Understanding the basics of life insurance is essential when researching and ultimately choosing which life insurance is right for you and your family.
Understanding the basics of life insurance is essential when researching and ultimately choosing which life insurance is right for you and your family.
Life Insurance is a form of risk management primarily used to transfer the risk of uncertain loss.
It provides compensation for financial loss only not profit.
Life insurance is a protection against the RISK of financial loss that would result from the premature death of an insured. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. The death benefit is paid by a life insurer in consideration of premium payments made by the insured.
Annuity Basics is part of our continuing series of presentations for Financial Services Industry Training. We develop custom training specific to the financial services industry. Contact us for a quote or discussion of your needs.
Why hole life insurance is more than just for your loved ones, create wealth, supplement your retirement income, emergency funds, psssible funding for college education, learn more about all the possibilities of whole life insurance.
Life Insurance Basics provides an overview of most of the types of life insurance products available today and reviews the basics of policies, contracts, beneficiaries and how to buy life insurance. Part of the continuing series of presentations in the Financial Services Industry Training. Contact us if you need training developed for your organization.
Part 1 in a series of educational slidecasts from author and speaker Tony Steuer. Part 1 focuses on term life insurance -- what it is, how it works, and the different types of policies. It's your money, so monitor it, understand it, and know what your are getting for it.
Life Insurance is a form of risk management primarily used to transfer the risk of uncertain loss.
It provides compensation for financial loss only not profit.
Life insurance is a protection against the RISK of financial loss that would result from the premature death of an insured. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. The death benefit is paid by a life insurer in consideration of premium payments made by the insured.
Annuity Basics is part of our continuing series of presentations for Financial Services Industry Training. We develop custom training specific to the financial services industry. Contact us for a quote or discussion of your needs.
Why hole life insurance is more than just for your loved ones, create wealth, supplement your retirement income, emergency funds, psssible funding for college education, learn more about all the possibilities of whole life insurance.
Life Insurance Basics provides an overview of most of the types of life insurance products available today and reviews the basics of policies, contracts, beneficiaries and how to buy life insurance. Part of the continuing series of presentations in the Financial Services Industry Training. Contact us if you need training developed for your organization.
Part 1 in a series of educational slidecasts from author and speaker Tony Steuer. Part 1 focuses on term life insurance -- what it is, how it works, and the different types of policies. It's your money, so monitor it, understand it, and know what your are getting for it.
Spencer Lodge Fund Advisers Dubai Life Insurance. Spencer Lodge MD of Fund Advisers Dubai Universal life insurance offers you the freedom to increase or decrease your policy’s death benefit to fit your individual needs. Policies have minimum and maximum premium amounts that you must meet to maintain your coverage, but the timing of payments can be flexible. Access to cash values Universal life insurance policies have a cash value that has the potential to increase over time. If financial needs arise, you can tap into your policy by taking tax-advantaged policy loans and making partial withdrawals without income taxes.
Term Life InsuranceLife and Health Insurance FIN 3660Chapte.docxmehek4
Term Life Insurance
Life and Health Insurance FIN 3660
Chapter 5
Outline
Needs Met by Life Insurance
Personal Needs
Business Needs
Term Life Insurance
Characteristics of Term Life Insurance Products
Plans of Term Life Insurance Coverage
Features of Term Life Insurance Policies
2
Needs Met by Life Insurance
Personal Needs
Most common personal needs that life insurance can meet are:
Dependents’ support
Estate planning
Paying debts and final expenses
3
Dependents Support
Life insurance can provide funds to support the family members of a deceased loved one until they obtain new methods of support or until they adjust to living on a lower income.
The proceeds can also be used to supplement the family’s income.
In many jurisdictions, the beneficiary of a lump sum of money after the death of a loved one is usually not taxed on the money they receive.
4
Estate Planning
Estate- the accumulated assets an individual owns when he/she dies.
Will- a legal document that directs how the individual’s property is to be distributed after his death.
The executor is the person who is a personal representative of the person who has died with a valid will. (administrator if they person died without a valid will)
Estate Plan- considers the amount of assets and debts that he/she is likely to have when he/she dies and how best to preserve those assets so that they can be distributed as she desires.
Life insurance is an important part of the estate plan.
Can leave home to one child and life insurance policy to the other.
5
Debts and Final Expenses
A person’s death generally does not extinguish his/her debts.
In some cases the deceased estate isn’t large enough to pay his/her debts and final expenses.
If a life insurance policy is included in the estate plan, the proceeds can help pay those remaining debts.
6
Business needs
Two reasons for a business to purchase life insurance:
To provide funds to ensure that the business continues in the event of the death of an owner, partner, or other key person.
