Consumer Guide. Variable Universal Life Insurance. Issued by Security Life of Denver Insurance Company.

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1 Consumer Guide Variable Universal Life Insurance Issued by Security Life of Denver Insurance Company.

2 Introduction This guide offers helpful information about variable universal life (VUL) insurance features to help you understand more about making financial choices that work best for you. It was created to provide accurate and reliable information on the subjects covered. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. At the end of this guide are questions you should specifically ask your Voya Life Companies (Voya) financial representative. Make sure you re satisfied with the answers before you purchase a life insurance policy. Before investing, you should carefully consider your need for life insurance coverage and the charges and expenses of the variable universal life insurance policy. You should also consider the investment objectives, risks, fees, and charges of each underlying variable investment option. This and other information is contained in the prospectuses for the variable universal life insurance policy and the underlying variable investment options. You may obtain these prospectuses from your registered representative, by calling , or from Voya.com and read them carefully before investing. 2 See glossary on pages

3 Characteristics of VUL insurance Death benefit Voya VUL policies will pay a death benefit to the beneficiary as long as the policy remains active, or in force. A policy can lapse if sufficient premium payments are not made. It can also lapse if, in later years, there isn t enough in the cash value of the policy to cover the monthly policy charges. There are optional riders available to add to a policy that may guarantee the death benefit. Your policy may allow you to adjust the death benefit up or down, however limits may apply. Flexible premiums Voya VUL policies may allow you as the policyowner to determine the amount and frequency of premium payments depending on your needs and certain conditions, limits and underwriting requirements that may apply. Cash value VUL has variable investment options that may help generate cash value under the policy. The cash value can be an important part of your financial plan. But it is a life insurance policy used to protect and provide for those who may be financially dependent on the insured s life. Cash value in VUL insurance A life insurance policy is fundamentally used to protect and provide for those who may be financially dependent on the insured s life by providing a death benefit, but VUL also has variable investment options that may help generate cash value under the policy. Cash value may accumulate from premiums you pay in excess of the policy charges (such as cost of insurance or expense charges). This cash value may earn interest and those earnings are allowed to grow tax-deferred. The cash value may also decrease in value, depending on the performance of the variable investment options you choose. Tax deferral is a powerful benefit in two ways. First, any increases in cash value are not included in your current taxable income. Second, because your returns are not decreased by having to pay current income taxes, they can stay allocated in the policy and potentially continue to grow until they re withdrawn. These features may make VUL a good choice for supplemental retirement income. The cash value within the policy can be used for retirement income, emergencies or other needs. The accumulated cash value can also be used for emergencies or other needs. Interest earned is taxable only upon withdrawal. Early withdrawals are subject to a surrender charge. In addition, withdrawals prior to age 59½ may be subject to a 10 percent tax penalty. Investing cash value The VUL policyowner has several options for investing their cash value. When you purchase a VUL policy, Security Life of Denver Insurance Company places part of your premiums net of fees and charges within the various available investment options you select. The investment options will vary depending on the specific product you purchase. Variable investment options are investments in the subaccounts within the VUL product. These variable investment options are similar to mutual funds but are only available through variable insurance products. 3

4 Most VUL policies offer a range of variable investment options, from conservative to aggressive, and you can usually create the combination that suits your risk tolerance and financial goals. Variable investment option returns may be, on average and over time, higher than for other types of insurance that have a minimum guaranteed rate of return. In return for the possibility of achieving these better returns, you take on the risk that the value of your VUL policy s variable investment options may also go down. An important benefit of a Voya VUL policy is that in most cases you can move money among variable investment options as your needs and investment objectives change. You can often do this without additional transaction charges from the company (usually up to a limited number of times in a year). In addition, the IRS doesn t count your movement from one variable investment option to another within your VUL policy as creating income for you and no income tax becomes due as long as no money is actually withdrawn from the policy. For more information on the tax treatment of VULs, see page 7. 4

5 Variable investment options (VIOs) When you purchase a VUL policy, Security Life of Denver Insurance Company places part of your premiums net of fees and charges within the various available investment options you select. The investment options will vary depending on the specific product you purchase. Variable investment options are investments in the subaccounts within the VUL product. These variable investment options are similar to mutual funds but are only available through variable insurance products. Variable investment options are grouped into categories based on lower and higher risks and possible returns. An important benefit of a Voya VUL policy is that in most cases you can move money among variable investment options as your needs and investment objectives change. You can often do this without additional transaction charges from the company (usually up to a limited number of times in a year). In addition, the IRS doesn t count your movement from one variable investment option to another within your VUL policy as creating income for you and no income tax becomes due as long as no money is actually withdrawn from the policy. Accessing cash values Accessing your cash value is easy and can be done through policy loans, partial withdrawals or a combination of the two. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse. Policy loans As cash value builds in your policy, you can borrow against the accumulated cash value. You can typically take out a loan from your VUL policy at a lower interest rate than other lending sources. Partial withdrawals and surrenders You can obtain cash from a VUL policy through a surrender or partial withdrawal. A surrender means that the entire policy is cashed out (minus any surrender charges, fees, or payment of outstanding loans) and the policy (and your life insurance coverage) ends. A partial withdrawal is a surrender of part of the insurance policy. The advantage of a partial withdrawal over a loan is that it does not have the interest and repayment obligation that a loan does. A disadvantage of partial withdrawals is a permanent decrease in the death benefit and the cash value. 5

