When considering your financial strategy, life insurance may not be the first thing that pops into your head. However, life insurance can play a role in helping you protect your loved ones. Assuming premium payments are current, whole life and other forms of permanent life insurance offer lifelong coverage that can help your family address various personal finance issues, including estate management. Here’s how it works. Whole Life InsuranceWhole life is a permanent life insurance covering the insured’s entire lifetime. It combines a death benefit with a cash value component. Typically, whole life insurance policies have the following in common:
Permanent Life InsurancePermanent life insurance spans the whole of your life. While whole life is one form of permanent life insurance, it is not the only one. Two other common forms are universal life and variable life insurance. Each type has unique features designed to meet different financial needs and objectives.
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Universal life insurance has certain features that make the policy suitable for some individuals. Whether universal life insurance is appropriate for you will depend on your goals, needs, and circumstances.
Accessing the cash value in your insurance policy through borrowing — or partial surrenders — has the potential to reduce the policy’s cash value and benefit. Accessing the cash value may also increase the chance that the policy will lapse and may result in a tax liability if the policy terminates before your death.
Universal life insurance can be structured so that the cash value that accumulates will eventually cover the premiums. However, additional out-of-pocket payments may be required if the policy’s dividend decreases or if investment returns underperform.
Variable universal life insurance can be structured so that the cash value that accumulates will eventually cover the premiums. However, additional out-of-pocket payments may be required if the policy’s dividend decreases or if investment returns underperform.
Generally, loans taken from a policy will be free of current income taxes provided certain conditions are met, such as the policy does not lapse or mature. Keep in mind that loans and withdrawals reduce the policy’s cash value and death benefit. Loans also increase the possibility that the policy may lapse. If the policy lapses, matures, or is surrendered, the loan balance will be considered a distribution and will be taxable.
Accessing the cash value in your insurance policy through borrowing—or partial surrenders—has the potential to reduce the policy’s cash value and benefit. Accessing the cash value may also increase the chance that the policy will lapse and may result in a tax liability if the policy terminates before your death.
Withdrawals of earnings are fully taxable at ordinary income tax rates. If you are under age 59½ when you make the withdrawal, you may be subject to surrender charges and assessed a 10% federal income tax penalty. Also, withdrawals will reduce the benefits and value of the contract. Life insurance is not FDIC insured. It is not insured by any federal government agency or bank or savings association. Depending on the performance of variable life and variable universal life insurance, the account value will fluctuate with changes in market conditions. At any time, the account value may be worth more or less than the original amount invested in the policy.
Please consider the investment objectives, risks, charges, and expenses before investing. Variable life and variable universal life insurance are sold by prospectus only. Information on fees and expenses can be found in the prospectus or obtained from your financial professional. Please read the prospectus carefully before you invest or send money.
This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm.