Producer Guide. For Producer Use Only. Flexible Choice SM Whole Life for Individuals, Families and Business Owners

Transcription

1 Producer Guide For Producer Use Only Flexible Choice SM Whole Life for Individuals, Families and Business Owners

2 Table of Contents Delivering Life s Possibilities with Flexible Choice Whole Life 2 Policy Funding Options 3 Optional Benefits and Riders Quick Reference Guide 4 Flexible Coverage Options 5 More Choices with Paid-Up Addition Riders 6 Increased Security 6 More Guaranteed Protection Options 9 Flexible Benefits for Business Owners 10 Frequently Asked Questions 11 Glossary of Terms 13 Product Specifications 14

3 We believe life insurance is one of the most protective, responsible actions a person can take to ensure financial security for their families and businesses. And whole life offers the strongest guarantees of all life insurance products. Flexible Choice Whole Life can offer your clients both the financial security and growth potential through an array of choices for protection, cash value accumulation and affordability. It is uniquely designed to give your clients all of the guaranteed protection of whole life insurance with the ability for you to help them customize their coverage to meet their personal wants and needs. This guide will show you how Flexible Choice Whole Life can offer a world of possibilities for your clients during their lifetimes and beyond. It can help protect what they ve built and preserve it for the future while providing cash value accumulation that can help clients achieve goals, such as paying for college, building retirement income, starting a business or following a dream. 1

4 Delivering Life s Possibilities Help your clients understand why permanent life insurance should be the center of any sound financial plan. Flexible Choice Whole Life can provide your clients with solid protection and living benefits that can open the door to a world of possibilities. Plus, Flexible Choice offers your clients strength and stability from an original pioneer of mutual insurance in America. Flexible Choice Whole Life can benefit clients through every stage of life by providing: Guaranteed death benefit protection for those who matter most Guaranteed cash value accumulation and growth regardless of market conditions Strong internal rate of return compared to other conservative investments An excellent option for the conservative portion of an investment portfolio Level premiums that can help policy owners manage their budgets Liquidity for emergencies when there may be no other alternatives Client Appeal The lifetime protection, cash value accumulation and level premium guarantees of Flexible Choice Whole Life will appeal to a broad spectrum of clients, but may be particularly appealing to: Young Families who are seeking protection, accumulation and long term guarantees Term Life Policyholders who may be interested in the accumulationand living benefits of permanent life insurance but also want guaranteed protection and level premiums Lower Risk Tolerance Clients, including clients who may be seeking a vehicle for the conservative portion of a diverse investment portfolio or clients nearing retirement who may want guaranteed protection and accumulation that is not subject to market changes Business Owners seeking tax advantaged retirement or bonus plans for themselves and key employees or solutions to support succession planning Parents or Grandparents who may want to directly help ensure the financial security of children and grandchildren by gifting them their own whole life policies. A source for loans at favorable rates or collateral for third party loans* Access to policy cash value (through loans or withdrawals*) to help insured individuals reach their goals and dreams, such as: Funding college educations Paying for children s weddings Supplementing retirement income Buying a vacation home Starting or expanding a business. 2 *Withdrawals and loans will reduce the policy cash value and death benefit.

5 Delivering Life s Possibilities The Penn Mutual Advantage Penn Mutual is committed to helping families unlock the possibilities of life. Penn Mutual s Flexible Choice Whole Life product offers clients several unique advantages, including: Dividend Opportunity: Because of our mutual company status, your clients will have the unique opportunity to accumulate additional cash through partial returns of premiums paid when the company s claims experience, operating expenses and/or investment returns are more favorable than anticipated. Uncommon Responsibility and Financial Stability: We have the financial strength and stability to stand behind our guarantees and we have never failed to meet an obligation to a policyholder. Flexible Choice Whole Life offers your clients all of the guaranteed protection of whole life insurance with the flexibility to help them customize their coverage to meet their individual objectives. It can offer your clients financial security and growth potential through an array of choices for protection, cash value accumulation and affordability. Policy Funding Options Your clients have a choice of two paid-up options which can be used to customize their coverage based on their protection needs and savings goals. In either case, guaranteed coverage runs until age 121. Paid-Up at Age 100 Premium payments end when the client reaches age 100. At this point, all guarantees are fully funded and dividends may continue to be declared. This choice can be ideal for clients who want permanent lifetime coverage with lower premiums. Paid-Up at Age 65 All premiums will be paid and all guarantees funded by age 65, and dividends may continue to be declared. This option allows the policy to accumulate cash value at a faster rate which can help clients plan for major savings goals or life events, such as retirement. No further premiums are required past age 65 and the policy will be an asset that can be used to fund retirement, college costs, or other goals. Commission schedules vary depending on which paid up age option your client chooses. See the Flexible Choice commission schedule for specific commission information. Paid-Up at Age 65 is appealing to: Younger clients, since they will have more years to finish paying their insurance costs Clients who are concerned about liquidity during retirement. 3

