Whole Life Insurance as Part of Your Accumulation Strategy

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1 Whole Life Insurance as Part of Your Accumulation Strategy

2 Contents 1 Long-Term Value 3 Addressing Different Financial Needs 4 Preparing for Life s Challenges Life insurance is an effective way to help protect the financial security of your family or business. However, your life insurance may help you achieve other financial goals, such as providing cash for emergencies, preparing for retirement or ensuring that you leave a financial legacy for the next generation. This guide highlights the benefits that a whole life policy offers as both an insurance product and a financial asset, and the role that whole life policy cash values might play as part of your overall long-term accumulation strategy. The information provided is not written or intended as specific tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. The decision to purchase life insurance should be based upon long-term financial goals and the need for death benefit. Life insurance is not an appropriate vehicle for short-term savings or short-term investment strategies. While the policy allows for loans, you should know that there may be little to no cash value available for loans in the policy s early years. 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

3 Long-Term Value Whole life insurance offers valuable features and benefits that provide long-term value to policyowners.these include: Guarantees Whole life insurance provides three fundamental guarantees: A guaranteed amount of life insurance; Guaranteed level premiums and premium payment period; and Guaranteed increases in cash value. Permanent life insurance protection Whole life is designed to provide life insurance protection over the insured s entire lifetime. Cash value The policy accumulates guaranteed cash value over time, which increases each year and will never decline in value due to changes in the financial markets. Policy dividends Participating whole life policyowners are eligible to receive annual policy dividends. Dividends are not guaranteed. The policy accumulates guaranteed cash value over time, which increases each year and will never decline in value due to changes in the financial markets. 1

4 Long-Term Value (continued) Policyowners may use the dividends that they receive to pay some or all of their out-of-pocket premiums or purchase additional life insurance. The majority of policyowners use their dividend payments to purchase paid-up additional whole life insurance, also called paid-up additions. This increases both their life insurance coverage and cash value over time. Whole Life Policy With Paid-Up Additions Paid-Up Additions Purchased by Dividends 1 Total Life Insurance Protection Guaranteed Amount of Life Insurance Income tax advantages Whole life insurance policies also offer a combination of valuable income tax advantages that include: An income tax-free death benefit The death proceeds of a whole life policy are generally received income tax free by the beneficiary. Tax-deferred cash value growth Policy cash values, including the cash value of any paid-up additions, accumulate on a tax-deferred basis. Tax-advantaged distributions 2 Policy dividends 1 and any partial surrenders of cash value are received as a return of cost basis first and gain last. This means that the policyowners will not pay taxes on these distributions until they exceed the total out-of-pocket premiums. Age at Issue Age 100 In addition, borrowing from the policy will not result in taxable income as long as the loan is repaid with out-of-pocket payments while the policy is in force, or it is repaid from the policy proceeds at death. When you consider all of the features and benefits that whole life insurance has to offer, it is clear that it is both an insurance product and a financial asset that provides dependable, long-term value to policyowners. 1 Dividends are not guaranteed. 2 2 Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (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 will 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.

5 Addressing Different Financial Needs There are several ways that you can access your cash value. 2 If your policy has accumulated paid-up additions, you may surrender them for their cash value as needed. In addition, you may borrow from your policy s cash value at any time. You can use your policy s cash value to help meet different financial needs and goals that might include: Cash for emergencies Your policy should not be your primary source of cash for emergencies, but it is an additional financial resource that is available during a time of need. Supplemental retirement income 2 Your policy dividends 1 and cash value may be used to provide additional income during retirement, with the flexibility to take distributions as needed. If at some point you decide that you no longer need the life insurance protection that your policy provides or you no longer want to pay premiums, you may surrender your policy for the cash value, or apply the cash value to one of the settlement options offered in your policy. These include: Lifetime income You can use the cash value (subject to certain minimums) to purchase a monthly life income annuity. This is one of several systematic payment options that are available. The Impact of Partial Surrenders and Loans on Your Policy Taking partial surrenders and/or loans will reduce your policy s cash value and the death benefit. Excessive borrowing or accruing loan interest may significantly erode your policy values over time, and may cause your policy to lapse. If your policy lapses with an outstanding loan, it may result in an income tax liability, and there may be little or no cash value available to pay the taxes due. You should understand and carefully consider both the long-term impact on your policy and the potential risks of borrowing from your policy or allowing loan interest to accrue. In many states, 3 personally owned life insurance policy cash values are fully or partially exempt from the claims of creditors. This may be an important feature for professionals or business owners who live in these states and are involved in activities where personal liability is a concern. Paid-up life insurance You can use the cash value to purchase a paid-up whole life policy for a reduced amount of coverage. This policy will also be eligible to receive dividends. 1 3 You should consult with your own legal counsel to determine whether the laws in your state exempt personal and/or business assets from the claims of creditors. 3

6 Preparing for Life s Challenges You and your family may face different financial challenges over the course of your lifetime. It is important to have financial resources that will help you prepare for whatever life brings. A whole life policy can be a valuable asset that may help you meet your changing financial needs during different times of your life. A whole life insurance policy may help you: Protect your value as a provider for your family or business; Accumulate cash value that may be used in a variety of ways; Live a more secure and comfortable retirement; and Provide a financial legacy for your family. In 1929, J.C. Penney borrowed from his life insurance policy to help meet his company s payroll. Walt Disney borrowed from his life insurance policy in 1953 to help fund his first theme park. The Facts of Life and Annuities, LIMRA Ask your financial professional for a whole life illustration based on your specific situation. 4

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8 Jesse Holman, CFP HC PARTNERS 12 CADILLAC DRIVE SUITE 440 BRENTWOOD, TN Business phone: BCC CRN RB