To provide benefits for its employees.
7
Business Continuation Insurance
An insurance plan designed to enable a business owner(s) to provide for the business’ continued operation if the owner or a key person dies.
Key Person Life Insurance- individual life insurance that a business purchases on the life of a key person.
The business owner is the beneficiary of the insurance policy if the person dies.
Buy-Sell Agreement- an agreement in which one party agrees to purchase the financial interest that a second party has in a business following the second party’s death and the second party agrees to direct his estate to sell his interest in the business to the purchasing party.
8
Characteristics of Term Life Insurance Products
Provides a death benefit only is the insured dies during the period specified in the policy.
The length of the policy term varies considerably from one policy to another.
Another common type of term life insurance cover the insured un ...
How can you choose the right type of Life Insurance? Pravesh Vasudeva
Choosing the right type of life insurance can be confusing, but it’s also an important decision. There are primarily two types of life insurance to choose from:
a) Term Life Insurance
b) Permanent Insurance
Which one is the best for you? Let's see.
Learn to understand the different types of life insurance. Life insurance is different from most other types of insurance (like health, car and homeowner’s insurance) in at least one key respect: It covers against an event that is certain to occur at some point in time — the policyholder’s death. For this reason, life insurance should be viewed through a different lens than other insurance — more specifically, as an asset, instead of an expense. http://news.davidlerner.com/news.php?include=145418
Universal Life Insurance - Protection that stays with youTim Mark
Universal life insurance is a type of permanent life insurance. This life insurance offers protection for your family and strategies for leaving a legacy to them. It can also help small business owners with continuation planning. If you have any insurance query, contact us at 65 9455 4295 Or Visit our office at 10 Ava Road, Singapore 329949.
Successfully Reducing Insurance Costs
By Mel Feller, MPA, MHR
Mel Feller Seminars, Coaching For Success 360 Inc. /Mel Feller Coaching
Have you looked at your insurance costs lately? Chances are, your costs have gone up even if your coverage has remained the same. Insurance inflation is a hidden danger because you do not always pay those bills every month or pay them directly. In addition, when they do rise, there seems to be no practical way to control them. Let’s look at some major insurance categories to see where cost-cutting might be possible.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
what is the best method to sell pi coins in 2024DOT TECH
The best way to sell your pi coins safely is trading with an exchange..but since pi is not launched in any exchange, and second option is through a VERIFIED pi merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and pioneers and resell them to Investors looking forward to hold massive amounts before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade pi coins with.
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
1. If something happens to you, how will your family replace your earning power?
Prepared for:
Understanding Life Insurance:
A Lesson in Life Insurance
Table of Contents Page
Your Earning Power 2
Life Insurance Questions 3
Types of Term Insurance 4
Term Insurance Variations 5
Types of Cash Value Life
Insurance 6
Whole Life Insurance 7
Universal Life Insurance 8
Survivorship Life Insurance 9
How Is Life Insurance Taxed? 10 - 11
Additional Life Insurance
Benefits Available 12
Important Information 13
Brought to you by:
Duaine Owings
Plan To Win Insurance Agency
905 NW Heatherwood Drive
Blue Springs, Mo 64015
Office: (816) 224-9466
duaineowings@gmail.com
http://finsecurity.com/Duaine
December 31, 2013
2. Your Earning Power
Earning Power:
Your earning power –your
ability to earn an income –is
your most valuable asset. Other Income Other Income
Few people realize that a 30-year-old
couple will earn 3.5 million dollars by
age 65 if their total family income
averages $100,000 for their entire
careers, without any raises.
Investment Income Spouse’sIncome
How Much Will You Earn in a Lifetime?
Your Future Earning Power If Your Family Years Income Averages:
to Age
65 $50,000 $100,000 $250,000 $500,000
40 $2,000,000 $4,000,000 $10,000,000 $20,000,000
35 1,750,000 3,500,000 8,750,000 17,500,000
30 1,500,000 3,000,000 7,500,000 15,000,000
25 1,250,000 2,500,000 6,250,000 12,500,000
20 1,000,000 2,000,000 5,000,000 10,000,000
15 750,000 1,500,000 3,750,000 7,500,000
10 500,000 1,000,000 2,500,000 5,000,000
5 250,000 500,000 1,250,000 2,500,000
If something happens to you,
how will your family replace your earning power?
Only life insurance can guarantee to provide the funds required
to replace your earning power exactly when needed at your death.
Lesson in Life Insurance for Page 2 of 13
3. Life Insurance Questions
In purchasing life insurance, people generally ask:
How Much Life Insurance Do I Need?
