HARTFORD BICENTENNIAL UL JOINT FREEDOM II

Transcription

1 HARTFORD BICENTENNIAL UL JOINT FREEDOM II Wealth transfer strategies using universal life insurance

2 Hartford Bicentennial Universal Life Joint Freedom II Life is a journey unique to you, taking you to places and in directions based on your personality and choices, yet subtly influenced by those who came before you. You ve thought about the sacrifices those before you made to pave the way toward better lives for the generations to come. Likewise, you want to make the journey easier for your loved ones. And you have reached the point when your chosen destination has shifted from accumulating wealth to transferring it for the benefit of your children and grandchildren. If you want to transfer wealth to your loved ones and have your legacy retain its value despite income and estate taxes, Hartford Bicentennial UL Joint Freedom II can help. Joint Freedom II is a flexible-premium joint universal life (UL) insurance policy that pays the death benefit when the last surviving insured dies. The proceeds can help to preserve assets by providing liquidity to help address estate taxes* and create wealth for beneficiaries. Joint Freedom II allows you to: Guarantee the policy s death benefit 1 Transfer your wealth to loved ones typically income-tax free and possibly estate-tax free Qualify to o btain coverage up to age 85, even if one applicant is not in good health Implement a contingency plan for unexpected chronic illness conditions Guarantees and benefits within the policy are based on the claims-paying ability of the issuing insurance company. * The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act ) reinstated the federalestate tax and generation-skipping taxes and reunified the estate and gift tax basic exclusion amount. Under the Act, estate, gift, and generation-skipping transfers are taxed at a maximum rate of 35%. The individual basic exclusion amount for estate, gift and generation-skipping transfers for decedents dying during calendar year 2012 is $5,120,000. An individual s basic exclusion amount for estate tax purposes may be increased by the unused basic exclusion amount of a deceased spouse. The Act expires at the end of 2012, at which time the estate, gift and generation-skipping transfer tax exemptions will be reduced to $1,000,000 (the generation-skipping tax exemption is indexed) and the maximum rates will be increased to 55%. The uncertainty regarding how the Act might be modified, underscores the importance of seeking guidance from aqualified advisor to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios. 1 The death benefit can be guaranteed by meeting the requirements of the Policy Protection Rider, which prevents the policy from lapsing. The Policy Protection Rider is automatically included. There is a monthly administrative charge while the rider remains in force. 1

3 Studies have shown about 70% of the U.S. population over the age of 65 will need some kind of chronic illness care in their lifetime. 2 Expanding the living benefits of your life insurance policy At The Hartford, we make it easier for you to implement a contingency plan for unexpected chronic illness with our optional LifeAccess Accelerated Benefit Rider 3 (LifeAccess) on Hartford s Bicentennial UL Joint Freedom II life insurance. This rider allows access to your policy s death benefit if a licensed health care practitioner certifies: The last surviving insured is chronically ill, or Both insureds are chronically ill 4 at the same time In addition, all other eligibility requirements must be met, as defined in the rider. Maintain your independence with the flexibility and control you ve always been used to with the power of LifeAccess. With the flexibility of LifeAccess, you have the freedom to choose how the benefits can be applied as there are no restrictions on how the proceeds could be used. In addition, no receipts or explanations are required. Benefits can be used to pay medical or non-medical expenses, such as receiving care from a family member in the comfort of your own home. 2 U.S. Department of Health and Human Services: National Clearinghouse for Long-Term Care Information, System for managing the LifeAccess Accelerated Benefit Rider covered by U.S. Patent No. 7,958, Chronically ill is defined as: Unattended, the last surviving insured (or both insureds) cannot perform at least two Activities of Daily Living (ADL) for a period of at least 90 days or more, or The last surviving insured (or both insureds) suffer from a cognitive impairment that requires substantial supervision to protect them from health and safety threats A licensed health care provider must also certify that the last surviving insured (or both insureds) is under a plan of care that describes services which are likely to be needed for the rest of their lives. This must be recertified annually. 2

4 Your policy s protection guarantee Joint Freedom II provides death benefit protection with flexibility to help adapt to life s course. In addition to various tax advantages, you get the security of the built-in Policy Protection Rider, which gives you the ability to guarantee your death benefit. The Policy Protection Rider uses a Policy Protection Account to determine whether the policy guarantee is active. If the Policy Protection Account s value is positive, the guarantee remains active, ensuring that the policy will not lapse. Factors affecting the account include: Amount and timing of premium payments Policy loans or withdrawals Coverage amount, riders and risk classification If you do not pay the premium necessary to maintain the no-lapse protection and the guarantee is deemed inactive as a result, you must maintain sufficient account value to support monthly deductions and charges or the policy will lapse The duration and funding period of the guarantee may be customized to meet your needs. Plus, guarantee requirements are cumulative, so an inactive guarantee can be restored by paying additional premium. Loans and withdrawals from a Joint Freedom II policy may leave the guarantee underfunded if the policy has not accumulated enough value to sustain the Policy Protection Rider s requirements after the distribution. 5 If the guarantee becomes inactive, your Joint Freedom II policy will still continue to provide death benefit protection, as long as it maintains enough value to cover monthly costs. If the policy is in danger of lapsing, you will be notified and given the opportunity to pay additional premium to prevent lapse. To ensure that your policy will not lapse unexpectedly, any premiums received during the first year of coverage will be considered on-schedule for purposes of funding your Policy Protection Account. Thereafter, premiums received up to 30 days after the due date will be considered on-schedule. 5 A Modified Endow ment Contract (MEC) occurs if the premium level in relation to the death benefit exceeds federal guidelines. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax, with certain exceptions. The Policy Protection Account has no surrender or cash value, cannot be accessed and is not included in the amount of death benefit. 3