6 Quick Reference Guide Optional Benefits and Riders* Flexible Coverage Options Flexible Protection Rider Blends term insurance with your client s whole life policy for an affordable way to build a larger death benefit. Choices to Build for the Future Accelerated Permanent Paid-Up Additions Rider Helps your client to replace their Flexible Protection Rider term insurance more quickly with additional permanent paid-up coverage. Enhanced Permanent Paid-Up Additions Rider Increases your client s death benefit through periodic additional permanent paid-up life insurance. Increased Security Disability Waiver of Premium Rider Waives all premiums if your client cannot work due to disability. Enhanced Disability Waiver of Premium Rider Waives all premiums for up to six years if a disability prevents them from working in their occupation longer if they can t work at all. Chronic Illness Accelerated Benefit** Allows your client to receive a portion of the policy death benefit if they suffer from a chronic illness. Accelerated Death Benefit Makes death benefit funds available in case of terminal illness. Overloan Protection Rider Keeps your client s policy in force despite outstanding loans. More Guaranteed Protection Options Accidental Death Benefit Additional death benefit if death results from an accident. Children s Term Insurance Agreement Extends term insurance to your client s children. Guaranteed Purchase Option Lets your client add whole life coverage at specified times without proof of insurability. Flexible Benefits for Business Owners Qualified Plan Surrender Privilege Lets your client recuperate policy premiums they have paid if their covered employee is terminated within the first two policy years. Change-of-Plan Provision Allows the owner to transfer, without medical underwriting, the cash value of one whole life policy to another permanent policy between the end of the third and seventh year of the policy. Supplemental Exchange Agreement Allows the owner to replace their covered employee in qualified or non-qualified plans with another employee without having to purchase a new or additional policy. * Optional riders and benefits may be subject to eligibility and underwriting requirements, additional premium requirements and/or minimum or maximum coverage amounts. Availability and rider provisions may vary by state. ** In TX: Long-Term Care Illness Accelerated Benefit. Subject to provisions allowed under the qualified plan. If the plan permits the participant to purchase the policy from the plan, this change of ownership must occur before the 1035 exchange is permitted. In OR, the agreement name is Change of Ownership Agreement. 4

