Whole Life Insurance

Whole Life Insurance

Whole life insurance is one type of life insurance which covers one for his or her life. It basically requires a medical exam at the very start of the policy. Moreover, as the individual contributes to the premiums, they obtain cash value, that can be classified as assets for the purpose of obtaining a loan or purchasing a home.

Generally, there are three kinds of whole life insurance. These are: interest-sensitive, single premium and traditional. In many cases, unless one decides to change it, all kinds have unchanging death and premium benefits. Depending on what kind of whole life insurance availed, the cash value of the policy varies, but then it is not considered to be an income unless it is withdrawn.

Among the three forms, single premium whole life insurance is considered to be the most expensive. An individual may need to pay the entire policy in one single big payment. Cash value may increase in this kind of whole life insurance and interest in the initial investment may be frequently received. However it is not the same with the investment interest one may receive in a 401k or the traditional IRA.

On the other hand, for those who would want to take the very least risk, a traditional whole life insurance may be a good option. This kind of whole life insurance guarantees a fixed and specific minimum cash value for an investment. It requires an individual to pay a monthly premium. In other cases, if someone has obtained a lot of cash value together with a notice, the premiums may be paid with the use of the obtained cash value. This is very useful to individuals if he or she loses a job or cannot make immediate payments for the meantime due to some other reasons. Premiums will then be paid until enough cash value is left in the policy.

Interest –sensitive whole life insurance, on the other hand, has cash value which varies on the interest rate of the changing market. It is the same with loans wherein one may hold on a credit card or a house that has varied interest rates. The cash value that is included in this kind of whole life insurance may decrease or increase depending on the interest rate, thus it is less secured compared to a traditional plan. If the present economy is doing well, the cash value will have greater return.

In most cases, whole life insurance offers tax benefits because cash value is absolutely not taxable unless used. It is also significant to remember that only a part of the premium is converted to cash value and this varies depending on the plan offered. However, of one contributes to an IRA or a 401k, he or she is not taxed at all until withdrawal but he or she has all the amount of money which he or she contributed.

Several financial experts suggest that whole life insurance is far the best for those people who want minimal risk and do not like much in converting assets to investment. However, they also feel that the whole life insurance won’t be able to provide good return to secure retirement.

What is a Universal Life Insurance?

What is a Universal Life Insurance?

Universal life insurance was introduced in the years 1981-1982 as a permanent life insurance which rests on cash value. It has the features of both a term and whole life insurance which allows policy holders to choose varying payment methods and coverage every year while adjusting its interest on a monthly basis.

Basic Characteristics of a Universal Life Insurance
1. Account Value: This is the accumulated gross value of all the investments contributed to the policy which include the income after deducting all the current monthly expenses.
2. Cash Surrender Value: This is the current account value of the policy with all the surrender charges and outstanding loans already deducted. This is based on a multiple of the policy’s required minimum premium back end charges which are normally larger than front-end charges.
3. Premiums: This is the amount required by the insurance company that the policy holder pay which is equivalent to the cost of the insurance charges as well as other expenses related with the policy.
4. Death Benefit Options: There are four classifications for death benefit options under universal life insurance policies and these are as follow:
a. Level death benefit: This only covers the amount accumulated during the length of the policy.
b. Level death benefit, indexed: This option features yearly increase in the amount of death benefit as predetermined by percentage rule.
c. Level death benefit with account value: The amount given is equivalent to the initial face value amount plus its gross account value. This is by far the most popular because the gross account value is never taxed.
d. Level death benefit with cumulative gross premiums: The amount received is increased as the amount of the gross deposit added to the policy increases.
5. Premium Flexibility

Advantages of Universal Life Insurance
Universal Life Insurance has several advantages one of which is its flexibility. It can easily be adjusted to fit your changing needs. You are given the freedom to change the timing and even the amount of your premium payments as the need arises. You are also given the luxury to vary the amount of death benefit which you wish to leave behind according to your set of preferences.

Aside from this, universal life insurance is also considered cheaper compared to other types of insurance. The cash value of your policy remains intact as long as your payment sufficiently covers the monthly insurance charges. Moreover, it keeps your investments safe and intact because it does not venture into using your investments in the stock market which other types of insurance policies do. It is very transparent so you can conveniently monitor the movement of your policy’s account value.

Benefits of Universal Life Insurance
Universal life insurance can be used in several ways. It will not only cover future funeral, medical and burial expenses but it can also be used as an income replacement for the surviving children and spouses. It can also be considered as an additional tax shelter for those who have maxed out in their IRA. Most importantly, it is one of the best options to secure any economic loss which the family of the decedent may experience after the policy holder’s demise.

