What is Whole Life Insurance?

Whole life insurance is a level premium non-forfeiture form of life insurance known for its cash accumulation and guaranteed death benefit features. The product is commonly manufactured either as participating or non-participating meaning it either earns dividends from the insurance company profits or it does not. Whole life insurance is also technically an endowment contract that endows at maturity (usually age 120 for policies presently issued).

What is Universal Life Insurance?

Universal Life Insurance is a flexible premium non-forfeiture form of life insurance known for its cash accumulation, flexibility of premium, and full disclosure of policy expenses. The product comes in many forms that differ in regards to how cash values grow. The product can also come in a form that guarantees the death benefit of the policy for a given period of time.

What is Term Life Insurance?

Term life insurance is a temporary form of life insurance intended to provide death benefit protection for a certain period of time. The product has no cash value and can have a level premium or an increasing premium that renews each year as the policyholder ages. Most term insurance policies have an age after which they can no longer be renewed and must be forfeited; state law sometimes determines this age.

What is Disability Insurance?

Disability Insurance is a health insurance product that replaces lost wages realized due to injury or illness that prevents someone from working. The product can come in many different forms and offer many different benefits.

What is Long Term Care Insurance?

Long term care insurance is a health insurance product that helps pay for expenses associated with care administered for aging individuals. This care can include both home health care and round-the-clock care as well as hospice services.

What is an Annuity?

An annuity is a life insurance contract that offers an accumulation of value on the premium(s) paid and a guaranteed income to the contract owner.

What are Life Insurance Dividends?

Dividends paid by a life insurance company are a share of operating profits to policyholders who own “participating” insurance policies. These dividends are recognized as a return of paid premiums, which has a very favorable tax planning strategy behind it.

What is Modified Whole Life Insurance?

Modified whole life insurance is a form of whole life insurance that has an extremely low initial premium that lasts for a period of generally five to 10 years. After this initial five to 10 year time, the premium resets to a much higher premium. During this first five to 10 year period, the policy does not generally accumulate cash value and if participating does not generally earn dividends.

What is Current Assumption Universal Life Insurance?

Current assumption universal life insurance (also referred to as regular universal life insurance, fixed rate universal life insurance, and plain universal life insurance) is a universal life insurance contract that has an annually declare fixed interest rate paid on the cash balance of the policy.

What is Variable Universal Life Insurance?

Variable universal life insurance is a universal life insurance contract that allows the policyholder to allocate whatever portion of the policy’s cash value to available investment options offered by the insurance contract. These investment options range, but all major categories of mutual funds are generally available.

What is Indexed Universal Life Insurance?

Indexed universal life insurance (also sometimes referred to as equity indexed universal life insurance) is a universal life insurance contract determines a fixed rate of interest paid to the cash value of the policy based on the change in a market index. If the index chosen is negative, the interest rate is simply zero for the period of time chosen.

What is Variable Life Insurance?

Variable life insurance (also commonly referred to as variable whole life insurance) is a level premium life insurance policy that allows the policyholder to allocate cash values to available investment options within the policy contract. This product became extremely rare after the advent of variable universal life insurance.

What is Level Term Insurance?

Level term insurance is a level premium term insurance product that guarantees a level term premium for a specific period of time—most commonly 10, 15, or 20 years with some carriers offering 30 year and to age 65 level premiums. After the level premium period is up, the policy either terminates or becomes an annually renewable term insurance policy with a premium that increases each year. If the policy becomes an annually renewable term insurance policy, the first adjustment to the term premium is quite substantial.

What is Annual Renewable Term Insurance?

Annually renewable term insurance (commonly referred to as ART or sometimes YRT for yearly renewable term insurance) is a term insurance contract that renews its premium every year commiserate with the insurance company’s charge for the cost of offering term insurance to a group of people of the same age and risk class. Premiums are generally guaranteed renewable to a certain age and then the policy will terminate. Some states’ laws dictate the termination age for these contracts.

What does Guaranteed Renewable Mean?

Guaranteed renewable is an insurance contract provision that guarantees the right of the policyholder to renew a contract and pay its premium every year. The guaranteed renewable period is stipulated in the policy contract. If a policy is guaranteed renewable, the insurance company cannot refuse to renew the policy provided the policyholder has paid the premium due.

