Nontraditional Whole Life (Interest/Market - Sensitive)

Current Assumption or Interest-Sensitive Whole Life Insurance

This type of whole life insurance adjusts to fluctuations in money market rates, allowing flexibility in premiums and cash value growth while combining traditional features with economic adaptability.

Key Features:

• Adjustable Premiums: Insurer can change premiums based on interest rate changes, allowing policyowners to pay lower premiums or benefit from faster cash value accumulation when market rates rise.

• Cash Value Growth: Tied to a credited interest rate, ensuring stable growth with a guaranteed minimum interest rate, providing security during unfavorable market conditions.

• Guaranteed Minimum Death Benefit: Guarantees a minimum death benefit, potentially increasing if cash value growth exceeds guaranteed levels.

• Corridor of Insurance Protection: Prevents premature policy maturity due to excessive cash value growth, keeping the policy in force without evidence of insurability.

• Flexibility: Adjusts to market conditions, making it more responsive than traditional whole life policies.

Benefits:

• Potential for Lower Premiums: Market-driven increases may reduce premium outlay.

• Enhanced Cash Value Growth: Higher interest rates can accelerate cash value accumulation.

• Guaranteed Protection: Assurance of minimum death benefit and interest rate provides a safety net.

Considerations:

• Premium Variability: Fluctuations may lead to increased premiums if market rates fall.

• Cash Value Risks: Dropping interest rates can slow cash value growth, impacting premiums or benefits.

Comparison Chart: Interest-Sensitive Whole Life Insurance

Who Should Consider This Policy?

• Individuals seeking whole life insurance with growth potential linked to market conditions.

• Those wanting a guaranteed death benefit with opportunities for cash value enhancement.

• Policyowners valuing flexibility in premium payments and interest-sensitive cash value accumulation.

Overview: Interest-sensitive whole life insurance blends guaranteed benefits with growth potential during favorable market conditions.

Universal Life Insurance (UL): Combines insurance protection with a tax-deferred savings component, featuring:

• Adjustable Face Amount: Policyowners can modify the face amount as needed, with increases requiring evidence of insurability.

• Flexible Premiums: Options to increase, decrease, or skip payments; target premium maintains the policy until age 100.

• Cash Value Growth: Grows based on insurer-set interest rates, subject to a guaranteed minimum (3-4%).

• Cost of Insurance: Monthly mortality charges deducted based on age, capped at policy-defined limits.

• Administrative Expenses: Monthly costs deducted from cash value, also subject to limits.

• Interest Crediting: Monthly crediting ensures cash value growth, potentially faster with higher current rates.

• Lapse Risk: Insufficient cash value may lead to policy lapse unless premium payments are resumed.

Advantages:

• Flexibility with adjustable premiums and face amounts.

• Guaranteed growth through minimum interest rates.

• Tax-deferred growth for cash value.

• Potential for higher returns in favorable interest rate conditions.

Considerations:

• Market sensitivity affects cash value growth.

• Possible necessity to resume premium payments to avoid lapsing.

• Mortality charges increase as the policyholder ages, impacting cash value and premiums.

Universal Life Insurance serves those seeking adjustable coverage with savings linked to economic and market conditions.

Key Features of Universal Life Insurance

Loans and Partial Withdrawals in Universal Life Policies

Policy Loans:

• How They Work:

  • A loan is taken against the cash value of the policy, which remains intact as collateral.

  • The cash value secures the loan and cannot be used for other purposes until the loan is repaid.

• Repayment:

  • Loans can be repaid over time, or the unpaid balance (plus interest) will be deducted from the death benefit or surrender value.

• Impact:

  • Loans do not reduce the total cash value or the policy's face amount unless unpaid at the time of a claim or surrender.

Partial Withdrawals:

• How They Work:

  • A partial withdrawal is a direct deduction from the policy's cash value.

  • Unlike loans, the amount withdrawn is permanently removed and cannot be reinstated.

• Tax Implications:

  • Withdrawals may be subject to taxes, depending on the policy's gain (excess of cash value over premiums paid).

• Impact:

  • Partial withdrawals reduce the cash value and may also reduce the death benefit, depending on the policy structure.

Death Benefit Options in Universal Life Insurance

Universal Life policies offer flexibility in death benefits, allowing policyowners to select from two options:

Option A (Level Death Benefit):

• Structure:

  • Pays only the face amount of the policy, regardless of cash value growth.

  • The cash value serves to reduce the insurance company’s risk over time.

• Risk Corridor:

  • To prevent early policy maturity, the death benefit will automatically increase to maintain a minimum separation (corridor) between the cash value and the face amount.

  • This ensures the policy complies with legal requirements for life insurance contracts.

• Advantages:

  • Lower mortality charges, resulting in greater cash value accumulation.

Option B (Increasing Death Benefit):

• Structure:

  • Pays the face amount plus the cash value, providing an increasing total death benefit.

  • As the cash value grows, the death benefit also increases.

• Impact on Costs:

  • Higher mortality charges due to the increasing death benefit.