7 Flexible choices to meet clients needs Flexible Choice Whole Life allows clients to unlock benefits through every stage of life. It offers the guaranteed death benefit of permanent insurance, income potential through cash value accumulation, the opportunity for dividends and options to access cash value to help fund life goals. Flexible Coverage Options The Flexible Protection Rider Issue Ages: 0-85 (Paid-Up at Age 100) 0-50 (Paid-Up at Age 65) (Available at Issue Only) The Flexible Protection Rider makes permanent coverage more accessible by allowing clients to purchase term life insurance to supplement the death benefit of the base Flexible Choice Whole Life policy. Each Flexible Protection Rider premium is used to: Fund the rider s term insurance, and Purchase additional paid-up whole life insurance coverage (paid-up additions). As the Flexible Protection Rider replaces the term life insurance with additional, permanent paid-up life insurance through the purchase of paid-up additions (PUAs), your client s total dividends will potentially increase, enabling the purchase of more PUAs. In fact, as long as the Flexible Protection Rider remains in effect, any dividends generated by the whole life insurance coverage must be used to buy PUAs. The Flexible Protection Rider must be purchased at issue. Because this portion of the client s coverage is term insurance, opting for the rider will impact the cash value of the Flexible Choice policy. If the term coverage is dropped Should the client end the term coverage associated with the Flexible Protection Rider before it has been completely replaced with permanent paid-up life insurance, the premiums on the Flexible Choice policy will be reduced; the total death benefit will also be reduced. When the term coverage is fully replaced If the client continues the term coverage until it is completely replaced with additional, paid-up coverage, he or she will have secured a larger permanent death benefit for a lower total cost. At this point, the client can choose to: Cancel the rider and lower their premium, or Continue paying the same premium to purchase PUAs that increase the death benefit. Once all of the term life insurance has been replaced, the client can choose how to use his or her dividend, since dividends awarded no longer have to be used to purchase PUAs. To avoid a reduction in the death benefit, the Flexible Protection Rider s term coverage needs to be fully paid-up no later than the paid-up date (age 65 or 100) of the base whole life coverage. Conversion Privileges A client may choose, without penalty, to convert all of his or her term coverage with permanent insurance between years 3 and 11 of the Flexible Protection Rider s coverage. The Flexible Protection Rider is particularly appealing for: Clients in their 30s or 40s who are on a budget Older clients who might otherwise view whole life as too pricey Clients who also opt for Paid-Up at Age 65, as the Flexible Protection Rider will help offset the higher cost. 5

8 Flexible choices to meet clients needs More Choices with Paid-Up Addition Riders (Available at or after issue) Your clients can choose from one of two Paid-Up Addition (PUA) riders that allow them to periodically pay extra premiums to purchase additional, paid-up permanent life insurance (paid-up additions) for the purpose of achieving certain policy goals. The Accelerated Permanent Paid-Up Additions Rider (APPUA) Issue Ages: 0-85 (Paid-Up at Age 100) 0-50 (Paid-Up at Age 65) The APPUA Rider will shorten the duration of the Flexible Protection Rider s term-blend coverage. This rider may only be selected with the Flexible Protection Rider and may not be combined with the Enhanced Permanent Paid-Up Additions Rider. Paid-Up additions must be the selected dividend option or the APPUA Rider will automatically terminate. The Enhanced Permanent Paid-Up Additions Rider (EPPUA) Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) The EPPUA Rider will increase the client s death benefit amount and policy cash value. It may be selected with or without the purchase of the Flexible Protection Rider but may not be combined with the Accelerated Permanent Paid-Up Additions Rider Paid-up additions or premium reduction must be the selected dividend option or the EPPUA Rider will automatically terminate. PUA Rider Payment Amounts and Requirements The allowable amount of APPUA or EPPUA payments is based on an Annual Payment Limit that is established, subject to financial underwriting and other requirements, at the time of application. The client must indicate an Annual Payment Limit in the application or the rider will not be issued. The Annual Payment Limit must be realistic and reflective of the client s qualifications. The higher the Annual Payment Limit, the more difficult it can be to financially underwrite the insured for the amount of increased coverage. Once the Annual Payment Limit is established, no evidence of insurability is needed for future PUA funding, however, payments above the Annual Payment Limit are subject to underwriting unless the payment is a catch-up payment. To help accommodate year-to-year fluctuations in clients cash flows, the riders include a catch-up provision. Starting in policy year three, through the policy year the insured reaches age 65, if the policy owner pays less than their Annual Payment Limit in a given year, they may make up the difference the following year without additional underwriting. The minimum APPUA or EPPUA payment is $25 and payments can only be made on a policy s monthly anniversary. Certain PUA payments will cause modified endowment testing and may cause a policy to become a modified endowment contract. If no rider premium payments are made to a PUA rider within a five year policy period, the rider will terminate. Increased Security Flexible Choice Whole Life offers a broad array of coverage options to provide additional security to your clients: Disability Waiver of Premium Rider Issue Ages: (when converting from a Penn Mutual Term Life policy) (Available at or after policy issue) This rider waives premiums if the insured becomes disabled to the extent that he or she can no longer work in his or her occupation for up to two years*. If he or she is unable to work in any profession after two years, the premiums will continue to be waived as follows: If the disability begins before age 60 premiums will be waived until the disability ends or as long as the policy remains in force, whichever is sooner If the disability begins after age 60, premiums will be waived until the disability ends or the later of age 65 or two years after the disability began. Premiums are charged until age 60. This rider cannot be combined with the Enhanced Disability Waiver of Premium Rider. * Waiver begins after a four-month waiting period. Condition must meet the disability definition in the insurance contract. 6

9 Flexible choices to meet clients needs Enhanced Disability Waiver of Premium Rider Issue Ages: (when converting from a Penn Mutual Term Life policy) (Available at or after policy issue) If a disability prevents the insured from working in his or her primary occupation, this optional rider waives all premiums for up to six years.* If, after six years, the insured is unable to work in any occupation, premiums will continue to be waived. If the insured is unable to work in any occupation and disability begins before age 60, premiums will be waived until the disability ends or as long as the policy remains in force, whichever is earlier. If the insured is unable to work in any occupation and disability begins between ages 60 and 64, premiums will be waived until the disability ends or the later of age 65 or two years after the disability begins. Premiums are charged until age 60. This rider cannot be combined with the Disability Waiver of Premium Rider. *Waiver begins after a four-month waiting period. Condition must meet the disability definition in the insurance contract. Accelerated Death Benefit Issue Ages: 0 85 (Paid-Up at Age 100) 0 55 (Paid-Up at Age 65) (Automatically included with your policy) Clients can access a portion of their death benefit if they are diagnosed with a life expectancy of 12 months or less due to a terminal illness (24 months in MA and WA). Accelerated death benefits are usually tax-free as long as the following conditions are met. The amount accessed is at least $10,000, but no more than $250,000 or 50 percent of the total death benefit, whichever is less.* Insured must be diagnosed by a licensed physician of the United States who is not the policy owner, insured, beneficiary or a relative of the insured.** Clients only pay for this benefit only when it is exercised. Payment of the Accelerated Death Benefit will reduce your client s death benefit and policy value. However, it can provide an important financial safety net when they need it most. * In NJ, NY, SC and TX the amount is limited to $100,000 per policy. In NY the amount of death benefit accessed must be at least $50,000 or 25 percent of the total death benefit, up to 50 percent of the policy face amount. ** Penn Mutual reserves the right to seek additional medical opinions at its own expense to determine benefit eligibility. Overloan Protection Rider Issue Ages: 0 85 (Paid-Up at Age 100) 0 55 (Paid-Up at Age 65) (Available at or after policy issue) This no-cost benefit allows the policy to remain in force as a reduced paid-up policy should an outstanding loan result in the policy s loan-to-surrender value falling to 99 percent. This rider automatically takes effect if: The insured is at least 75 years old, and The policy has been in effect for at least 15 years. If these conditions are met, the policy automatically becomes paid-up on a reduced basis, and the death benefit will equal the amount of PUAs that can be purchased by the policy value at the time the rider is exercised. 7

