• Life Insurance

Do I Need Life Insurance?

The death benefit protection offered by a life insurance policy can be a key component of a sound financial plan. It can offer income protection to guard our loved ones' standard of living or estate liquidity to protect assets from the eroding effects of taxes.

A variety of expenses can burden loved ones in the event of lost life, including mortgage and other loans, child care and education. Without proper life insurance coverage, a major change in lifestyle and/or standard of living may be required to meet expenses. If you recognize the need for life insurance but have been delaying the purchase, consider the costs associated with waiting.

  • No one knows when the unexpected can occur. While unexpected loss isn't part of anyone's personal plans, it should always be considered in our financial plans.
  • The younger and healthier you are, the better your rates will typically be.
  • With permanent life insurance, account values have the potential to accumulate over the long-term, which can result in the ability to take loans or withdrawals from the policy's cash value, if necessary, and possibly even skip premium payments. Time is on your side.

Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy's account value and death benefit. Assuming a policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent that they exceed the policyowner's cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions.

Estate Planning with Life Insurance

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Act") reinstated the federal estate tax and generation skipping taxes and reunified the estate and gift tax basic exclusion amount. Under the Act, estate, gift, and generation-skipping transfers are taxed at a maximum rate of 35%. The individual basic exclusion amount for estate, gift and generation-skipping transfers is $5,000,000, subject to an inflation adjustment in 2012. An individual’s basic exclusion amount for estate tax purposes may be increased by the unused basic exclusion amount of a deceased spouse. The Act expires at the end of 2012, at which time the estate, gift and generation skipping transfer tax exemptions will be reduced to $1,000,000 (the generation skipping tax exemption is indexed) and the maximum rates will be increased to 55%.

The uncertainty regarding how the Act might be modified, underscores the importance of seeking guidance from a qualified advisor to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.

I Already Have Life Insurance

If you already have life insurance coverage, are you sure you are properly covered? Our lives are constantly changing, and each change can affect our financial situation and needs. Annual policy reviews should be part of any life insurance strategy.

Many factors may influence the effectiveness of your life insurance coverage without you realizing it, such as:

  • Marriage
  • The birth or adoption of children
  • The purchase of a new home
  • A new job or promotion

Universal Life

Universal Life insurance is permanent life insurance with a flexible premium structure and the ability to build cash value.

  • You can set your premium amount and payment schedule provided they are sufficient to support the death benefit and sustain the policy.
  • Your payments above the cost of insurance are credited to the policy's cash value, which in turn earns monthly interest.
  • The policy cash value is yours. You may allow it to accumulate, withdraw or borrow against it, or use it to pay policy premiums.


  • Growth - You receive a guaranteed minimum rate of interest on the policy's cash value.
  • Flexibility - You may increase or decrease planned premiums within certain limits. After the first policy anniversary, you may also adjust the death benefit, though evidence of insurability may be required for increases, and minimums apply.
  • Tax Advantages - Credited interest is tax-deferred. The death benefit is typically income-tax free and may be estate-tax free if the policy is owned within a properly structured trust.
  • Access to Cash Value - The cash value of your policy is available through tax-advantaged loans and withdrawals, subject to minimum and maximum amounts.
  • Affordability - Because Universal Life is designed for the long term, premiums may be more economical than certain other life insurance products.

Who needs Universal Life coverage?

Consider a Universal Life policy if you:
  • Are interested in cost-effective, permanent life insurance
  • Seek a low-risk product with earning potential
  • Have wealth transfer or income protection needs
  • Are a small business owner with a business or personal need for death benefit protection

How does a Universal Life policy work?

  • Your net premium, after loads and taxes, is applied to the policy account value.
  • Interest is credited to the account value.
  • Monthly cost of insurance, administrative charges, per $1,000 charges and any additional rider charges are deducted from the account value. These charges vary by individual policy parameters.
  • The death benefit, minus any outstanding loans and accrued loan interest, is paid at death.

Universal Life policies provide a minimum guaranteed interest rate. However, this is not a guaranteed “rate of return” due to the effect of policy charges.

Term Life Insurance

Term life insurance is basic life insurance coverage that provides protection for a specific period of time ("term"). It may be a suitable life insurance product if you need short-term death benefit protection and have temporary financial obligations, such as mortgage payments, car payments, or short-term debts. Coverage provides lower premiums for people who cannot afford permanent life insurance premiums. Should you decide you want permanent life insurance, you can convert your policy later on (within certain parameters).

  • Death Benefit - Provides level death benefit that becomes payable only if the insured dies during the term of the policy; it is not guaranteed for the insured's lifetime.
  • Lower Premiums - Generally a way to afford life insurance coverage at less expensive premiums than other types of life insurance because it allows you to purchase higher levels of coverage at a younger age, when your protection need is greatest. However, term premiums may increase with age.
  • Tax Advantage - Upon the death of the insured, the death benefit of a term insurance policy generally passes federal income tax-free¹ to the policy's beneficiary.
  • Guaranteed Level Premium Payments - Level premiums are guaranteed for a pre-determined period of time. You can specify the frequency, often a choice of annual, semiannual, quarterly, or monthly.
  • Renewal and Conversion Options - Annual renewal at increasing term rates at the end of the original contract period. Some term policies can be converted to permanent insurance (within certain parameters).

¹ The death benefit may be included in your estate for federal estate tax purposes.

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