Waiver of Premium

Waiver of Premium

A waiver of premium is a provision in an insurance policy that ensures the continuation of the policy’s effectivity in the event that the policyholder can no longer pay the premiums. This rider that is attached typically to a life insurance policy protects policyholders from being left uncovered. A waiver of premium is one of the beneficial add-ons for insurance policies as it saves the policyholder from financial burdens of paying bills and other needs when he or she loses income due to illness or injury. It may be an optional add-on to the policy but people often find it wise to get this kind of protection.

There are instances when a waiver of premium clause is automatically included in the insurance policy. While in some circumstances, the provision is included as an additional rider. The waiver of premium can be added to the policy for an additional cost usually for a small extra fee. A policyholder often maintains paying premiums for a specified period of time and when the required period is over, the obligation to pay monthly premiums will be waived. When a policyholder loses income due to unemployment or illness which incapacitates him or her to pay, the policy will still be effective while allowing the policyholder to stop paying for the policy. It is important to note that insurance companies have different ways of defining a policyholder’s “incapacity”.

There are certain conditions which insurance providers impose to make the waiver of premium valid. Physical condition and age are among the few restrictions that could make the waiver of premium void. For example, an insurance company may impose that the policyholder must be below 55 years of age in order to get the waiver of premium option or that he or she must be healthy confirmed by physical exams. Other example of a waiver of premium restriction includes that the loss of income by the policyholder should at least be six months for the rider to apply. If for example a policyholder becomes disabled for 6 months or more, the policy will still continue to take effect as long as the incapacity lasts even if without premium contributions.

When a policyholder regains his or her former health condition and is physically fit to return to work, he or she will not be required to indemnify the insurance company for the payments missed during the illness. No extra premiums are paid after the illness and the insurance policy continues to take effect as if there are no missed payments. Waiver of premiums applies to temporary and permanent incapacity to pay premiums due to specified causes. The waiver is not designed to last for a specific period of time as it will continue to take effect even if the policyholder is incapacitated to pay premiums for the rest of his or her life. The financial protection which the waiver of premium provides doesn’t rely on the monthly payments a policyholder makes to be effective, it is designed to make an insurance still binding and to provide protection if or when the policyholder can no longer make monthly payments.

Waiting Period

Waiting Period

Waiting period refers to the time between the period of registration filing with the SEC and the time of the declaration of the registration statement effective by the SEC. It is also known as “quiet period” and sometimes “cooling-off period”. In heath insurance waiting period is referred to as the period of time stated in a health insurance policy, which should be passed before all the coverage of the health care can begin. There are three types of waiting periods in health insurance. First is the employer waiting periods, then the affiliation periods, and lastly the pre-existing condition exclusion periods.

Employer waiting periods is the most common type of waiting period. It is found in the employer group plan, where in a new employee must in given period of time, often times it is within three months before a person can be qualified for health care benefits. On the other hand affiliation period is the one imposed by an HMO instead of an employer. Affiliation period does not last longer than three months and it is attached with a specific rules. While the pre-existing condition type period involves those people who have a condition within the six months before the signing of the health insurance. The insurance coverage of this type of waiting period can be excluded or limited for pre-existing condition.

In finance, an example of waiting period is when filing of documents in a government regulatory agency is done. Typical case is that company should file its intentions in an appropriate government agency, and gain approval in issuing the offering, then observe a span of time before the company begins to announce to the public. This kind of waiting period is applicable for three calendar months. With regards to insurance claims, the waiting time depends on the time from the filing of the claim up to the point where in the insurance company settles the particular claim; it can be in a form of rejecting the claim or paying it. Most insurance coverage gives specific provisions in relation to the filing of claims; it also includes the waiting period of the insured party for the claim to be finally settled.

One advantage of waiting period is that all parties are allowed to be involved in the deal while investigating the claims of the proposed action. Insurance companies have also its own share of benefits form using waiting period or elimination, because it gives time to verify the information related to the claim and determining if the payment to the other insured party is in order as what is stated in the terms and conditions of the his or her insurance policy. It is in the insurance policy that the obligations of the insurer to a premium-paying policy holder. Using waiting period can help minimize the possible occurrence of insurance fraud, where in it can save an insurance company from losing a big amount of money. Likewise the use of elimination or waiting period does not directly help in lowering the insurance premiums compared to what they would be.

