Life Insurance

Types of Life Insurance Policies
In choosing the type of life insurance policy you purchase, consideration must be given to the need which is being filled; e.g., funding retirement needs, buy/sell agreements, creation of an estate, payment of estate settlement costs (federal and state death taxes, last illness and burial costs, probate fees, etc.), business buy-out, key-man coverage, etc.

Considerations in the Purchase of Life Insurance

Long-Term Level Premium Term
Level premium, level coverage, no cash value: The annual premiums are fixed for a period of time, typically 10, 20 and 30 years. Suitable for financial obligations which remain constant for a short or intermediate period; e.g., income during a minor’s dependency.

Whole Life
Level premium, level coverage, cash values: Cash value typically increases based on insurance company’s general asset account portfolio performance. Suitable for long-term obligations; e.g., surviving spouse lifetime income needs, estate liquidity, death taxes, funding retirement needs, etc.

Universal Life
Level or adjustable premium and coverage, cash values: Cash values may increase, based on the performance of certain asset held in the company’s general account. Suitable for long-term obligations or sinking-fund needs; e.g., estate growth, estate liquidity, death taxes, funding retirement needs, etc.*

* Under the Tax Act of 2001, the federal estate tax is gradually phased out until its final repeal in the year 2010. If Congress does not act at that time to repeal it for the years following, it will automatically revert back to the rates in effect during year 2001, with an exemption for the first $1,000,000 of assets.

Variable Life and Variable Universal Life
Level/adjustable premium, level coverage1, cash value: Suitable for long-term obligations and those who are more active investors and for estate growth and death tax liquidity.

This can be increased by positive investment performance. The policy owner directs cash values to a choice of investment accounts (bond, stock, money market, etc.). However, cash values are not guaranteed.

Considerations in the Purchase of Life Insurance

Who Will Be the Owner of the Policy?
Life insurance proceeds are included in the estate of a deceased if he or she has any incidents of ownership in the policy. Ownership by adult children or an irrevocable life insurance trust should be considered if there is an estate tax problem.*

* Under the Tax Act of 2001, the federal estate tax is gradually phased out until its final repeal in the year 2010. If Congress does not act at that time to repeal it for the years following, it will automatically revert back to the rates in effect during year 2001, with an exemption for the first $1,000,000 of assets.

How Much Life Insurance?
This will depend on the need it is fulfilling. Amounts needed to fund a business transfer or to pay death taxes may be readily determined.

Calculating the value of a human life to a family is more difficult. Consider there are projected total earnings up to age 65 assuming a 5% annual increase including inflation.

Projected Total Earnings to Age 65

What type of Policy Should Be Purchased?
A person trained in life insurance can explain the many different policies available and assist in selecting the one which best fits your needs.

How Should the Premium Be Paid?
Sometimes the amount of the premium can be paid from current income, while other times it may be prudent to reposition other assets so as to be able to acquire sufficient insurance protection.

If the insured is a business owner or executive, a corporation may assist in paying premiums. Other times it may be better to have the corporation own the policy and use the proceeds to purchase part or all of the owner’s interest at death.

Insurance can also be purchased in certain qualified retirement plans.

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