10 Flexible choices to meet clients needs Chronic Illness Accelerated Benefit Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Automatically included with your policy*) If the insured becomes chronically ill, he or she can access a portion of the policy death benefit. There is no charge for this protection and no impact on policy values unless the benefit is exercised. There are no restrictions on how the money may be used. To be eligible for accelerated benefits a licensed health care practitioner must certify that: The insured is unable to perform at least two of the six activities of daily living bathing, continence, dressing, eating, toileting, and transferring, or The insured requires substantial supervision by another to avoid injury or harm due to severe cognitive impairment The insured has had his or her chronic illness for a period of at least 90 consecutive days within the previous 12 months. To request benefits, clients must submit a claim form and required medical certification. A new medical certification is required each year to continue benefits. Clients will be asked about any other qualified long term care benefits received. To help ensure Penn Mutual benefits remain tax-free, we will limit accelerated benefits so the total amount received (from all sources) does not exceed the Internal Revenue Service daily benefit limit. Exercising this benefit will reduce the policy death benefit and values. Provide your client with an in-force illustration and encourage him/her to consult with his family, financial and tax advisors prior to exercising this benefit. This benefit is not (and should not be positioned as) a substitute for long term care insurance. However, it can provide an important financial safety net for clients and their families when chronic illness strikes. For complete information about the Chronic Illness Accelerated Benefit, please see the benefit brochure: PM The Chronic Illness Accelerated Benefit may be particularly appealing to: Clients in their 50s and 60s who are concerned about protecting their retirement plans and income Female clients, who research has shown, are very likely to see the value in this living benefit. Significant State Variations Provisions of the Chronic Illness Accelerated Benefit may vary by state. Some of the most notable variations include: In FL: The benefit may only be used once. In CT: To be eligible to use the benefit the insured must be certified as having been confined to an institution for at least 6 months and must be expected to remain there until death. In CT and PA: The benefit is not available for insureds under age 20. In MA: On policies with an outstanding loan, the owner has the option to determine how much of the outstanding loan is reduced when the accelerated benefit is exercised, however, the accelerated benefit may not be exercised if the payment will cause the policy to terminate due to outstanding loans In MA and TX: Benefits are limited to instances for which the insured has incurred Qualified Long Term Care services. In TX: The benefit name is Long-Term Care Illness Accelerated Benefit Other state variations apply. * This benefit is automatically included on most Penn Mutual permanent life insurance policies issued after September 13, 2010 subject to certain eligibility requirements. 8

11 Flexible choices to meet clients needs More Guaranteed Protection Options Accidental Death Benefit Issue Ages: 0-60 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Available at or after policy issue) The insured s beneficiaries will receive an additional death benefit if they die as a result of an accident. The minimum additional benefit amount is $5,000, with premiums paid until the earlier of either age 70 or the paid-up age. Accidental Death Benefit Limitations 0 25 $50,000 or twice the total specified amount. (Not including any paid-up additions) $250,000 or twice the total specified amount up to $250,000. (Not including any paid-up additions) Guaranteed Purchase Option Issue Ages: 0-38 (Available at Issue Only) This benefit allows you to increase your life insurance coverage at certain option dates, without having to submit medical evidence of insurability, up to age 40. Should your health and/or insurability change for any reason your coverage can still be increased to help meet your personal or business needs. These increase options can be exercised at policy anniversaries nearest to when you reach ages 22, 25, 28, 31, 34, 37 and 40, or during alternate option dates, which include marriage, childbirth or legal adoption of a child under 18 years of age. If you exercise an alternate increase option it will replace the next available regular increase option. The maximum amount of each increase is the policy coverage amount or $100,000, whichever is less. Children s Term Insurance Agreement Issue Ages: 15 days 17 years (Available at or after policy issue) You can extend coverage for each child in your immediate family in $5,000 increments, up to a maximum of $25,000. Regardless of how many children are covered, there is only one charge. In addition, each covered child may convert his or her coverage to a permanent policy that builds cash value on the policy anniversary nearest his or her 23rd birthday, without submitting medical proof of good health.* If the base policy insured dies while the rider is in force, the term insurance on each child will continue with no further premiums required and the conversion privilege intact. * The converted policy is limited to five times the coverage amount under the rider. 9

