Welcome These presentations are among the best in the industry: honest, straightforward, and informative. Concepts are presented using common terms, easy and understandable.   In addition to key points of fact, the author presents a balanced comparison of benefits and disadvantages so you can make a sound, confident decision. If you'd like to know more you can request a free consultation simply by clicking Here.

The cost of insurance is based on several factors, including health, life-style and age.  As the age of the insured rises, the cost of insurance (sometimes called the mortality charge) also rises until eventually the cost may become prohibitive.

Another factor effecting the cost of insurance is the amount of money the insurance company has at risk (sometimes called the insurance element).  An insurance company's amount at risk decreases as the policyholder's cash value increases.  For example: if the death benefit is $100,000 and the policyholder has $5,000 cash value, the insurance company has $95,000 at risk.   If the policyholder's cash value increases to $10,000 the insurance company's amount at risk will decrease to $90,000.  The premium a policyholder pays may stay level for a whole life product because the amount at risk for the insurance company is getting smaller as the policyholder's cash value gets larger.

The amount charged in the early years of a whole life policy is significantly higher than for comparable term insurance.  Part of the excess amount is invested, which generates a return utilized to offset a premium which is considerably less than comparable term insurance during the latter years of the policy. Because the premiums are set level for the life of the policyholder, an individual may shift a portion of the burden of risk to the insurance company.

Out of the premiums two charges are taken.  Expenses are the company's normal cost to do business, and mortality charges are money set aside to pay benefits.  After the deduction is taken a portion of the premium is credited to the cash value, which is guaranteed by the insurance company.  Because the cash value and death benefit guarantees are based solely on the ability of the insurance company to pay, it's vital to select a sound company to do business with.  An investment in a policy is an investment  in the future.  It's important the company be there should the need arise to access benefits.  For information on insurance company ratings click Here.

An insurance company is either a mutual company (owned by the policyholders) or a stock company (owned by the stockholders).  While there is no perceived conflict of interest with mutual companies, stock companies have at least a perceived if not actual conflict of interest.  This is because of the conflicting interests of policyholders and stockholders, the former are concerned with the contractual performance while the latter are concerned with quarterly profits. This is not reason enough not to place a contract with a stock company though, because just as there are excellent mutual companies, there are also excellent stock companies.

Both mutual and stock insurance companies may issue either participating or non-participating policies. Though there may be a cost difference (and most often there is not), the significant difference is the eligibility for dividends.  Participating policies are eligible for dividends while non-participating policies are not.  The IRS considers dividends of participating policies as return of premium and therefore not subject to taxation.  Further, dividends can have a large impact on the performance of the policy if the intention is to structure the policy with paid-up additions.  As always, be aware that distribution of dividends are never guaranteed.

A policyholder may change the dividend option at any time.  Four options are commonly available for the use of dividends. Cash: The policyholder receives a check for the dividends. Accumulation At Interest: Dividends remain on deposit with the insurance company to accumulate interest. Premium Payment: Dividends are applied to reduce the premium, either all or in part. Paid-up Insurance: Dividends are used to purchase additional insurance without evidence of insurability, if this option is selected at policy initiation.

Selecting the paid-up insurance dividend option allows the policyholder two choices: either increasing the death benefit for one year by an amount specified in the policy, or acquiring small amounts of completely paid for whole life insurance.  The former expire at the end of the year's time (one year term), while the latter are permanent (paid-up additions).  Paid-up additions can magnify the performance of a policy.  Like small sections added on a big house, over time the effect grows larger and larger.  The death benefit is increased by the amount of the addition.  The cash value increased by cash value of addition.  Plus, paid-up additions earn dividends in addition to the dividends the original policy earns.

The chart is divided into two sections, guaranteed and non-guaranteed.  Only the guaranteed values should be used in considerations, as these are the amounts the insurance company is contractually bound to.  Typically, the non-guaranteed values reflect current dividends and demonstrate what the result would be if the returns were to remain constant, a highly unlikely proposition.  Still, the chart can be useful in illustrating the concept of paid-up additions.  For an example: in the 12th year, when the guaranteed cash value of begins to exceed premiums paid, the dividend of $216 is applied to purchase paid-up additions.  The additions have a cumulative cash value of $1,001 giving a total cash value of $18,754.  The death benefit of the additions, $5,097 is added to the original death benefit for a total of $255,097.

Building cash value may be thought of as similar to building equity in a home.  Out of each payment deductions may be taken for such items as principle and interest.  As the loan is paid down the equity is built up.  For whole life insurance, out of each payment deductions are taken for expenses and mortality.  Then, a portion of the premium is credited to the cash value.  Just like equity in a home can be accessed, so too can the equity in whole life insurance be accessed.  The cash value may be available through loans, partial withdrawals (from participating policies) or policy surrender.  Also, financial institutions usually will accept the cash value of life insurance as collateral.