How much life insurance you need depends on your individual needs and your financial objectives
for your family. This question is best answered through an analysis of your family and financial
situation, as well as your financial goals and objectives.
While life insurance cannot replace you, it can provide the funds to:
pay final expenses
replace all or a portion of your income
keep your family in their home
establish a college education fund
cover financial emergencies
provide a child and/or home care fund
What Type of Life Insurance Should I Buy?
All life insurance falls into one of two categories of coverage. Each category has certain
characteristics that make it more suitable for certain needs:
1. Term Life Insurance
Provides temporary protection for the term of the policy.
If the insured dies within the term period, the insurance company pays the death benefit.
If the insured survives the term period, the coverage terminates.
2. Cash Value Life Insurance
Provides lifetime protection, so long as the policy is kept in force.
The insurance company pays the death benefit regardless of when death occurs, so long as
the policy is kept in force.
The policy accumulates cash values that can be used during the insured’s lifetime
(withdrawals and loans will reduce the policy’s death benefit and cash value available for use).
Lesson in Life Insurance for Page 3 of 13
4. Types of Term Insurance
Renewable Term Insurance Features
level death benefit
increasing premiums, if renewed
no cash values
may have policy dividends
renewable, may be subject to medical
qualifications
best suited for level temporary needs
Decreasing Term Insurance Features
decreasing death benefit
level premium
no cash values
may have policy dividends
best suited for decreasing needs that
ultimately disappear
Death Benefit
Term Period
Premium
Death
Benefit
Term Period
Premium
Term Insurance Advantages Term Insurance Disadvantages
Low initial premium.
Well suited to shorter-term, temporary
needs.
Most plans can be renewed, if you are
medically qualified.
Premiums in future years may become
prohibitively expensive.
Insurance protection may cease before
death.
Does not build any cash values.
Lesson in Life Insurance for Page 4 of 13
5. Term Insurance Variations
Level Term Insurance
A level term insurance policy provides an alternative to renewable term insurance, which features
a level death benefit and annual premiums that increase each year.
While a level term insurance policy also provides a level death benefit, premiums are also
guaranteed to remain level for the term period selected, such as 10, 20 or 30 years. If the
insurance protection is still needed at the end of the selected level term period, these policies
generally provide that the coverage can be renewed without evidence of insurability, with
premiums then increasing each year thereafter.
level death benefit
level premiums for the duration of the
selected term period (e.g., 10, 20 or 30
years)
increasing premiums, if renewed after the
selected term period
no cash values
may have policy dividends
best suited for level needs of a somewhat
known duration
Return of Premium Feature
Death Benefit
Term Period
Premium
When you purchase a level term insurance policy, your family receives the death benefit if you die
during the term period. Chances are, however, that you’ll outlive the term period. If your term
insurance policy includes a return of premium feature and you outlive the term period, the
insurance company will then return to you all of the premiums you’ve paid for the term insurance
protection.
Return of premium term insurance enables you to “hedge your bets”...if something does
happen to you, you’ve providedfor your loved ones. If you outlive the policy, the premiums
you’ve paid will be returned to you.
A return of premium term insurance policy costs more than a traditional level term insurance
policy, so it’s important that you understand the conditions under which premiums will be
returned to you.
All return of premium term insurance policies return 100% of the premiums you’ve paid at the
end of the term period, assuming the policy is in-force and no death benefit has been paid.
If, however, you cancel the policy prior to the end of the term period, you may receive back
none or only a percentage of the premiums you’ve paid...check the return of premium
conditions before you purchase a return of premium term insurance policy.
Lesson in Life Insurance for Page 5 of 13
6. Types of Cash Value Life Insurance
Depending upon your needs and personal preferences, you may select a cash value life insurance
policy with features that include:
fixed or flexible premiums; and
benefit guarantees or benefits based on fluctuating interest rates.
The policyowner pays a fixed, level premium and cash values
accumulate at a guaranteed* rate of return. The insurance
company promises to pay a guaranteed* death benefit.
The policyowner can increase or decrease premium payments and
select from a level or increasing death benefit. Cash value
accumulations reflect a stated fixed interest rate, which may vary
over time, but which will never be less than a guaranteed*
minimum interest rate.
* Guarantees are subject to the claims-paying ability of the issuing
insurance company.
Whole Life
Insurance
Universal Life
Insurance
NOTE: Your licensed financial adviser will discuss with you how specific cash value life insurance
products may work for you in your particular situation, including the product's features, benefits,
risks, charges and expenses.