12 Flexible choices to meet clients needs Flexible Benefits for Business Owners Many business owners are establishing qualified (under IRC 416(i)(1)) tax-deferred benefit plans for their employees or non-qualified plans for their key employees. Offering life insurance coverage within these plans can: Provide a cost-effective and tax-advantaged way to reward key employees Help increase employee recruitment and retention Build cash value that can help support future business needs or succession plans Qualified Plan Surrender Privilege Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Automatically included with your policy) If a covered employee is terminated within the first two years of employment, the policy can be surrendered and the premiums refunded to the plan (less a term charge for the period that coverage was in force) All sales commissions will be reversed. Change-of-Plan Provision* Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Automatically included with your policy) Allows the owner to transfer, without medical underwriting, the cash value of one whole life policy to another permanent policy.** A full application on the recipient policy must be made, that whole life policy must remain under our retention limit, and the entire cash value must be applied to the new policy. Such a transfer can only occur between the end of the original policy s third policy year through the end of its seventh policy year. No compensation is paid on the exchange. * Subject to provisions allowed under the qualified plan. ** If the plan permits the participant to purchase the policy from the plan, this change of ownership must occur before the 1035 exchange is permitted. Supplemental Exchange Agreement Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Automatically included with your policy) Whether they offer a qualified plan or not, small-business owners will appreciate this feature and the flexibility it offers. The new covered employee must have the same business relationship to the business owner as the original covered employee. Normal medical evidence of insurability is required for the new covered employee. Such an exchange may result in the policy s cash value becoming taxable. There is no charge for this benefit. Enhanced Permanent PUA Rider Option for Qualified Plans Issue Ages: 0-85 (Paid-Up at Age 100) 0-55 (Paid-Up at Age 65) (Available at or after policy issue) Clients may now choose a reduced premium dividend option with the Enhanced Permanent Paid-Up Additions (EPPUA) Rider.* This option will make it possible for clients to transfer existing plans with life insurance to Penn Mutual.. *The premium dividend option must be selected for 412(e)(3) Plans. 10

13 Frequently Asked Questions How does whole life insurance differ from universal life insurance? Whole life is bundled and universal life is unbundled. For example, with whole life there are no separately identifiable current and guaranteed charges or credits. Insurance costs, policy expenses and interest crediting rates are bound or bundled together. Whole life typically provides higher guaranteed cash values than universal life products, with a trade-off of less flexibility in premium payments and face amount changes. What is the difference between a partial surrender and a loan from a whole life policy? A partial surrender is made when paid-up additions (PUAs) are surrendered or cashed in. A PUA can be surrendered and there will be no income tax due, unless the amount surrendered exceeds the sum of premiums paid into the contract. However, PUA surrenders reduce the death benefit, but never to an amount less than the guaranteed death benefit of the base policy. A loan is merely a collateralization of the policy. It reduces the death benefit dollar for dollar. And loans require loan interest to be paid. It seems as though Paid-Up at Age 65 would make the Flexible Choice WL policy considerably more expensive than would Paid-Up at Age 100. Is that really the case? If so, are there any built-in cost offsets that I can present to clients who might be skittish about the extra expense? Yes, the Paid-Up at Age 65 option is somewhat more expensive, but there is a way to reduce the cost to your clients. Combining Paid-Up at Age 65 with the Flexible Protection Rider can be an effective way to help offset the overall cost. And while the Paid-Up at Age 65 option is more expensive annually, it may be less expensive over your clients lifetime since they pay premiums for 35 fewer years than the Paid Up at age 100 option. What s more, the ability to combine these benefits is unique in the market and can give you a highly competitive tool to apply to a client s specific needs. How are dividends generated and calculated? Dividends are essentially a product of three factors: Mortality Actual mortality expense for a block of policies is lower than what was guaranteed in the policy Investments Interest earned on the investment of the company s mandated death benefit reserves, when such earnings exceed the company s reserve needs and other contractual obligations Expenses Actual expenses are lower than the expenses priced into the policy The actual calculation of any annual dividend amount will depend upon many factors, including the company s decision to both award a dividend to its policyholders and maintain an adequate profit margin for continued business growth. What is Penn Mutual s history of paying dividends? Penn Mutual has demonstrated a stable history of awarding dividends. In comparing the 20-year Internal Rate of Return (IRR) of eight competitors, Penn Mutual s IRR was the closest to the illustrated rate.* How do I address an issue of a competitor who advertises a higher net rate? Don t allow your clients to be misled by carriers who promote a higher net rate. The interest rate is only one factor in the calculation of dividends. Dividends are calculated based on interest rates, mortality and expenses. If an interest rate is being promoted as more competitive, it is likely that the carrier is padding that rate in order to cover other, less visible fees that will be factored into the dividend calculation. Your clients must, therefore, understand that only comparing interest rates does not give them the full picture. * Source: Full Disclosure, February Based on review of eight peer companies (National Life, Northwestern Mutual, State Farm Life, MetLife, New York Life,Security Mutual Life of NY, Guardian Life and Massachusetts Mutual Life) using IRR illustrative vs. actual. 11