What does Non-Cancelable Mean?

Non-cancelable (sometimes shortened can called “non-can”) is an insurance contract provision that does not allow an insurance company to modify any aspect of the policy issued to a policyholder or group of policyholders.

What is a Paid-up Addition?

A Paid-up Additions (also commonly called a PUA) is a rider available on a whole life insurance contract. This rider allows the policyholder to purchase additional paid-up insurance on his or her policy. Practically speaking, this rider is the mechanism used to place additional money into a participating whole life insurance policy to increase policy cash value performance.

What is the Waiver of Premium Rider?

Waiver of premium is a rider available on most all life insurance contracts and can come in several different forms. Fundamentally the rider is a small disability insurance policy that waives premiums due when the policyholder cannot work due to injury or illness.

What is the Guaranteed Increase Option Rider?

Guaranteed increase option rider (also commonly called the future increase option or guaranteed purchase option rider) is a life insurance or disability insurance rider that allows the policyholder to buy additional insurance coverage at a later date without proof of medical underwriting.

What is the Renewable Term Rider?

The renewable term rider is a rider found on whole life insurance contracts that allows the policyholder to pay additional premium for a renewable term insurance policy that is attached to his or her whole life policy. This allows the policyholder to increase the death benefit of his or her policy for a lower outlay of money than would be required if the entire death benefit were whole life insurance.

What are Dividend Options?

A dividend option is a choice the policyholder makes about what he or she wants to do with the dividend paid on a participating life insurance policy. This option can be changed once per year to whatever options exist from the company.

What is the Dividend Option to Purchase Paid-up Additions?

The dividend option to purchase paid-up additions is a dividend option available on a participating whole life insurance contract. The option instructs the insurance company to take dividends paid in a given year and use them to purchase paid-up additions.

What is the Dividend Option to Reduce Premium?

The dividend option to reduce premium is a dividend option available on a participating life or health insurance policy that instructs the insurer to apply dividends to the premium due. Any remaining premium after dividend payment will be the responsibility of the policyholder. If the dividends cover the entire premium due, the policyholder pays no premium for that policy year.

What is the Dividend Option to Accumulate at Interest?

The dividend option to accumulate at interest is a dividend option available on participating whole life insurance policies. This option instructs the insurer to place the dividends into an interest baring account. Interest earned on these dividends is tax in the year interest is earned. The policyholder can withdraw the cash in these accounts at anytime.

What is the Dividend Option to pay in Cash?

The dividend option to pay in cash is a dividend option available on participating life and health insurance policies. It instructs the insurance company to pay the dividend as cash directly to the policyholder.

What is the Dividend Option to Purchase One Year Term Insurance?

The dividend option to purchase one-year term insurance is a dividend option available on participating whole life insurance policies. It instructs the insurance company to purchase as much one-year term insurance as possible given the dividend payout. The one-year term insurance expires at the end of the policy year, and the subsequent year dividends can purchase additional one year term insurance for the that year. Some companies also allow the insured to elect an amount of one-year term insurance to keep in force and cover any differences in premiums (if the dividends to not pay for all of the premium) out of pocket.

Can I Choose More than One Dividend Option?

One can only choose more than one dividend option if they have chosen a dividend option for which the dividend payout exceeds its intended purpose. For example, if a policyholder chooses the dividend option to reduce/pay premiums, and the dividend payout is higher than the premium due, a second option can be elected to allocate the remaining dividend payout.

Can I Withdraw Cash from a Whole Life Policy?

A whole life insurance policyholder can only withdraw cash that is created by paid-up additions. The policyholder must use a policy loan to gain access to guaranteed cash values.

Can I Withdraw Cash from a Universal Life Insurance Policy?

All cash values can be withdrawn from a universal life insurance policy regardless of their status as guaranteed cash values or non-guaranteed cash values.

At what Point can I take a Loan from my Life Insurance Policy?

Most companies allow policy loans as soon as there is cash surrender value in the policy. Some companies require the policyholder to wait one year from the policy inception date before loans become available.