Lesson in Life Insurance for Page 6 of 13
7. Whole Life Insurance
Features
guaranteed* level death benefit, so long as
premiums are paid
fixed, level premiums
guaranteed* cash values
may have policy dividends
best suited to satisfy the longer-term needs
of policyowners who desire guarantees*
Death Benefit
Insurance
Protection
Lifetime
Premium
Cash
Value
Whole Life Insurance Advantages Whole Life Insurance Disadvantages
Guaranteed* lifetime insurance
protection, so long as the policy is kept in
force.
Fixed premiums can help create the
“savings habit.”
Cash values are guaranteed*, so long as
the policy is kept in force.
May have policy dividends that can be
used to reduce premiums or increase cash
values and death benefits.
No premium flexibility.
Guaranteed* cash value growth may be
less than could be achieved through one
of the other types of cash value life
insurance.
Death benefit may not keep pace with
inflation.
* Guarantees are subject to the claims-paying ability of the issuing insurance company.
Lesson in Life Insurance for Page 7 of 13
8. Universal Life Insurance
Features
premiums can be adjusted upward or downward
choice of level or increasing death benefit
cash value growth based on a stated fixed interest rate, which may vary over time, but which
will never be less than a guaranteed* minimum interest rate
best suited to satisfy the longer-term needs of policyowners who want premium flexibility and
cash value accumulations that reflect current fixed interest rate returns, with a guaranteed*
minimum interest rate
Level Death Benefit Option
Minimum
Premium
Schedule
Insurance
Protection
Cash
Value
Universal Life Insurance Advantages
Increasing Death
Benefit Option
Minimum
Premium
Schedule
Insurance
Protection
Cash
Value
Universal Life Insurance
Disadvantages
Lifetime insurance protection.
Premium and death benefit flexibility.
Cash value growth reflects current interest rates, with a
minimum guarantee*.Guaranteed* lifetime insurance
protection, so long as the policy is kept in force.
Fixed premiums can help create the “savings habit.”
Cash values are guaranteed*, so long as the policy is
kept in force.
May have policy dividends that can be used to reduce
premiums or increase cash values and death benefits.
Required premiums may
increase as the insured
gets older in order to
maintain needed
insurance protection.
If current interest rates
are low, cash value
growth may be
disappointing.
* Guarantees are subject to the claims-paying ability of the issuing insurance company.
Lesson in Life Insurance for Page 8 of 13
9. Survivorship Life Insurance
There are estate planning situations where a sum of money is needed at the death of the second
spouse to die. For example:
Federal Estate Tax: Through the use of the unlimited marital deduction, a married couple
can generally arrange their estate in such a way that no federal estate tax is payable 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 second spouse’s death, at
which time the heirs may be hit with a federal estate tax bill.
Special Needs Planning: In the case of a child with special needs, it may be desirable to
provide funds for that child’s care and financial security after the death of the second parent.
Charitable Giving: A couple may want to provide a substantial charitable gift after the
second spouse’s death, without depleting the estate they leave to their heirs.
In situations like these, not knowing which one will die first, a husband and wife could each
purchase a separate life insurance policy. A better solution, however, might be a survivorship life
insurance policy. Also known as second-to-die or survivor insurance, survivorship life insurance is
one policy that insures the lives of two people, usually a husband and wife. No death benefit is
paid when the first insured dies. Instead, the policy remains in effect and premiums continue to
be paid. At the death of the second insured, the death benefit is paid to the beneficiary.
Features
Several different types of cash value life insurance are available as survivorship life insurance.
Make sure you understand the features, benefits and costs of the type of life insurance
contract under consideration before you a purchase survivorship life insurance policy.
Since two lives are covered under one insurance policy, the premiums for a survivorship life
insurance policy are usually less than the combined premiums for two single-life policies.
Since two lives are insured, the underwriting requirements for survivorship life insurance may
be more liberal. One spouse who was denied coverage under a single-life policy may be
approved for coverage under a survivorship life policy.
Since survivorship life insurance is frequently purchased for estate planning reasons, it may
be desirable to have the policy purchased by an irrevocable life insurance trust. When
structured properly, an insurance death benefit paid to an irrevocable life insurance trust is
not included in your estate for federal estate tax purposes. Your legal and/or tax advisor can
assist you in evaluating and establishing an irrevocable life insurance trust.
Lesson in Life Insurance for Page 9 of 13
10. How Is Life Insurance Taxed?
Because of the unique role life insurance plays in protecting people against the risk of economic
loss, the federal government has extended favorable tax treatment to life insurance.
Premiums:
Generally, premiums paid for life insurance, whether paid by an individual or a corporation, are not
tax deductible.
