Life InsuranceUnderstanding Life Insurance: A Lesson in Traditional* Guarantees are subject to the claims-paying ability of the issuing insurance company.Whole LifeInsuranceThe policy owner pays a fixed, level premium and cash values accumulate ata guaranteed* rate of return. The insurance company promises to pay aguaranteed* death benefit.There are three types of cash value lifeinsurance from which you can select a policythat best satisfies your needs and objectives.The primary differences in the types of cashvalue life insurance fall into three categories:fixed or flexible premiums;guaranteed* cash values or cashvalues based on current interestrates; andlevel or increasing death benefits.continued on next slide
    10. 10. Types of Cash Value Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalIndexedUniversal LifeInsuranceThe policy owner can increase or decrease premium payments and selectfrom a level or increasing death benefit. Cash value accumulations reflectthe performance of a stock market index, such as the S&P 500 Index.Your licensed financial adviser will discuss with you how specific cash value life insuranceproducts may work for you in your particular situation, including the products features,benefits, risks, charges and expenses.Note:Universal LifeInsuranceThe policy owner can increase or decrease premium payments and selectfrom a level or increasing death benefit. Cash value accumulations reflect astated fixed interest rate, which may vary over time, but which will never beless than a guaranteed* minimum interest rate.* Guarantees are subject to the claims-paying ability of the issuing insurance company.
    11. 11. Whole Life InsuranceUnderstanding Life Insurance: A Lesson in Traditional* Guarantees are subject to the claims-paying ability of the issuing insurance company.Featuresguaranteed* level death benefit, so long aspremiums are paidfixed, level premiumsguaranteed* cash valuesmay have policy dividendsbest suited to satisfy the longer-term needs ofpolicy owners who desire guarantees*continued on next slideDeath BenefitLifetimePremiumInsuranceProtectionCashValue
    12. 12. Whole Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalAdvantages Disadvantages+ -Guaranteed* lifetime insurance protection, solong as the policy is kept in force.Fixed premiums can help create the “savingshabit.”Cash values are guaranteed*, so long as the policyis kept in force.May have policy dividends that can be used toreduce premiums or increase cash values anddeath benefits.No premium flexibility.Guaranteed* cash valuegrowth may be less than couldbe achieved through one ofthe other types of cash valuelife insurance.Death benefit may not keeppace with inflation.* Guarantees are subject to the claims-paying ability of the issuing insurance company.
    13. 13. Universal Life InsuranceUnderstanding Life Insurance: A Lesson in Traditional* Guarantees are subject to the claims-paying ability of the issuing insurance company.Featurespremiums can be adjusted upward or downwardchoice of level or increasing death benefitcash value growth based on a stated fixed interest rate, which may vary over time, butwhich will never be less than a guaranteed* minimum interest ratebest suited to satisfy the longer-term needs of policy owners who want premium flexibilityand cash value accumulations that reflect current fixed interest rate returns, with aguaranteed* minimum interest ratecontinued on next slideLevel Death Benefit OptionMinimumPremiumScheduleInsuranceProtectionCashValueIncreasing Death Benefit OptionMinimumPremiumScheduleInsuranceProtectionCashValue
    14. 14. Universal Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalAdvantages Disadvantages+ -Lifetime insurance protection.Premium and death benefit flexibility.Cash value growth reflects currentinterest rates, with a minimumguarantee*.Required premiums may increase as theinsured gets older in order to maintainneeded insurance protection.If current interest rates are low, cashvalue growth may be disappointing.* Guarantees are subject to the claims-paying ability of the issuing insurance company.
    15. 15. Indexed Universal Life InsuranceUnderstanding Life Insurance: A Lesson in Traditional* Guarantees are subject to the claims-paying ability of the issuing insurance company.Featurespremiums can be adjusted upward or downwardchoice of level or increasing death benefitcash value is credited with interest based on the performance of a stock market index, mostfrequently the Standard and Poors 500 Composite Stock Index (S&P 500 Index)best suited to satisfy the longer-term needs of policy owners who want the opportunity toearn higher interest rates based on equity market performance, while retaining the otheradvantages of universal life insurance, including a guaranteed* minimum interest ratecontinued on next slideLevel Death Benefit OptionMinimumPremiumScheduleInsuranceProtectionCashValueIncreasing Death Benefit OptionMinimumPremiumScheduleInsuranceProtectionCashValue
    16. 16. Indexed Universal Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalAdvantages Disadvantages+ -Lifetime insurance protection.Premium and death benefit flexibility.Cash value growth has the potential toearn higher interest rates when theequity markets are strong, while stillearning a guaranteed* minimuminterest rate during downturns in theequity markets.Required premiums may increase as theinsured gets older in order to maintainneeded insurance protection.Cash value growth may bedisappointing during a downturn in theequity markets.* Guarantees are subject to the claims-paying ability of the issuing insurance company.