14 Frequently Asked Questions In view of the above, what is the best way to compare Flexible Choice to other whole life products? The best way to compare Flexible Choice to other whole life offerings is to use the Internal Rate of Return (IRR) on cash value or death benefit. The IRR offers a more complete and accurate comparison over single factors, such as interest rates or dividend history, since the IRR measures premiums, dividends and cash value or death benefit. Are there any restrictions on the Paid-Up Additions (PUA) Riders? The riders can be maintained as long as a payment is received every five years. This allows greater flexibility for your client. If no payment is made within a five year period the PUA rider will terminate. Payments must be made on a monthly policy anniversary and cannot exceed the Annual Payment Limit established at application. Higher payments are subject to underwriting. What happens if my client pays less than his/her Annual Payment Limit? If your client pays less than the Annual Payment Limit in a given year, he or she may take advantage of the catch-up provision. Starting in policy year three, through the policy year the insured reaches age 65, if the client pays less than their Annual Payment Limit in a given year, he/she may make up the difference the following year without additional underwriting. How does a loan impact the dividend my client receives? Loans taken out on a Flexible Choice policy are directly recognized in calculating the interest component of the dividend. Therefore, any loan will impact the dividend payout since Penn Mutual credits a lower interest rate to the dividends when loans are outstanding. Are there uses for whole life that are particularly well-suited to business owners? Yes. Whole life can play a significant role in a company s defined benefit and executive bonus plans, as well as help provide funding for buy/sell agreements. In addition, a qualified plan and the use of whole life as a component of that plan can create income-tax savings for both employers and employees. How do I know if my client s Flexible Choice policy qualifies for the Chronic Illness Accelerated Benefit? The Chronic Illness Accelerated Benefit is automatically included or available on most Flexible Choice Whole Life policies. However, there are certain situations in which this benefit may not be included, added and/or exercised, including: The benefit has not been approved by your client s state The policy death benefit is less than $50,000 or the maximum allowable benefit has been reached* Your client did not fall into a benefit-eligible rating class at the time the policy was issued* The policy and/or benefit has not been in-force for the required waiting period (2 years in most states) To determine whether or not a client s policy includes or is eligible for the Chronic Illness Accelerated Benefit, please contact Penn Mutual. *Certain underwriting limits and coverage maximums and minimums apply. 12

15 Glossary of Terms Activities of Daily Living Bathing unable to wash, including getting in or out of the tub or shower Continence unable to control or maintain bladder or bowel function Dressing unable to put on/off all items of clothing or braces, etc. Eating unable to feed oneself Toileting unable to get to/from (on/off) and perform personal hygiene Transferring unable to get in and out of a bed, wheelchair or chair Any Occupation An occupation which a client is qualified to perform based on his or her education, training or experience. This may be different from the occupation in which a client was principally engaged at the time of a disability. Chronic Illness Any physical condition that leaves one unable to perform two or more of the Activities of Daily Living or suffers from a severe cognitive impairment. Severe Cognitive Impairment A condition requiring one to have substantial supervision by another to avoid injury or harm. May include dementia, Alzheimer s Disease or other deterioration of intellectual capacity assessed by standardized tests that measure: Short-term or long-term memory loss Disorientation to people or time Reasoning Judgment as it relates to safety. Direct Recognition of Loans When loans are made, the dividend on policies with loans will be less than the dividend credited to non-loaned policies. The company cannot earn income on loaned funds to support the same product profitability that the policy would produce had no loan been made. Dividend Sum returned to a policyowner by an insurance company under a participating policy. Dividends are not deemed as taxable distributions, as the IRS interprets them as a refund of a portion of the premium paid, until no more basis remains. There are several ways in which the policyholder may use dividends. Dividends are not guaranteed IRR (Internal Rate of Return) Rate used to determine the policyholder s return on premiums paid into a life insurance policy. This calculation is illustrated in two ways: 1. Surrender-of-Policy Approach calculation of the interest rate required for the accumulated value of the total premiums paid (minus any partial surrenders or loans) into the policy at a given time to equal the cash surrender value of the policy at that time. 2. Death-Benefit-Paid Approach calculation of the interest rate required for the accumulated value of the total premiums paid (minus any partial surrenders or loans) into the policy at a given time to equal the death benefit of the policy at that time. Loan Money that is borrowed against the cash value of the policy. A loan can be taken against the cash value at any time, subject to the maximum loan value in the contract. Loans are not required to be repaid unless the total of accumulated loans exceeds the maximum loan value. Loans will be reflected in the available net cash value and the net death benefit. Loans can reduce the cash value or death benefit if outstanding at the insured s death and may be subject to income taxes. Own Occupation The occupation in which a policyholder was principally engaged during the period in which he or she became disabled. The policyholder may still be able to work at some other occupation, but this does not change his or her status as being covered under an own occupation provision. Paid-Up Addition Option under a participating life insurance policy by which the policyholder can elect to have dividends purchase paid-up increments of permanent life insurance. Paid-Up Age Age by which all premium payments will be made to the life insurance policy. 13

