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life insurance availed, the cash value of the policy varies, but then it is not considered to be an income unless it is withdrawn.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.

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.

Accumulated Amount

Accumulated Amount

The total amount initially invested into the insurance account plus the calculated sum of the interests earned for the whole duration of the account is termed in insurance as the accumulated amount. It can be sufficiently stated that it is the amount to which the initial investment sums at a predefined interest rate.

An annuity is a life insurance product which saves you from the risk of outliving your income. It may be regarded as the top among other life insurance products that most investors purchased but in any type of annuity, any growth in an investment is tax-deferred until the accumulated amount is withdrawn. In the US, a withdrawal made by an insured under the age of 59 ½ years old is to be issued a 10% tax penalty. Investing in an annuity requires an individual to set up first a chosen type of annuity to his financial investment portfolio. Other than that, an initial investment entrusted by the client to the insurer would then immediately establish the existence of the insurance account.

Like most banking systems, some insurance companies demand a certain capital requirement. State regulators institute these capital requirements for insurance companies so as to ensure the sufficiency of every initial investment. The set interest rate of a certain type of policy must also be determined before making this important decision concerning your future’s financial assurance.

The total accumulated amount is similarly associated with the insurance index. Insurance index gives the value of the account surrendered at the 10- or 20-year mark, plus the interest on any implicated dividends calculated at 5 percent. Increase in the index of the chosen policy may also be determined by two common methods: point to point and averaging method. Point to point method verifies the index value on a particular date which is then compared to the index value in a predefined time. The average method resolves on the index value every day. An average index value for that year will be compared to the average value of the previous year.

As it is said, the accumulated amount is obtained by the sum of the capital amount and the stipulated interest. To calculate the stipulated interest earned, it is to be reminded that the interest is a function of Future Value, Present Value and the number of times the interest is applied. Compound interest targets the capital, but gets much interest as well. Simple interest targets on the capital only.

Few cases occur that there will be an excess in the part of the insured. Excess is actually the amount payable by the insured which is commonly being intended as the first amount falling due, in an incident of loss, customary in the maritime insurances. Aside from the excess amount, there is the actuarial reserve which is the present value of the future cash flows. The sum of those actuarial reserves for each single policy is what will be the total liability of the insurer. Due to this, regulated insurers have obligations to keep offsetting assets in order to compensate this future liability.

Accidental Means

Accidental Means

Accidents are unexpected turn of events, very common to cause bodily injuries, of which the severity is a relative basis for insurances. This kind of occurrence should be proven to be unintentional so as to be acknowledged by the insurance’s terms and legalities. However in an insurer’s terminologies, accident strongly connotes a preventable, random incident. This means that if a drunk driver, having the privilege to avail a personal automobile insurance for negligence resulting to injuries and losses, willfully bumps into a wall and cuts his skin with the broken windshield, dies; the insurance would not compensate his losses. In certain agreements, insurance policies similarly do not cover for depreciation since its mere presence is inevitable in the ordinary nature of things. Any procurement would be put first to intensive inquiry.

Accidental means simply pertains to a ground in which settlements are based from. It relates to the occurrence happened before the recovery period. Under those common policies, it is necessary that the covered loss should be a result of an accident, instead of being an accidental result of a meditated event. It is the mishap itself that is specified to be purely unanticipated, with the same stress given to the outcome of the accident. Justifications on the part of the insured is taken to ensure that he was not planning the course of the mishap, which is sometimes the tactic of others to immediately claim the large sum of monetary benefits the insurance company promises.

Oftentimes though, accidental means and accidental results are both interpreted differently. Accidental results in accidental death insurance designate that only the resulting injuries must be unintentional. If the insured previously applied to an AD&D policy, definitely jumps from the roof of his house after repairing his TV antenna and injures his leg that it must be amputated, he would receive an appropriate amount of money only if his policy covers the “results” definition. If his policy belongs to the “means” definition, the adverse effect of this is he would not be given any compensation since he actually jumps from the roof, the action he had taken to obtain the said injury. This is a strong ground for the insurance company to hold or invalidate the claim.

Although this is the way insurances go, the courts are pro-beneficiary. If there will be clashing issues on the two types of definitions, the judiciary favors the actual description of accident such as “an unforeseen, unplanned incident having the negative results beyond the control of an insured individual”. They generally considers this definition and give rightful compensations unless if the insured’s actions show evident conduct tantamount to attempting suicide.

With this contrasting bases on accidental death insurance, one must know the type of policy his needs will fit. Realizations on these various insurance policies could give the impact on the insured’s and beneficiaries’ sides. Likewise, the topsy-turvy of every accident will take its toll on the insured’s family members since they are the immediate comforters of the victim.

Unaffilitated Investments

Unaffilitated Investments

The term investment in affiliates in insurance represents stocks, bonds, collateral loans, and short term or interim investments in affiliated properties as well as real estate properties held by the business. Conversely, the phrase unaffiliated investments symbolizes stocks, bonds, mortgages, accrued interest, real estate, and cash. These investments characterize assets that are totally unaffiliated from the company as stated in the admitted assets’ exhibit. These do not include investment in affiliates and other real estate possessions held by the business.

Stocks refer to the original paid-in capital of a business either paid by stockholders or invested by the business’ founders. It functions as a form of security for the business creditors since it cannot be easily withdrawn by investors. A stock’s value and quantity may fluctuate as it is traded in the stock market.

Bonds refer to debt instruments that are issued for over a year to increase capital through borrowing. Cities, states, corporations, and the government typically sell bonds to raise its current capital. Bonds are viewed as a guarantee to pay off the interest in addition to the principal on its date of maturity.

A mortgage, on the other hand, stands for a debt instrument with a collateral as a security, composed of real estate properties wherein the borrower must pay back by way of fixed payment sets. These are employed by companies or individuals so that real estate purchases are accomplished without having to pay the whole purchase value forthrightly. “Claims on property”, or “liens against property”, are the other terms for mortgages.

In addition, an accrued interest means an interest amount either receivable or payable that was recognized although not yet received or paid. This occurs due to the variations in cash flow timing and measurement. This is calculated using the accrual method of accounting.

Real estate properties, alternatively, take in buildings, land improvements, and all other improvements to immovable properties.

Cash visibly signifies the physical form of money, which includes currency, coins, and banknotes. Cash in businesses represents current assets composed of currency and currency counterparts which can be utilized instantly.

An affiliate is an inter-company relationship of a company possessing less than the majority of the stock of another company. It is accounted for using the equity method of accounting. It can also be created when two different businesses are mutual subsidiaries of one larger business described as the parent company. To illustrate, assume S Company owns 30% of the voting stock of T Company. Here, T Company and S Company possess the affiliate relationship, and S Company may exercise significant influence excluding control over T Company’s operations.

Hence, unaffiliated investments take in the company’s interest to businesses in which it doesn’t have significant influence. Here, the insurance company is an independent body with no established relationship to others, either as subsidiaries, members, or subordinates.

The equity method of accounting is a way of initially recording an equity investment at cost. An adjustment is then made to reflect the share of the investor in the associate’s net assets.