Loans may be payable either in advance or in arrears.  When payable in advance, a check for the amount of the loan is drawn, less the first year's interest charge (hence payable in advance). Thereafter interest is charged at the beginning of each year that the loan remains outstanding.   When interest is payable in arrears, a check for the full amount of the loan is drawn and interest is charged at the end of the year (hence payable in arrears). Thereafter interest is charged at the end of each year that the loan remains outstanding.  Interest accrues daily. Any unpaid when due is added to the outstanding balance of the loan to accrue and compound. Left unchecked, this may result in the loan exceeding the cash value. In such a case funds will be required to avoid policy termination and potential tax consequences.

Loans may be taken up to the maximum loan value of the policy, which will vary as the cash value varies.  Usually, there are no expenses and no front-end loads (service charges)  for re-payments.  The loan interest rate and structure is identified in the policy.  Typically, an insurance company will offer a better rate than can be obtained through commercial lending sources.  The insurance industry is unique in the common use of interest crediting.  When a policyholder takes a loan the insurance company charges interest, but at the same time interest is credited to the full cash value, including the amount borrowed.  The difference between the interest rate charged and the interest rate credited is called the spread: it is the net interest cost to the policyholder.  Often the spread is 1% or less.

More often found in universal life than whole life, a policy may have provision for a zero interest loan, commonly known as a "wash loan".  The interest rate charged is matched with an equal interest rate credited on the full cash value, again, including the amount the policyholder has borrowed.  When structured correctly, a zero percent loan allows for the cash value of the policy to be used as a source of supplemental retirement income.  The money is drawn out as loans over a period of time.  Loans do not have to be repaid but instead can be paid out of the death benefit. Be aware though, outstanding loans may reduce the death benefit, and further, if not structured, correctly serious tax consequences may occur.  Consult an accountant well versed in the use of wash loans before engaging this strategy.

Partial withdrawals may be taken from participating policy's dividends on deposit, interest accumulation, or from the cash value of any insurance that was bought with dividends.  Like a loan, repayment of the withdrawal is not required, however, the cash value and death benefit are reduced by the amount withdrawn. Surrendering a policy may be thought of as similar to selling a house.  When an owner sells a house s/he receives the equity value after all other charges are paid.  When a policyholder surrenders a whole life policy s/he receives the surrender value after all other charges are paid.  Service charges, called back-end loads, may be applied for policy surrenders.  Typically, surrender charges decline as the policy is held longer.

Death benefit settlement options may vary depending on the specific insurance company and policy. Generally, a policyholder may elect a specific settlement option.  If none is specified the beneficiary may elect to take payment in one lump sum or choose an option.

In a Fixed Period Option, the proceeds are paid in equal installments for a fixed period of time. At the choice of the beneficiary, a lump sum may be taken in lieu of installments.  Payments include principle and interest.  A minimum interest rate is guaranteed.  Option provides for a contingent beneficiary to receive any unpaid proceeds in the event of the primary beneficiary's death.

In a Fixed Amount Option, the proceeds are paid in fixed dollar amount installments until benefit is fulfilled. At the choice of the beneficiary, withdrawals of principle may be taken.  Payments include principle and interest.  A minimum interest rate is guaranteed.  Option provides for a contingent beneficiary to receive any unpaid proceeds in the event of the primary beneficiary's death.

In an Interest Only Option, the principle remains with insurance company which pays interest only payments. At the choice of the beneficiary, withdrawals of principle may be taken.  A minimum interest rate is guaranteed.  Option provides for a contingent beneficiary to receive any unpaid proceeds in the event of the primary beneficiary's death.

In a Single Life Annuity Option proceeds are paid in level payments for life of the beneficiary. If the beneficiary should die before the benefit is fulfilled no further distribution will be made.

A Joint Life Annuity Option is essentially a Single Life Annuity Option with a contingent beneficiary Proceeds are paid in level payments for the life of the beneficiary.  If the beneficiary should die before the benefit is fulfilled the contingent beneficiary will receive the unpaid balance.

A Life Income With Period Certain is essentially a Single Life Annuity Option with a guaranteed number of years.  A period of coverage is selected.  Proceeds are paid in level payments for life of the beneficiary, but if the beneficiary dies during the covered period the payments will continue to a contingent beneficiary only until the covered period ends.  Usually the period certain is 10 or 20 years

Policyholders who have cash value are protected from losing the surrender value in the event of payments are discontinued.  Nonforfeiture laws provide for three options: Cash Surrender Option, Reduced Paid-up Insurance Option, and Extended Term Insurance Option.

Request For Quote

We're delighted you've decided to request information through our service. From start to finish the process takes less than 5 minutes, that's it!