6 Charges Voya VUL policies have charges related to the cost of selling and servicing them, in addition to the cost of insurance itself. Ask your Voya Financial representative to describe the charges that apply to your VUL policy or review your VUL policy prospectus for detailed information on all charges and expenses and how they are calculated. How these charges are calculated depends on the specific product Charges may include: Percentage of premium charges A percentage of premium charge is deducted from each premium paid. The percentage may be lower after the policy has been in force for a certain number of years or after total premiums paid have reached a certain amount. Some VUL policies separate their percentage of premium charges into components such as a sales charge, state premium tax charge, and federal income tax charge. Cost of insurance charges This charge is based on the amount of insurance protection provided by your policy. It is usually assessed as a charge based on the net amount at risk and a rate calculated from factors such as age, sex, rate class, etc. Expense charges Expense charges are typically deducted monthly and may have several components. They are often assessed on a flat amount per policy, based either on the amount of your insurance, or on the amount of your cash value. Transaction charges A transaction charge may be made for services you request. Some policies assess charges for transferring money among variable investment options (in excess of policy limits), or providing extra reports. Surrender or partial withdrawal charges If you need access to your money, you may be able to take all or part of the cash value out of your VUL policy. If you take out all of the cash value and surrender, or terminate, the policy, you may pay a policy surrender charge. If you make a partial withdrawal you may pay a proportional surrender or partial surrender charge. Surrender charges are higher during the early years of the policy. Exceptions to partial withdrawal charges Your VUL policy may have a limited free partial withdrawal feature that lets you make one or more partial withdrawals without a surrender charge. The size of the free partial withdrawal is often limited to a set percentage of the cash value of your policy, or a set percentage of the premiums paid. If your partial withdrawal is more than that, you may pay withdrawal charges. 6

7 Tax treatment Under current federal law, VUL policies receive special tax treatment. Most states tax laws on VUL policies follow the federal law. Below is a general discussion about taxes and VUL policies. You should consult a professional tax advisor to discuss your individual tax situation. Tax-deferred growth Income tax on any growth in your life insurance policy is deferred. That means you aren t taxed on the earnings while they stay in the policy. Taxes that you might otherwise have to pay on interest income, dividends or capital gains remain in the policy. Tax-free loans You may pay no tax when you take money out as policy loans and your policy is not considered a modified endowment contract (MEC) under federal tax laws. In this case, policy loans will be income-tax-free as long as the policy remains in force. If the policy is allowed to lapse with an outstanding loan, you may have an income tax liability. The amount of the tax liability is calculated based on how much of the loan amount was a return of your payments ( cost basis ) and how much was earnings from the variable investment options. If the policy is a MEC under federal tax laws, loans are treated as taxable distributions to the extent of the gain in the policy. Taxes on death benefit Your beneficiaries generally do not pay any income tax on the death benefit if it is paid in a lump sum. If installment payments are received, your beneficiaries only pay taxes on the interest received. However, estate taxes will be determined by policy ownership. 7

8 Make the right choice for you VUL insurance may have many advantages over other types of products and can be an important part of your overall financial planning. Voya life insurance companies have developed a variety of products with a wide range of features and options. The questions listed below may help you decide which type of life insurance, helps meet your financial needs. You should think about what your goals are for the money you may put into a VUL policy, and need to think about how much risk you re willing to take with the money. Ask yourself: Do I want a variable investment feature that has the potential for higher earnings that aren t guaranteed and the possibility that I may risk losing some or all of the principal? How much retirement income will I need in addition to what I may get from social security and my pension? Will I need that additional income only for myself, or for myself and someone else? How long can I leave my money in the VUL policy? When may I need income from the VUL policy s cash value? Does the VUL policy let me get money when I need it? Do I want a fixed return with a guaranteed interest rate and little or no risk of losing the principal? Ask your Voya Financial representative to review your financial needs analysis and risk assessment profile to help confirm this important decision. 8

9 Final point to consider Before you decide to purchase variable universal life insurance, review the policy carefully. Terms and conditions of each VUL policy will vary. VUL insurance is a long term financial product. Be sure to work closely with your financial professional to understand how this product may fit your long term financial needs. Taking money out of a VUL policy may mean you must pay taxes. While it s sometimes possible to transfer the value of an older life insurance policy into a new VUL policy, the new policy may have a new schedule of surrender charges or other fees that could mean new expenses you must pay directly or indirectly. Ask your Voya Financial representative to do a complete comparison of your old and new policies before deciding to replace an older policy. Remember that the quality of service you can expect from the company and your financial representative is a very important factor in your decision. When you receive your VUL policy, read it carefully. Ask your Voya Financial representative to explain anything you don t understand. Do this before the free-look period ends. 9