5 How Hartford Bicentennial UL Joint Freedom II works 1. You pay premiums. 2. We deduct premium loads and taxes. 3. We apply the net premium to your policy account value. We credit you interest on the account value in your policy. We deduct monthly charges to cover policy expenses, such as the cost of insurance and applicable rider charges. 4. Within your account value we maintain a Policy Protection Account (PPA) to determine whether the policy s guarantee is active. If the PPA s value is positive, the guarantee remains active ensuring the policy will not lapse. The PPA has no surrender or cash value, cannot be accessed and is not included in the amount of the death benefit. 5. You may take withdrawals from your policy. Withdrawals taken from the policy will cause the death benefit of the policy to be reduced. See the Policy Loans and Withdrawals section on page 6 for more detail. 6. If you take a loan, the loan proceeds are paid out of Hartford s assets and we use your policy as collateral, which we refer to as Loaned Account Value (LAV). We credit you interest on the amount in your LAV. We charge you interest on the loan and if the interest is not paid when due, your indebtedness (loan amount plus accrued interest) will grow. Loans and loan interest reduce the death benefit and cash surrender value. 7. Upon death of the last surviving insured, we will pay the death benefit minus outstanding policy loans including accrued interest (indebtedness) to policy beneficiaries. 8. A chronic illness can be just as financially and emotionally devastating as an untimely death. With the LifeAccess rider, the policy s death benefit may be accelerated if a licensed health care practitioner certifies: 1) the last surviving insured is chronically ill; or 2) both insureds are chronically ill simultaneously. Receiving rider living benefits under LifeAccess will reduce, and possibly eliminate the death benefit available to your beneficiaries. Policy Protection Account Premium Account Value Premium Loads, Taxes and Applicable Rider Charges Loaned Account Value (LAV) Interest Crediting to Account Value Monthly Deductions Withdrawals Interest Crediting to LAV Death Benefit LifeAccess Accelerated Benefit Rider Life insurance policies contain fees and expenses, including cost of insurance, administrative fees and premium loads, surrender charges and other charges or fees that will impact policy values. During the first 19 years, surrender charges are deducted from the account value if the policy is surrendered. 4

6 The important steps to your UL policy Select a face amount You decide how much initial coverage you need now with the ability to decrease your face amount later as you see fit, subject to coverage minimums. Owner Designated Settlement Options Rider This option gives you the ability to manage distribution of the policy s death proceeds to beneficiaries. Once selected by the policyowner, the settlement option is locked in and beneficiaries cannot change the payout option. Review supplemental benefits Set and maintain premium schedule Hartford Bicentennial Joint Freedom II offers several supplemental riders that allow you to adapt your policy to your needs. LifeAccess Accelerated Benefit Rider Chronic illness can be physically and financially overwhelming. The LifeAccess rider advances up to 100% of the policy s death benefit* if a licensed health care practitioner certifies: 1) the last surviving insured is chronically ill; or 2) both insureds are chronically ill at the same time. The benefits from the LifeAccess rider can be used to pay any expense whether directly related to your care or not. No receipts or explanations are required. This rider is available at policy issue for an additional cost. Estate Protection Rider To protect against taxes that are levied if both insureds die within four years of purchasing a joint policy, this rider pays an additional level death benefit should such an occurrence happen. An additional charge per $1,000 of coverage applies. This rider is available only at issue and automatically terminates after the fourth policy year. Last Survivor Exchange Option Rider Allows the joint policy to be split into two individual policies if certain events occur, including dissolution of a business partnership between the insureds, divorce, reduction of at least 50% in the maximum tax rate bracket, or repeal of the unlimited marital deduction. If both insureds are age 79 or younger, this rider is automatically included at time of issue, as long as neither insured is a heavily-rated risk. To help ensure your policy will meet your expectations, it is important to pay premiums according to the amount and schedule you set. During the first 19 years, surrender charges are deducted from the account value if the policy is surrendered. Surrender charges vary based on age, gender and policy duration. Periodically review your policy It s important that you review your policy from time to time to make sure that your strategy is still aligned with your financial goals. Your annual statement will tell you how long your policy is guaranteed without any further payments, and also how long your policy is guaranteed if you continue your current payments. Adjust as needed In reviewing your policy, you might find adjustments are needed. Examples of common adjustments are loan repayments or changes to future premium payments. Talk to your financial professional about how Hartford Bicentennial UL Joint Freedom II life insurance can help preserve your legacy. 5 * The Maximum Monthly Benefit under the rider cannot exceed the least of: a) The monthly equivalent of the IRS Per Diem Limit at the time of claim; or b) The monthly equivalent of the IRS Per Diem Limit on the policy issue date, compounded annually at 4%; or c) 2% of the death benefit amount at the time of claim. Note: The IRS Per Diem Limit for 2012 is $310. Receiving benefits under the rider will reduce the death benefit available to the policy s beneficiaries.