    17. 17. Survivorship Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalThere are estate planning situations where a sum of money is needed at the death of the secondspouse to die. For example:FederalEstate TaxThrough the use of the unlimited marital deduction, a married couple cangenerally arrange their estate in such a way that no federal estate tax ispayable at the first spouse’s death.This does not mean, however, that the federal estate tax is eliminated.Instead, potential federal estate tax liability is postponed until the secondspouse’s death, at which time the heirs may be hit with a federal estate taxbill.Special NeedsPlanningIn the case of a child with special needs, it may be desirable to provide fundsfor that child’s care and financial security after the death of the second parent.CharitableGivingA couple may want to provide a substantial charitable gift after the secondspouse’s death, without depleting the estate they leave to their heirs.continued on next slide
    18. 18. Survivorship Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalIn situations like these, not knowing which one will die first, a husband and wife could eachpurchase a separate life insurance policy.A better solution, however, might bea survivorship life insurance policy.Also known as second-to-die orsurvivor insurance, survivorship lifeinsurance is one policy that insuresthe lives of two people, usually ahusband and wife.No death benefit is paid when the first insureddies.Instead, the policy remains in effect andpremiums continue to be paid.At the death of the second insured, the deathbenefit is paid to the beneficiary.continued on next slide
    19. 19. Survivorship Life InsuranceUnderstanding Life Insurance: A Lesson in TraditionalSeveral different types of cash value life insurance are available as survivorship lifeinsurance. Make sure you understand the features, benefits and costs of the type of lifeinsurance contract under consideration before you a purchase survivorship life insurancepolicy.Since two lives are covered under one insurance policy, the premiums for a survivorship lifeinsurance policy are usually less than the combined premiums for two single-life policies.Since two lives are insured, the underwriting requirements for survivorship life insurancemay be more liberal. One spouse who was denied coverage under a single-life policy maybe approved for coverage under a survivorship life policy.Since survivorship life insurance is frequently purchased for estate planning reasons, it maybe desirable to have the policy purchased by an irrevocable life insurance trust. Whenstructured properly, an insurance death benefit paid to an irrevocable life insurance trust isnot included in your estate for federal estate tax purposes. Your legal and/or tax advisorcan assist you in evaluating and establishing an irrevocable life insurance trust.Features
    20. 20. How Is Life Insurance Taxed?Understanding Life Insurance: A Lesson in TraditionalPremiumsBecause of the unique role life insurance plays in protecting people against the risk of economicloss, the federal government has extended favorable tax treatment to life insurance.Generally, premiums paid for life insurance, whether paid by an individual ora corporation, are not tax deductible.In the case of return of premium term insurance, any premiums returned bythe insurance company to the policyholder are received tax-free by thepolicyholder.Living BenefitsThe following discussion assumes that the life insurance contract meets the “seven-paytest” and is not classified as a modified endowment contract (see slide 22 for information onmodified endowment contracts).NOTEcontinued on next slide
    21. 21. How Is Life Insurance Taxed?Understanding Life Insurance: A Lesson in TraditionalCashValue:The cash value accumulations in cash value life insurance grow on a tax-freebasis until the policy is surrendered. If the policy is surrendered and theproceeds exceed the total premiums paid, the difference is taxable in the yearreceived.If a policy pays dividends, the dividends are considered a return of premiumand are not taxable until total dividends plus all other amounts that have beenreceived tax-free under the policy exceed an amount equal to thepolicyholder’s basis in the contract, at which time excess dividends are taxableincome. Any interest on accumulated dividends, however, is taxable in the yearcredited.A policy loan is not considered a distribution and, as a result, is not taxable. If,however, there is an outstanding loan when the policy lapses or is cashsurrendered, the amount of the outstanding loan is taxable to the extent thatthe policys cash value exceeds the policy owners investment in the contract.Cash withdrawals are tax free until the policy owner has recovered his/herinvestment in the contract, after which excess withdrawals are taxable income.Loans and withdrawals will reduce the policys death benefit and cash valueavailable for use.PolicyDividends:Policy Loans/Withdrawals:continued on next slideLiving Benefits