In the case of return of premium term insurance, any premiums returned by the insurance
company to the policyholder are received tax-free by the policyholder.
Living Benefits:
NOTE: The following discussion assumes that the life insurance contract meets the “seven-pay
test” and is not classified as a modified endowment contract (see below for information on
modified endowment contracts).
Cash Value: The cash value accumulations in cash value life insurance grow on a tax-free basis
until the policy is surrendered. If the policy is surrendered and the proceeds exceed the total
premiums paid, the difference is taxable in the year received.
Policy Dividends: If a policy pays dividends, the dividends are considered a return of premium
and are not taxable until total dividends plus all other amounts that have been received tax-free
under the policy exceed an amount equal to the policyholder’s basis in the contract, at which time
excess dividends are taxable income. Any interest on accumulated dividends, however, is taxable
in the year credited.
Policy Loans/Withdrawals: 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 cash surrendered,
the amount of the outstanding loan is taxable to the extent that the policy's cash value exceeds
the policyowner's investment in the contract. Cash withdrawals are tax free until the policyowner
has recovered his/her investment in the contract, after which excess withdrawals are taxable
income. Loans and withdrawals will reduce the policy's death benefit and cash value available for
use.
Modified Endowment Contracts: 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 first seven
contract years exceeds the sum of the net level premiums which would have been paid on or
before such time if the contract provided for paid-up future benefits after the payment of seven
level annual premiums. If 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 been issued for the reduced death benefit amount. Finally, if there is a
material change in a policy that originally passed the seven-pay test, the changed policy is subject
to the seven-pay test and classified as a MEC if it fails that test.
Lesson in Life Insurance for Page 10 of 13
11. If a policy fails the seven-pay test and is classified as a modified endowment contract,
distributions from the policy are taxable as income in the year received to the extent that the
policy's cash value before the distribution exceeds the policyowner's investment in the contract
(i.e., to the extent there is gain in the policy, such gain is taxed first). Only after an amount equal
to such gain is distributed can the policyowner receive his/her investment in the contract on a tax-free
basis.
Death Benefits:
Income Taxes – Personally-Owned Life Insurance: Life insurance death benefits paid in a
lump sum are received income tax free -- a unique and important benefit. If the death benefit is
taken as income under a settlement option, there is an interest element in each payment received.
The portion of each payment representing principal (the death benefit) is received income tax free
and the portion representing interest is taxable.
Income Taxes – Employer-Owned Life Insurance: In the case of employer-owned life
insurance, proceeds received by a business at the death of a key employee generally are not
subject to the regular corporate federal income tax, assuming the following requirements are met
for contracts entered into after August 17, 2006:
Before the employer-owned life insurance contract is issued, the employee who is to be
insured must be notified in writing that the employer intends to insure the employee’s life.
The notice must include the maximum face amount for which the employee’s life could be
insured, as well as state that the policyowner (the employer) will be the beneficiary of the
policy’s death proceeds. In addition, the employee who is to be insured must give his/her
written consent to be insured by the contract and to the insurance coverage continuing 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 the date of death or have been a director or highly-compensated employee at
the time the contract was issued.
Estate Taxes: If the insured held any incidents of ownership in the policy, the death benefit is
included in the insured’s estate for federal estate tax purposes.
Lesson in Life Insurance for Page 11 of 13
12. What Additional Life Insurance Benefits Are
Available?
The value and flexibility of life insurance frequently can be enhanced by the addition of other
benefits, such as:
Often referred to as a “self-completing” feature, the waiver of
premium benefit allows premiums on a life insurance policy to be
waived if the insured becomes disabled, as defined in the policy.
The waiver of premium benefit generally is available for a small
extra premium.
Many life insurance companies make it possible for policyholders to
collect all or a portion of a policy’s death benefits early, if the
policyholder is terminally ill, stricken with a specified catastrophic
illness or requires long-term care.
For a small additional premium, the insurance company will pay an
additional death benefit in the event of the insured’s accidental
death.
In return for a small extra premium, the option to purchase
additional insurance guarantees* the right to purchase additional
insurance on the insured’s life at specified future dates, regardless
of the insured’s health or occupation at that time.
* Guarantee is based on the continued claims-paying ability of the
insurer.
A life insurance/long-term care "hybrid" plan combines the benefits
of a life insurance policy with the availability of long-term care
benefits should you need them in the future.
Waiver of
Premium Benefit
Accelerated Death
Benefits
Accidental Death
Benefit
Option to
Purchase
Additional
Insurance
Life
Insurance/LTC
Hybrid Plan
Lesson in Life Insurance for Page 12 of 13