Voluntary Reserve

Voluntary Reserve

Voluntary reserves pass on to the extra amount held by the insurance business companies to build up their monetary fund’s and enhance their liquidity percentage. Such extra amount is not purposely required under the law. On the other hand, the reserve necessity of monetary institutions and business insurance firms are being regulated by government groups. This is usually made to ensure solvency.

Voluntary reserves willingly held by business insurance firms. Government groups frequently control the reserve necessities of monetary institutions and business insurance firms to avoid insolvency or bankruptcy. Monetary reserves are being held up as liquid assets. Business insurance firms uphold voluntary reserves to come out to be much financially steady and enhance the liquidity percentage. The requirements are more internally settled on and not decided under the law.

In the existing financial world, dealings regarding several kinds of assets, all of personal and business end view. Liquid assets are those easily transformed into hard cash in a comparatively short phase of time, usually within thirty (30) days. This article expresses some of the several examples which relates to the subject, assets.

Like cash on hand is known as liquid asset. Any cash in one’s possession or placed anywhere which can be readily accessible is taken into account as a liquid asset. This includes cash held in reserve at home or in a safety deposit box. It also include cash set aside in other place like a family member’s house or hidden in one’s property to be use only on emergency cases.

Checking accounts and savings accounts are primary samples of liquid assets. Certifications of guardianship accounts and deposit are also held as liquid assets. Money market financial records do fall under the category of liquid asset. Any of the financial records by which the name of the depositor shows is a liquid asset. The entire account list permits the depositor to have access in the cash comparatively easier, making the same as liquid assets.

Treasury bills are also liquid assets in the symbol of stocks as the same can be redeemed quickly to be interchange into cash. Joint fund shares and United States bonds qualify also as liquid assets. The non-term life insurance policies have a cash surrender cost which constitutes as liquid asset.

Another at hand is the possible liquid asset. Some other annuities permit the depositor to regain part or all of the income to be change into hard cash. Promissory notes are also taken into account as liquid assets except for existing reason to not include them. Ownership of a certain contract or agreement for deed can also be considered as liquid assets knowing that it correlates to the collection of expense on the principal every month. The retirement funds like those in “401K” or “IRA” program can be excluded from the category of liquid assets.

Finally, let it be noted that there are government groups which regulate the reserve necessities of insurance and financial institutions to assure that their firm will not undergo into a state of bankruptcy.

Viator

Viator

A viator is a dying person or one suffering from a life-threatening illness who sells his or her life insurance for a substantially discounted rate to the insurance firm. A viator receives a portion of his or her insurance policy’s total value in cash payment which normally ranges from 50 to 70% from the buyer. The terminally-ill policyholder usually sells his or her insurance policy to either pay medical bills and other related costs or to keep up with the living expenses and lessen the financial burdens caused by the illness. The buyer on the other hand, gets benefited in purchasing the insurance policy since the coverage is obtained at a low price and when the aviator dies, the buyer gets a larger amount in return of the purchased insurance policy. An insurance buyer can be a friend, a viatical company, broker or even a family member.

Viators and insurance buyers execute the sale through viatical settlement. In this settlement, when the insurance policy of the ill person is already sold, the buyer gets the insurance money which was primarily intended to be paid out to the insured person’s survivors. The lump sum which the insurance buyer pays to the viator entitles him or her to become the beneficiary by getting the pay-out from the insurance policy in the event of the insured person dies. The insurance policy is typically sold prior to the maturity of the insurance policy. During the viatical transaction, the terminally-ill insured person signs a document which entitles the purchasing party to be the beneficiary. The viator then gets paid and has 15 days after the payment to return the cash payment just in case he or she decides to. The purchasing party possesses the beneficiary rights when the insurance sale contract is perfected and gets the benefit when the insured person dies. The benefits in viatical settlement are enjoyed by both the viator and the buyer. It provides positive monetary returns on the part of the insured person while he or she is still alive and on the purchasing party when the insured dies.

There are considerations which are often taken into account before engaging in a viatical settlement. The purchasing party usually considers the size of the policy and the remaining lifespan of the viator. Insurance policies with total value of less than $10,000 are not typically preferred by lager firms. If the life expectancy of the ill insured is longer, the insurance policy gets a few and small offers. But when the insured’s remaining lifespan is shorter, the insurance policy gets additional value. Viatical negotiations typically take place when the policyholder is expected to die within two years. The purchasing party also checks the insured’s medical records as well as the entirety of the policy before getting into the agreement. One common misconception about viatical settlements is that people think investors get profited out of an ill person’s misfortune. This is however not true because viators actually get benefited by the cash payment of the insurance policy while still alive and gets financial help when there is no other source of funds available.

