Types of Life Insurance

 

  • Term Insurance provides pure protection for periods of 10, 15, 20, 25 and 30 years. Since there are no cash values and this protection is time limited, it's the most inexpensive form of life insurance. For families with children, this insurance provides maximum protection during periods of maximum financial responsibility to spouse and children, as well as other family dependents.

  • Whole Life provides guaranteed lifelong protection, guaranteed cash values, and dividends that can add both protection and equity value. Tax free equity growth, as well as tax free distributions at retirement make this contract a favorite with higher income individuals.

  • Guaranteed Universal Life provides lifetime protection at a guaranteed level premium. It is the most inexpensive form of permanent life insurance, ideal for those who need lifelong protection, and cash accumulation is not a consideration.

  • Indexed Universal Life (IUL) is ideally suited to maximize the tax advantages of life insurance for cash growth and tax free distribution. Using Sec 101 and Sec 72 of the tax code, the policyowner outlays the highest possible premium for the minimum death benefit allowable. Equity growth is based on a market index, i.e. Standard & Poor 500, Nasdaq 100. Annual returns are capped at 10% to 14%, but if the index declines during a policy year, there is No Loss. Previous gains are Locked In!   View this short video for details. Unlimited contributions, no penalty for early withdrawals and early self completion make IUL's a Roth IRA on steroids!

 

Uses and Tax Advantages of Life Insurance

 

  • In Family settings, life insurance can pay last expenses, pay off debt, pay off a mortgage, provide income for spouse and/or children, set up a college fund for child(ren).  In Business settings, life insurance can provide funding for a Buy Sell agreement; reimbursement for the loss of a Key Employee; provide funding for Executive Bonus and Deferred Compensation agreements. Life insurance can also be used to Collateralize a Loan.

  • Living Benefits in Life Insurance: a Chronic Illness Benefit (no additional premium) makes today's Life Insurance policy a multi purpose protection vehicle. If the insured is diagnosed with a Cognitive Impairment or Chronic Condition that requires assistance with Activities of Daily Living (dressing, bathing, eating, transferring, toileting, continence), 4% of the face amount monthly may be accelerated to pay for care. Critical Illness and Terminal Illness riders are also included in many of today's permanent policies and in some term policies.

  • Tax Advantages of Life Insurance exceed any other financial vehicle. Based on Sec 101 of the Internal Revenue Code, death benefits are income tax free to beneficiary(s). There is zero tax liability on cash value equity growth. Periodic distributions can be taken completely tax free up to basis, then via zero net cost policy loans (IRC Sec 72). Properly structured life insurance can be a completely tax free accumulation and distribution vehicle. It's self completing in the event of death. Cash values are not subject to the claims of creditors.

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How much Life Insurance?

 

In family scenarios, enough to keep a family living in their accustomed life style. Six to Ten times income is often recommended, but the actual amount required varies among families. Click Estimator for a simple form to calculate your needs. Another thought: If a drunk driver killed your spouse, how much would you sue for? That's right, as much as you could get!  The same idea can apply to life insurance. What is the financial Human Life Value of a working Spouse and Parent? Using Financial Underwriting, insurance companies will allow  20 to 25 times annual income. Life insurance, especially term life, is priced so low that a parent earning $100,000 could easily afford $2,000,000 of life insurance.  In business scenarios, life insurance can fund a Buy-Sell agreement, Executive Bonus plan or Key Person indemnification.

 

Copyright Bud Otto, Life & Health Brokers at (404) 855-2804, for your Life & Health Insurance Solutions