7 Policy loans and withdrawals All accumulation that occurs within the policy is tax-deferred. You have the option to access any accumulation value in your policy through withdrawals and loans. Both loans and withdrawals from a universal life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy s account value and death benefit. Withdrawals Assuming the policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent they exceed the policy owner s cost basis in the policy. The assets can be used at any time and for any need, offering you the freedom and flexibility to draw on your policy if you need it, when you need it. It can be used to help pay college tuition, help supplement retirement income, even to help purchase a car or boat, for instance. A withdrawal reduces the cash surrender value and can affect the face amount, death benefit and net amount of risk (which is used to calculate the Cost of Insurance Charge). Withdrawals may increase the risk of policy lapse and may have unfavorable tax consequences. Loans You can obtain a loan from us by using your life insurance policy as collateral. Assuming the Policy is not a Modified Endowment Contract (MEC), usually loans are received free from current federal taxation. You should know that taking a loan has some risks. Policy loans (including outstanding loan interest): Will decrease your death benefit May increase the risk that your policy will terminate Will have a permanent effect on your Cash Surrender Value May increase the premium necessary to keep the policy in force May have adverse tax consequences May have an impact on the policy s guarantee When we loan you money, we segregate an amount equal to the loan proceeds from your account value and refer to it as Loaned Account Value (LAV). The LAV acts as collateral for the loan and is a part of your account value. We will credit you interest on the LAV. However, we continue to charge you interest on the loan proceeds. We will charge you interest on the loan for as long as it remains unpaid. The LAV cannot be used for policy charges. The outstanding loan and loan interest is your indebtedness. If the annual loan interest is not paid when due, the amount of the loan will increase by the amount of the unpaid interest (loan interest capitalizes) and your indebtedness will increase. If you don t pay back the loan (including loan interest) and the insured dies, we will subtract the indebtedness from the death benefit. If the policy loan is still outstanding when you surrender your policy or it lapses, the indebtedness will be considered taxable income to the extent that there is gain in the policy. The only way to reduce your indebtedness while the insured is alive is to pay back the loan and the loan interest. Interest we credit to the LAV does not reduce your outstanding indebtedness. You should consider at least paying the annual loan interest due each year to prevent your indebtedness from increasing. Your indebtedness will be fully paid off one of three ways: 1. When you elect to pay it off with cash 2. When you surrender or lapse the policy, any indebtedness is recouped by us 3. When a death benefit is being paid out on your policy any indebtedness is recouped by us Modified Endowment Contracts (MECs) Your policy will become a MEC if the level of premium funding in the policy in relation to the death benefit provided exceeds federal guidelines for life insurance. Distributions (including deemed distributions) from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. Talk to your agent and trusted advisors before taking a withdrawal or a policy loan. Before taking a withdrawal or a policy loan, we encourage you to work with your agent and trusted advisors to understand the financial impact a withdrawal or policy loan could have on your policy as well as any adverse tax consequences. If you have outstanding policy loans, ask to see a policy illustration showing the current impact of your loan on your policy s death benefit. Also, you should work with your agent to regularly check on your loan status to keep track of your loan and unpaid loan interest and to understand the amount of taxable income, should the policy lapse or be surrendered. 6

8 Why choose The Hartford? The Hartford (NYSE: HIG) is an insurance and wealth management company. Through its unique focus on customer needs, the company serves businesses and consumers by providing the products and solutions they need to protect their assets and income from risks and manage their wealth and retirement needs. A Fortune 100 company, The Hartford is recognized widely for its service expertise and as one of the world s most ethical companies. More information on the company and its financial performance is available at Over 750,000 Americans currently trust their life insurance needs to The Hartford s life subsidiaries, in part because they are getting more than the promise of a death benefit. They are entrusting their financial protection to a company that prides itself on integrity. Guarantees and benefits are based on the claims-paying ability of the issuing insurance company. Broker/dealers, insurance agencies and their affiliates who sell the policy make no representations or guarantees regarding such ability. This information is written in connection with the promotion or marketing of the matters addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. The Hartford is The Hartford Financial Services Group, Inc. and its subsidiaries, including the issuing companies of Hartford Life Insurance Company (HLI) (New York) and Hartford Life and Annuity Insurance Company (HLA) (outside New York), Simsbury, CT. The mailing address for both issuers is P.O. Box 2999, Hartford, CT Hartford Bicentennial UL Joint Freedom II is a last survivor flexible premium universal life insurance policy. HLI policy form #HL-15925(05)(NY). HLA policy form #LA-1264(05) and may include state abbreviations. Features may vary by state. LCM Printed in U.S.A The Hartford, Hartford, CT LIF /11 P.O. Box 2999 Hartford, CT