Viatical Settlement Provider

Viatical Settlement Provider

The word viatical comes from the Latin word “viaticus”, meaning “provisions for a long journey”. A viatical settlement is defined as the transfer or sale of a life insurance death benefit to another person or another company if the insured person is terribly ill and is about to die. Oftentimes, a terminally ill person may have few assets such as a life insurance policy and to compensate for the medical expenses, the ill person may sell his or her life insurance policy to an individual or a company to pay for the medical care, medicine and other types of expenses.

Basically, the company or the person of a viatical settlement obtaining the life insurance policy death benefit will pay the ill person or the viator at a discounted amount of the real price of the death benefit and is now considered the new beneficiary of the life insurance policy while receiving the whole amount of the death benefit when the viator has already passed away. Many companies buy life insurance policy from viator at discounted price while reselling them at marked-up prices as part of their investments.

If you think you have a terminal illness, you may sort to sell the insurance policy that you have to a viatical settlement company in a lump cash payment. A viatical settlement company or provider is a company or a person which purchases death benefits of life insurance policies from ill person less than the expected amount of death benefits. Transactions in viatical settlement involve terminally ill people to assign their life insurance policies to a viatical settlement company which in turn may sell such life insurance policy to a third-party investor. The investor will then be the new beneficiary of the policy which has the responsibility to pay the mandated premiums and is responsible to collect the value of the policy once the real owner of the policy dies.

There are many options for terminally ill people when financial needs are very critical. They may opt to take a loan or sell the insurance policy to a viatical settlement company.

Upon selling the life insurance policy to the viatical settlement provider, the company or the individual will be the sole beneficiary of the entire policy while delivering payment to the policyholder and paying the mandated premiums of the policy.

Viataical settlements are complex financial and legal transactions. They need enough attention and time from financial planners, physicians, accountants, insurance companies and lawyers. The entire transaction and transfer may reach of up to four months to be completely settled.

Every viatical settlement provider outlines own standards and rules in choosing which life insurance policy will be purchased. For instance, viatical companies may need policies that show:
• You are ill;
• You sign releasing document allowing them to access your medical records;
• Your beneficiary signs a waiver or a release;
• You own the policy of at least two years.

A lot of companies may check if the insurance company that issued your life insurance policy is financially sound. This is to ensure that the life insurance policy purchased is a good investment that will in return make good profits.

Variable Universal Life Insurance

Variable Universal Life Insurance

This type of policy is more likely suited for people who take the driver’s seat while riding a car. The feature of Variable Universal Life Insurance (VUL) is a combination of Variable life and Universal life insurance. It offers a choice of the stated investment accounts, adjustable premiums and death benefits. The value or amount of the death benefit may increase or decrease, it will depend on the success of the investments a person chooses. The stock market fluctuates in a short span of time, if the values are down when a person dies, Variable Universal Life policies still guarantee a minimum death benefit to be given to the beneficiaries.

Variable Universal Insurance provides a policyholder more control of the cash value part of the policy unlike any other insurance type. Moreover the policy owner acquires all the risks inherited in the securities investments. All VUL products are then regulated by the Federal securities laws and SEC, therefore it must be sold with a prospectus. In order to maintain a death benefit guarantee a specific premium level should be paid every month. Maximum premium values are strongly influenced by the code of life insurance. The present or current version of VUL policies has different sub-accounts for the policyholder. The new generation of policies offers 50 or more different accounts that cover the whole spectrum of management styles and asset classes.

There are general uses of Variable Universal Life Insurance. One is financial protection, where in a family can be protected in case of premature deaths. Another use would be Tax advantages, in which they offer attractive tax advantage not only to those who have low tax brackets but especially to those who have higher tax brackets. Education planning can also be one use of VUL; it can help in funding children’s education, as long as the policy was started early. VUL can also be useful in Retirement planning; it can be used as tax-advantaged source of income upon retirement. Estate planning can be a good strategy to lessen or prevent estate taxes, in which a life insurance trust is set.

This type of insurance is more expensive type of Permanent Life Insurance compared to other types. Premiums should be high enough in order to cover the cost or amount of insurance, expense charges, and the expenses related to the underlying funds. A person should have at least a basic knowledge of securities, stocks, and bonds. Furthermore, it is important to understand the prospectus before investing. If a person buys a VUL policy, he or she is responsible of managing the investment accounts. It is better for younger policyholders that have long-term investment range. The success of the policy would depend on the investment made and can lose its value.