What is a Life Insurance Policy Loan?

A policy loan from a life insurance policy is the process of pledging cash surrender values in the policy as collateral for a loan issued from the insurance company. The cash itself does not come out of the policy.

Are Loans from a Life Insurance Policy Taxable?

Generally life insurance policy loans bear no taxable consequences so long as the policy remains in force. There are some rare incidences that might make a policy loan taxable. Chief among these incidences would be a loan from a Modified Endowment Contract.

Do I have to Prove Credit Worthiness for a Life Insurance Policy Loan?

No you do not need to prove any sort of credit worthiness for a life insurance policy loan. There is no application process to issue the loan. One merely needs to contact his or her agent or the insurance company to request the loan and the money is sent to the policyholder immediately.

Do I have to Report a Life Insurance Policy Loan for a Credit Application at the Bank?

No you do not need to disclose life insurance policy loans to a lender as part of a loan application. Life insurance policy loans are not counted for purposes of calculating debt-to-income ratios or any similar metric for credit worthiness.

If I don’t repay my Life Insurance Policy Loan, will it affect my Credit Score?

No life insurance loans policy loans to not affect credit scores. Nor are there any other negative creditworthiness consequences from not paying a life insurance policy loan.

What are the Negative Consequences for not paying a Life Insurance Policy Loan?

It’s possible to lapse a life insurance policy by not paying the loan if the loan became so large that it exceeded the cash surrender value. This is fairly uncommon for any policy that is well managed. Since loans to bear interest the loan will grow and not paying means there will be less cash surrender value.

If I use a Life Insurance Policy Loan to buy a Car, will I have to cover it with Auto Insurance?

There will not be a requirement to cover a car purchased through a life insurance policy loan with comprehensive or collision coverage as would be the case with a traditional auto loan. State requirements for liability coverage would still apply regardless of purchasing method.

What is a Collateral Assignment?

A collateral assignment is the process of pledging all or a portion of the cash surrender value of a life insurance policy as collateral for a loan issued by a lending institution.

Will I have to prove Creditworthiness for a Collateral Assignment?

Yes, a collateral assignment would require all formal processes that a lending institution uses to determine creditworthiness for a potential borrower.

Is a Collateral Assignment Better than a Life Insurance Policy Loan?

Whether one is better off using a life insurance policy loan or using a collateral assignment depends on numerous factors that must be considered on a case-by-case basis.

Would a Collateral Assignment Effectively create a Non-direct Recognition Loan?

Effectively yes, an outstanding collateral assignment has no impact on the cash surrender value growth or dividends paid to a life insurance contract so the net result is the same as a non-direct recognition loan.

Can I use a Collateral Assignment on a Modified Endowment Contract to avoid Tax Liability?

No, collateral assignments issued against cash values in a Modified Endowment Contract are reported by the lending institution to the IRS through form 1099 and any loan secured through collateral assignment is considered ordinary income to the extent there is gain distributed.

What is a Single Premium Immediate Annuity?

A single premium immediate annuity (sometimes called an immediate annuity or immediate income annuity) is an annuity product that exchanges a lump sum of cash for a guaranteed income stream within 30 days of the contract’s effective date.

What are Annuity Payment Options?

Annuity payment options allow the policyholder to choose what time period the income will payout over as well as any contingent payments that refund the premium or cost basis of the annuity should the annuitant die prior to recovering initial premium or cost basis. These options are: life only, life with period certain, life with installment refund, life with cash refund, and period certain. Some annuity contracts also allow for a joint life option to be specified on the life contingent options.

What is an Annuitant?

An annuitant is the person whose life is the basis for the income benefit of an annuity contract. In some cases this can be someone besides the contract owner.

What is a Life Only Payment Option?

An annuity life only option is an income based on the annuitized amount of the contract given the annuitant’s age/remaining years before death. Once the annuitant dies, the income ceases.

What is a Life with Period Certain Option?

An annuity life with period certain option is an income based on the annuitized amount of the contract given the annuitant’s age and a specified period of time for which the insurance company must pay the income amount. The income in this case will continue until the latter of the end of the period certain specified or the death of the annuitant.

