Life insurance has many uses and advantages other than family protection.

Life insurance is used for the following:

Death proceeds from a life insurance policy are currently exempt from income taxation, except is some rare cases.  Thus beneficiaries receive the benefits income tax free.


Rating Classifications

Life insurance policies can charge different costs depending on the classification the person to be insured can qualify based on his/her health status, and family history.  The different rating classifications are:


Types of Policies and Reasons of Each Type


Whole Life Insurance

This life insurance product is used when guarantees are of preeminent importance, or as a planning technique to build cash value for retirement.

The cash values and other benefits of the plan can be interest sensitive, but the best policies are with a Mutual Insurance company and are based on the performance of the general fund of the insurance company.

The premiums are guaranteed to keep the policy in-force as long as they are paid.

The performance of the general account fluctuates with the economy and these fluctuations will affect the future cash values in the illustrations shown by the insurance company.  Mortality costs are averaged over the length of the policy so that in the early years, you are paying a higher mortality charge then would be due at your current age.

The cash values can be borrowed at any time after the first anniversary date, and borrowed amounts are not taxable as ordinary income.  The loans can affect future cash values.  There is no current obligation to repay the borrowed funds.  In a participating policy, you will still receive interest on the borrowed funds as if they were still in the policy.  The borrowed monies are deducted from the death proceeds if not repaid prior.

This type of policy is excellent to utilize to provide a tax free retirement plan, or provide emergency funds during financial hardships.

Cash values, under current tax laws, can be utilized to provide a tax free income stream at any age.  The income would remain non- taxable as long as the policy stayed in force.

Due to the higher costs for the same death benefits, this type of policy is utilized when we have a long term need for a death benefit, such as an estate plan, and/or a retirement benefit.

This product is necessary when guarantees are required. This product guarantees premiums, death benefit, a level of credited interest, and mortality cost. The only areas not guaranteed in this product are the dividends, or interest, paid above the guaranteed rate of return.


Variable Life Insurance

This life insurance product is a permanent plan of insurance and is interest sensitive.  The product is structured by dividing the premiums paid into two areas:(1) an expense portion which is a combination of a term life insurance or a mortality charge that increases each year, and a charge for the expenses of the insurance company; and (2) an investment portion that pays current interest rates and earnings on the monies not allocated to the mortality and expense portion.

The interest and earnings paid in the policy are not currently taxable.

The interest and earnings are based on the performance of separate accounts set up by the insurance company and administered by a separate entity.  The owner of the policy would select the separate account(s) in which to invest; domestic stocks, international stocks, bonds, real estate, money market instruments, or a combination of stocks and bonds.  The investment risk is transferred from the insurance company to the owner of the policy.

The advantage is that higher rates of return can be obtained with this type of product, but conversely, the rate of return can also be lower than the conservative investments in a balanced portfolio of a highly rated life insurance company.  Since the interest and earnings credited to the policy are based on this performance, fluctuations are inherent in the product and will affect the future cash values shown in the insurance company’s illustrations.

Cash values may be borrowed at any time, but can significantly reduce the cash value and death benefit of the policy.  These borrowed funds are not currently taxable as ordinary income and the insured is under no obligation to repay the loans.  Gains on investments inside the policy are not credited to borrowed amounts.  The borrowed amounts would be deducted from the death benefit if not repaid prior to death

Premiums are flexible, thus allowing the product to be designed to meet the needs of the owner of the policy.  Care must be taken in the selection of the company for this product.  Illustrations vary from company to company depending on the following assumptions; assumed interest rate or dividends credited to the contract, assumptions of improvement in expenses, lapse ratio assumptions, interest rate bonus, current versus guaranteed mortality costs, mortality and expense costs, and investment management expenses.

Cash values, under current tax laws, can be utilized to provide a tax free income stream at any age.  The income would remain non- taxable as long as the policy stayed in force.

This product is proper for retirement planning and not when the need is for a guaranteed death benefit.  A properly structured policy uses the minimum death benefit that is allowable for the premium being paid.  This is done to make sure the policy is still considered a life insurance policy, and maintains its tax advantages.  If the policy blends the death benefit, using part permanent and part term rider, the expense portion of the policy is lowered, and thus the retirement and cash value buildup in the policy is greatly enhanced.

Due to the non guaranteed nature of the contract, this is not a proper vehicle for any planning that will require a certain death benefit in the future.