In order for VUL insurance to succeed, an issuer should make investments that are in accordance to the regulations applied within the country where the particular plan is offered. It means that the regulations that are used in monitoring investment activities on bonds, commodities, and stock are also the ones applied to the accounts where in the premiums are invested.

Variable Annuitization

Variable Annuitization

For people searching for ways to save for retirement, aside from 401k plan or an IRA may opt to invest in an annuity. The term annuity provides all the benefits of a taxed-deferred growth as well as professional money management. It may be fixed, meaning, the investor will receive a guaranteed variable or a rate of return that introduces an investment risk element as well as the possibility of greater returns.

Basically, an annuity is a means or a financial instrument which is sold by many insurance companies where the purchaser of the annuity, better known as annuitant, offers regular payments to the prior company over a span of time referred to as accumulation period. This accumulation period can last for long even until the annuitant reaches his or her retirement age. If the said product is a variable annuity, the prior company invests the amount to a separate account that is composed of securities-based vehicles such as mutual funds. Once the accumulation period ends, such product annuitizes which means that the annuitant starts to receive investment plus the revenues or the returns in an installment basis.

The process that the annuity undergoes is called variable annuitization. Variable annutization is defined as the process of modifying the variable annuity starting from the accumulation phase to the payout phase.

In the accumulation period, the annuity forms accumulation units, which is described as measure of the overall performance of a separate account over a period of time. During annutization, the units or the accumulation units are now converted to annuity units that will figure out the amount of money needed for the installment payments. Since the figure of annuity units will not change, the value of the annuity unit may change according to the continuous performance of the separate account. These values may change in a monthly, quarterly, semi-annual and annual basis.

During the annuitization, the annuitant may also select an option for settlement that will dictate the span of time he or she wishes to receive the payments and how or if the payments will be dispersed continually to the beneficiaries upon his or her death. These options include receiving regular payments forever or receiving payments in specific period of time. He or she can also opt to leave the accumulation unit intact to generate interest while the accumulation fund is passed to the heirs upon his or her death.

Though variable annuitization is non-taxable in the accumulation phase, there are somehow some implications that the product has taxes once annuitized. The settlement option may play a significant role in finding out the taxation level. Since the variable annuities payout amount varies according to the performance of the separate account, the amount of the taxable income also change. Annuitants will receive a 1099 Form annually from the insurance provider that contains their tax liability. This will explain how the tax is calculated over a period of time. Hence, it should be settled according to the rules applied.

Valuation

Valuation

Valuation is way of estimating how much something is worth. The most common items that are usually valued are financial liability and assets. Valuations may be done on assets, for instance on investments of securities such as patents, stocks, trademarks, options and business enterprises or on liabilities such as the bonds provided by the company. Valuations have many purposes. It is practiced to answer many questions prior to litigation, investment analysis, tax liability, capital budgeting, financial reporting and acquisition and merger transactions.

Valuation is also done to check if the value given and reported is appropriate and accurate. If these assets are not well valued, it may ruin accounting documents which in turn may lead to problems in accounting audit, tax liability and many other issues.

There are other form of assets which are valued in a more independent and unique ways. In these cases, the valuation of the assets may be more complicated. For example, an intangible asset such as a copyright is hard to assign value. The same as the real estate, this may require an evaluation of the same real estate in the current market condition to be able to arrive in a reliable and accurate valuation that shows the fair market value of the asset.

If in case the assets are overvalued, the company may seem to be worthy compared to its public reporting. On the other hand, if the assets are undervalued, the company is set to be in abnormal stage of low value that may lead to complication on tax liability since tax authorities may check the assets which are undervalued and recalculate the tax of the company along with this information. Repetitive errors on valuation of assets may result to suspicions of fraud instead of innocent errors.

Valuation of different financial assets may be made with the use of these models:
1. Absolute Value Models– which show the present value of the future cash flow of the asset. These takes two major forms: multi-period models like discounted cash flow and the single-period models like the Gordon model. All of these models depend on mathematics instead of price observation.
2. Relative Value models-present the value according to observation of the prices of the same assets.
3. Option pricing models– are commonly used in many types of financial assets and are complex value models. The two most common options are the lattice models and the Black- Scholes- Merton models.

Common terms used to define the value of a liability or assets are intrinsic value, fair market value and fair value. These terms, however, differ in meaning depending on what field they are used.

Valuation is very important in many institutions such as banks, insurance companies and more. This is quite important since it provides the value of the assets of the company which will determine if the company is still making a good business in the industry. Although, there are different methods used in every company, valuation is still a must although the process may take time.