• Advantages:

  • Greater total death benefit for beneficiaries, especially valuable for those seeking long-term financial growth.

Choosing Between Option A and Option B

• Option A:

  • Best for individuals prioritizing cash value accumulation.

  • Suitable for those who expect to access cash values for loans or withdrawals during their lifetime.

• Option B:

  • Best for individuals seeking a larger death benefit over time.

  • Suitable for those who prioritize leaving a growing legacy for beneficiaries.

Comparison Chart: Death Benefit Options in Universal Life Insurance

Indexed Life Insurance

Overview: Indexed Life Insurance is a permanent life insurance type with features linking interest crediting to a financial index (e.g., S&P 500). The cash value isn't directly invested in the stock market, protecting the principal from losses.

Key Features:

• Index-Based Interest Crediting: Cash value earns interest based on market index performance, protecting principal from market losses.

• Guaranteed Minimum Interest Rate: Policy guarantees a minimum interest rate to avoid cash value decrease.

• Potential for Higher Returns: Cash value may grow faster with strong index performance, but typically has a cap on gains.

• No Direct Investment in Index: Cash value growth is linked to index performance without direct market investment.

Benefits:

• Market-linked growth with risk protection.

• Flexible strategies can match policyowner's financial goals.

• Tax-deferred cash value growth and lifetime coverage available.

Considerations:

• Caps on credited interest and participation rates can affect growth.

• Policies may be complex, requiring understanding of index performance.

• Fees and administrative costs can impact cash value accumulation.

Ideal For: Those seeking growth beyond traditional policies, protection against market downturns, or tax-deferred permanent coverage.

Variable Life Insurance

Key Features:

• Fixed Premium: Fixed premiums throughout the policy.

• Cash Value Accounts:

  • General Account: Guaranteed minimum death benefit until age 100; loans available.

  • Separate Account: Investments in equity securities chosen by the policyowner. The cash value and death benefit vary based on market performance, bearing investment risks.

• Death Benefit: Varies annually but won’t drop below the general account minimum.

• Investment Risk: Policyowners assume the risks of the separate account investments, allowing for potential higher returns but also losses.

Regulation: Subject to SEC regulation and must be sold by licensed agents with FINRA registration.

Loans and Surrenders: Loans (75–90% of cash value) are available; partial surrenders aren’t allowed.

Conclusion: Variable Life Insurance combines guaranteed minimum benefits with market growth opportunities, offering higher potential returns alongside increased risk for policyowners.

Comparison Chart: Indexed Life Insurance vs. Variable Life Insurance

Variable Universal Life (VUL) Summary

Variable Universal Life (VUL) combines the investment component of Variable Life Insurance with the flexibility of Universal Life Insurance. Below are its key features:

1. Investment Component:

   • All cash value is held in the insurer’s separate account.

   • Returns fluctuate based on the performance of the chosen subaccounts in the separate account.

   • There is no guaranteed minimum death benefit; the policyowner assumes all investment risk.

2. Flexible Premiums and Adjustable Death Benefits:

1. Policyowners can adjust premium payments and death benefits over time.

2. Death benefit options:

   • Option A: Pays the face amount only.

   • Option B: Pays the face amount plus the cash value.

3. Loans and Withdrawals:

1. Policy loans are available (typically 75–90% of cash value) based on the separate account balance.

2. Partial withdrawals are taken directly from the separate account without terminating the contract.

4. Regulation and Licensing:

1. Governed by the Securities and Exchange Commission (SEC).

2. Can only be sold by licensed life insurance agents who are also registered with the Financial Industry Regulatory Authority (FINRA), holding a Series 6 or Series 7 registration.

3. Some states require additional licensing, such as a Variable Contracts Insurance License and state securities registration (Series 63).

4. A prospectus must be provided prior to the sale. Suitability requirements must also be met.

Conclusion: VUL policies provide policyowners with flexible premiums, adjustable death benefits, and investment growth opportunities. However, the lack of guaranteed returns or minimum death benefits means policyowners bear all investment risk.

Comprehensive Comparison Chart: Different Types of Life Insurance

Combination Plans and Variations

Joint Life (First to Die)

• Coverage: Insures two or more lives under one policy.

• Death Benefit: Paid upon the first insured's death, and the policy terminates thereafter.

• Premium Calculation: Based on a joint issue age (average of both insureds' ages), making it more affordable than two individual policies.

• Purpose: Designed to provide income protection for the surviving spouse, especially when both insureds contribute earned income.

Joint Survivorship Life (Second to Die)

• Coverage: Insures two lives under one policy.

• Death Benefit: Paid only after the second insured's death.

• Premium Calculation: Also based on a joint issue age, resulting in lower premiums than two individual policies.

• Purpose: Often used to provide a lump sum for estate taxes or other financial needs after the second spouse's death.

Comparison:

• Joint Life prioritizes providing financial support for the surviving spouse after the first death.

• Joint Survivorship Life focuses on estate planning, with benefits paid only after both insureds have passed away.

Comparison Chart: Joint Life vs. Joint Survivorship Life Insurance