    22. 22. How Is Life Insurance Taxed?Understanding Life Insurance: A Lesson in TraditionalModifiedEndowmentContracts:A policy fails to meet the seven-pay test required by the Internal Revenue Code[IRC Sec. 7702A(a)(1)] and is classified as a modified endowment contract (MEC)if the accumulated amount paid under the contract at any time during the firstseven contract years exceeds the sum of the net level premiums which wouldhave been paid on or before such time if the contract provided for paid-upfuture benefits after the payment of seven level annual premiums.continued on next slideIf the death benefit of a policy is reduced within the seven-pay testing period, there is a "look-back" provision that requires the seven-pay test to be reapplied as if the policy had originally beenissued for the reduced death benefit amount. Finally, if there is a material change in a policy thatoriginally passed the seven-pay test, the changed policy is subject to the seven-pay test andclassified as a MEC if it fails that test.If a policy fails the seven-pay test and is classified as a modified endowment contract, distributionsfrom the policy are taxable as income in the year received to the extent that the policys cash valuebefore the distribution exceeds the policy owners investment in the contract (i.e., to the extentthere is gain in the policy, such gain is taxed first). Only after an amount equal to such gain isdistributed can the policy owner receive his/her investment in the contract on a tax-free basis.
    23. 23. How Is Life Insurance Taxed?Understanding Life Insurance: A Lesson in TraditionalIncome Taxes –Personally-Owned LifeInsurance:Life insurance death benefits paid in a lump sum are receivedincome tax free -- a unique and important benefit. If the deathbenefit is taken as income under a settlement option, there is aninterest element in each payment received. The portion of eachpayment representing principal (the death benefit) is receivedincome tax free and the portion representing interest is taxable.Income Taxes –Employer-Owned LifeInsurance:DeathBenefitsIn the case of employer-owned life insurance, proceeds received by a business atthe death of a key employee generally are not subject to the regular corporatefederal income tax, assuming the following requirements are met for contractsentered into after August 17, 2006:- Before the employer-owned life insurance contract is issued, the employee who is to be insured must benotified in writing that the employer intends to insure the employee’s life. The notice must include themaximum face amount for which the employee’s life could be insured, as well as state that the policy owner(the employer) will be the beneficiary of the policy’s death proceeds. In addition, the employee who is to beinsured must give his/her written consent to be insured by the contract and to the insurance coveragecontinuing after the insured employee terminates employment; and- The insured must have been an employee of the employer at any time during the 12-month period prior to thedate of death or have been a director or highly-compensated employee at the time the contract was issued.EstateTaxes:If the insured held any incidents of ownership in the policy, the death benefit isincluded in the insured’s estate for federal estate tax purposes.
    24. 24. What Additional Life Insurance Benefits Are Available?Understanding Life Insurance: A Lesson in TraditionalWaiver ofPremiumBenefitOften referred to as a “self-completing” feature, the waiver of premium benefitallows premiums on a life insurance policy to be waived if the insured becomesdisabled, as defined in the policy. The waiver of premium benefit generally isavailable for a small extra premium.Many life insurance companies make it possible for policyholders to collect all or aportion of a policy’s death benefits early, if the policyholder is terminally ill, strickenwith a specified catastrophic illness or requires long-term care.For a small additional premium, the insurance company will pay an additional deathbenefit in the event of the insured’s accidental death.In return for a small extra premium, the option to purchase additional insuranceguarantees* the right to purchase additional insurance on the insured’s life atspecified future dates, regardless of the insured’s health or occupation at that time.A life insurance/long-term care "hybrid" plan combines the benefits of a lifeinsurance policy with the availability of long-term care benefits should you needthem in the future.AcceleratedDeath BenefitsAccidentalDeath BenefitThe value and flexibility of life insurance frequently can be enhanced by the addition of otherbenefits, such as:* Guarantee is based on the continued claims-paying ability of the insurer.Option to PurchaseAdditional InsuranceLife Insurance/LTC Hybrid Plan

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