10 Glossary Beneficiary The person designated by the policyowner to receive the death benefit. Insured The person whose life is insured by the policy. That person may or may not be the policyowner. Cash surrender value The cash surrender value is the sum of money an insurance company pays to the policyholder in the event his policy is voluntarily terminated before its maturity date. The net surrender value on the date is surrendered is equal to: the cash value, minus any surrender charges, outstanding loan amounts, plus any interest the policy owner paid in advance on a loan between the date of surrender and the next policy anniversary. Cash value The sum of the variable life insurance policy s value in its variable investment option accounts and any fixed accounts, less any applicable fees or charges. Death benefit The amount of money the insurance company will pay to the beneficiary(ies) when the insured dies. Fixed account An allocation option that provides a guaranteed minimum return and payouts in fixed dollar amounts. Free-look period A period of time (usually 10, 20, or 30 days, subject to individual state regulations) after the delivery of the policy, during which the owner may review the VUL policy and return it for a refund (typically the policy value, or premium paid). In force The policy is active and the amount of coverage insured for would be paid upon death. There is sufficient account value to keep the policy active. Interest income Income derived from an instrument of debt, such as a bond. Lapse A lapse means a life insurance policy is no longer an active contract. A life insurance policy will lapse when premium payments are missed and cash surrender value is exhausted on a life insurance policy. The term lapse refers to a lapse in coverage, meaning the life insurance contract will no longer pay a death benefit or provide any insurance coverage for the insured person. A policy will only lapse after a grace period has passed, and most companies will allow their clients to reinstate their policies for a short period after the policy has lapsed without further underwriting. Read on to learn how to reinstate your policy. Life insurance A contract between an insurance company and an individual, generally guaranteeing payment of an amount of money to the beneficiary(ies) on the insured s death. Loan amount The total amount of all outstanding policy loans, including both principal and interest due. Management expenses The fees that each subaccount portfolio in which a variable investment option invests is assessed to pay for the cost of providing professional money management. The amount of this fee varies by portfolio. 10

11 Net amount at risk Face amount minus the cash value. Partial withdrawal Taking part of the cash value in the VUL policy; may result in surrender charges. Partial withdrawals will reduce the VUL s cash value and death benefit and may create an income tax liability. Policy A written contract of insurance. Policyowner The person(s) typically responsible for making premium payments. This person has all ownership rights, including the rights to make investment decisions, transfer funds, make withdrawals, name beneficiaries, and surrender the policy. Premiums All payments made under the policy other than loan repayments. Prospectus A legal document containing information about the specific VUL insurance product for sale. The prospectus contains information on the investment objectives, risks, sales charges and management expenses, services offered, as well as other information. Rider An amendment to a policy that provides additional specific benefits or amounts of coverage to a policy (for example, an accidental death benefit rider). Subaccount A separated balance of funds (or account) for which the provider acts on behalf of the policy holder. Also see variable investment options. Surrender The termination of a policy at the option of the policyowner. Canceling your policy completely and receiving the current value of your VUL policy, less any surrender charges, other fees, or taxes. Surrender charge The charge assessed for taking withdrawals or surrendering the policy in the early years of the policy. Tax-deferred The postponement of tax liability on accumulated earnings until a taxable distribution from a policy is made. Underwriting The process of selecting applications for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates can be charged. The process includes rejection of unacceptable risks Variable investment options The subaccounts of the separate account that supports a VUL policy. A typical VUL offers a range of variable investment options which invest in underlying mutual fund portfolios which have investment objectives that range from conservative to aggressive. Variable universal life insurance A form of universal life insurance that allows the policyowner to invest the cash value in a wide variety of investment options without any minimum guaranteed rate of interest or minimum cash surrender value. A fixed account option may also be available which provides a minimum guaranteed rate of interest. 11

12 Call your Voya Life Companies representative or Log on to Voya for Professionals at VoyaProfessionals.com Policy loans and partial withdrawals may vary by state, may generate an income tax liability, reduce available surrender value and reduce the death benefit, or cause the policy to lapse. Income tax free distributions are usually achieved by withdrawing to the cost basis (usually premiums paid), then using policy loans. This assumes the policy qualifies as life insurance, is not a modified endowment contract, is not lapsed or surrendered with an outstanding loan. Individual tax results may vary. You should consult your attorney or other tax advisor. These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor. Variable life insurance products are issued by Security Life of Denver Insurance Company (Denver, CO) and distributed by Voya America Equities, Inc. Both are members of the Voya family of companies. Variable insurance products are subject to investment risk, are not guaranteed and will fluctuate in value. In addition, there is no guarantee that any variable investment option will meet its stated objective. All guarantees are based on the financial strength and claims-paying ability of Security Life of Denver Insurance Company, which is solely responsible for the obligations under its own policies. Not FDIC/NCUA Insured Not A Deposit Of A Bank Not Bank Guaranteed May Lose Value Not Insured By Any Federal Government Agency 2016 Voya Services Company. All rights reserved. CN /15/2016 Voya.com