What is a Life with Installment Refund Option?

An annuity life with installment refund option is an income based on the annuitized amount of the contract given the annuitant’s age that will continue to pay the income amount until the latter of full repayment of the annuitized amount or the death of the annuitant.

What a Life with Cash Refund Option?

An annuity life with cash refund option is an income based on the annuitized amount of the contract given the annuitant’s age that will pay the remaining annuitized amount in one lump sum if the annuitant dies prior to recovering the entire initial annuitized amount as income.

What is a Period Certain Option?

An annuity period certain option is an income based on a selected period over which the income will be paid from an annuitized value. These periods are most commonly 10, 15, and 20 year periods.

What is a Joint Life Option?

An annuity joint life option is an income that is base on an annuitized amount and the current age of two annuitants that will continue payments until the last annuitant has died.

What is a Variable Annuity?

A variable annuity is an annuity contract that allows the policyholder to allocate portions of cash values in the annuity contract to various investment sub-accounts. This money is directly invested in mutual fund-like accounts and is subject to gains in losses in the investments held in the sub-account.

What is an Indexed Annuity?

Indexed annuities (also called fixed indexed annuities or equity indexed annuities) are annuity contracts that calculate interest earned on the cash value in the annuity based on percentage changes in a market index over a specified period of time. The cash values are not directly invested in securities and will not grow or decline in the same manner the underlying index does.

What is a Guaranteed Withdrawal Benefit?

A guaranteed withdrawal benefit is a rider available on variable and indexed annuities that allows the policyholder to withdraw a specified amount of money from the contract each year for his or her lifetime regardless of the actual cash value in the annuity.

What is Infinite Banking?

Infinite Banking, Bank on Yourself, Be Your Own Banker, et. al. is all a notion of using cash value life insurance to accumulate wealth and then use that cash value to make certain purchases while not losing your ability leverage your earned wealth to continue to earn money on your money.  Through the use of policy loans, you have access to your policy’s cash value, but you don’t loose your ability to earn dividends on your policy’s cash value.

Couldn’t I Get the Same Return or Better on Something Else?

Probably, anything is possible.  But no savings vehicle has been able to rival the risk adjusted rate of return offered by permanent participating cash value life insurance.  It’s an extremely stable cash financial product that has worked for well over a century.  On top of that, other savings vehicles do not have the leverage-able power of policy loans and continued dividend payment.

What’s the “Best” Policy to Use

This depends on a few things, mostly intended use.  We don’t believe in endorsing any one product or any one company.  Though we’ll gladly admit that there are several that tend to be true winners.  If you’re really interested contact us

What is Blending?

Blending is the process of combining both base permanent life insurance and some term insurance together in one policy.  There are two main reasons to do this.  The first is to create a pseudo permanent policy at a reduced premium.  The second is to increase the Modified Endowment Contract and DEFRA limits on a policy to allow more cash to be placed into the policy.  Blending is a vital component to Infinite Banking as it allows for a cash rich policy, which is focused on maximizing cash value in the policy.

What is Dividend Recognition?

Dividend recognition refers to the way dividends are paid to a cash value life insurance policy.  There are two types: Non-direct Recognition and Direct Recognition.  Non-Direct Recognition means the dividend amount is not adjusted if policy loans are outstanding on the insurance policy (this is the preferred method for infinite Banking).  Direct-Recognition means the dividend is adjusted when there is a policy loan outstanding on the policy (usually the adjustment is a reduction in the dividend).  This can vary and having a policy that is direct-recognition is not a guarantee that you need to make a change.

(Insert Your Favorite TV/Radio Personality’s Name Here) Said Cash Value Life Insurance is a Bad Idea

And was he or she speaking specifically to you?  We know that there are others with different opinions, we respectfully disagree, and have yet to encounter someone who–after carefully reviewing the facts–continues to side with the big name TV personalities.

Do you Sell Insurance?

Yup, and very proud of it.  If you are looking into a policy we’d be happy to assist or offer to a referral in a case where we cannot be of assistance to you.  Please contact us for more information.

And if you’d like more information about our agency, you can find the web site here.