16 Product Specifications Issue Ages 15 days 85 (55 for Paid-Up at Age 65 option) Minimum Face Amount $50,000 ($100,000 for issue ages 71+) $10,000 for qualified plans Standard Risk Classes Preferred Plus Non-Tobacco, Preferred Non-Tobacco, Standard Non-Tobacco, Preferred Tobacco, Standard Tobacco, Includes table ratings up to 16 Maturity Age 121 Policy Loans Minimum $250 Adjustable loan rate that can change every year Qualified Plan Provisions Riders* Qualification Test Dividend Options Qualified Plan Surrender Privilege Employers with terminated employees during the first two years may surrender the policy and premiums (less the cost of term coverage for the period). Excess premium will be returned to the plan trustee. Commissions will be reversed. Change of Plan Owners of the policy may request to change a policy to another policy without evidence of insurability, subject to policy provisions. The exchange period commences on the end of the third policy year and continues until the end of the seventh policy year. Accelerated Death Benefit Accelerated Permanent Paid-Up Additions Accidental Death Benefit Children s Term Insurance Agreement Chronic Illness Accelerated Benefit Disability Waiver of Premium (Standard/Enhanced) Enhanced Permanent Paid-Up Additions Flexible Protection Guaranteed Purchase Option Overloan Protection Supplemental Exchange Agreement CVAT Cash Paid-Up Additions Reduce Premium Accumulate Interest (guarantee minimum 1.5%) Cash Value Based on 2001 CSO Sex Distinct and Smoker Distinct Mortality Table. Guaranteed 4% interest rate over the life of the policy. Premium Frequency Premium Annual, semi-annual, quarterly, monthly automatic Penn Check or salary allotment. Based on chosen paid-up age option, issue age, gender, rate class, size of the policy, premium arrangement and selected benefits and riders. Unisex rates are available for qualified plans. * Optional riders and benefits may be subject to eligibility and underwriting requirements, additional premium requirements and/or minimum or maximum coverage amounts. Availability and rider provisions may vary by state. 14

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18 Notes

19 Notes

20 Our Noble Purpose Since 1847, Penn Mutual has been driven by our noble purpose to create a world of possibilities, one individual, one family and one small business at a time. As an original pioneer of mutual life insurance in America, we believe that life insurance is the most protective, responsible and rewarding action a person can take to build a solid foundation today and create a brighter future for generations to come. All guarantees are based on the claims paying ability of the issuer. Flexible Choice Whole Life is a whole life insurance policy offered by The Penn Mutual Life Insurance Company. Product or features may not be available in all states. Policy form numbers: TL-08(S) and TL-08(U). (Policy form numbers may vary by state.) Any reference to the taxation of life insurance products in this material is based on Penn Mutual s understanding of current tax laws. You should consult a qualified tax advisor regarding your personal situation. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage and will reduce the death benefit and policy values. For more information on coverage, please write or call your financial professional The Penn Mutual Life Insurance Company, Philadelphia, PA PM /12 A1JC