A policy loan is made possible by which of these life insurance policy features
Oct. 30, 2018 Show
The SEC's Office of Investor Education and Advocacy is issuing this Investor Bulletin to educate investors about variable life insurance and how it works. This bulletin provides a general description of variable life insurance. The features of each policy may vary by product and by state. What Is Variable Life Insurance?A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death. It also has a cash value that varies according to the amount of premiums you pay, the policy’s fees and expenses, and the performance of a menu of investment options—typically mutual funds—offered under the policy. What Should I Do Before I Invest In A Variable Life Insurance Policy?
Remember:
Things to consider:
What If I Change My Mind?You may cancel your policy within a short period (usually lasting at least 10 days) of receiving it without charge. Upon cancellation, you will typically receive a refund of your premiums. The refund may be adjusted up or down to reflect the performance of your investment options. The length of the free look period may vary depending on the state where you signed your application. Tax Rules
How Variable Life Insurance WorksVariable life insurance is a form of life insurance. Like other life insurance, it provides a death benefit that may be significantly larger than the amount of premiums you pay. With a variable life insurance policy, you will be required to pay premiums into an account. The amount of the premium payments that go into the account may be less than you paid because fees were taken out of the premium payments. The money in the account gets invested in a menu of investment options—typically mutual funds— that you can select. In addition, you may be able to allocate part of your premiums to a fixed account. A fixed account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may reset this interest rate periodically, but it will usually provide a guaranteed minimum (e.g., 3% per year). The money in your account will vary according to the amount of premiums you pay, the amount of policy fees and expenses, and the performance of the investment options you choose. Example: You purchase a variable life insurance policy with an initial premium payment of $100,000. You allocate 50% of that payment ($50,000) to a bond fund, and 50% ($50,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. At the end of the year, your account has a value of $107,500 ($55,000 in the stock fund and $52,500 in the bond fund), minus fees and expenses (discussed below). Your policy may require you to pay a specified amount of premium payments or provide you the flexibility to pay varying premiums as long as you contribute enough to pay your policy fees and expenses. Some policies may also provide protection from lapse (that is, not having sufficient policy value to pay your policy fees and expenses) if you pay in a certain level of premiums. A policy may lapse if there is not enough cash value (either as a result of policy fees and expenses or poor investment performance or loans) to pay the current policy fees and expenses. The more money you pay in premiums, the lower some of your policy’s fees and expenses may be. This is because your net amount of risk determines some policy fees and expenses. Your net amount of risk is the difference between your policy’s face amount and your policy’s cash value, so it goes down if there is more money in your account. Key Risks of Your Variable Life Insurance Policy
Example: If your policy has a current value of $40,000 and fees and expenses that are $10,000 per year (based on a death benefit of $300,000), your policy may lapse within four years. This could occur sooner due to poor investment performance or if you make a withdrawal or take a policy loan. Positive investment performance and paying additional premiums can reduce the risk of lapse.
The Death Benefit, Policy Loans, and Other Optional Insurance FeaturesThe death benefit is the amount of money your beneficiaries get when you die. When you purchase a policy, you select a “face amount.” This is the amount your death benefit is based on. For instance, a death benefit could be equal to:
You may also be able to purchase additional insurance features that may increase the value of your death benefit. In addition, you may be able to increase your face amount at a later date. Such changes might require another medical examination or other evaluation by the insurance company. Policy Loans. Variable life insurance policies typically permit you to take loans on a portion of the policy’s cash value without incurring surrender charges or paying federal taxes. Policy loans typically have the following effects on your policy:
Other Optional Insurance Features. There are fees and expenses associated with each of these optional features.
Remember:
Variable Life Insurance Fees and ExpensesYou will pay several fees and expenses when you invest in a variable life insurance policy. Be sure you understand all the fees and expenses before you invest. These fees and expenses will reduce the value of your account and may require you to contribute additional premiums to your policy to prevent the policy from terminating. Often, they will include the following:
Other fees and expenses may also apply. You should ask your financial professional to explain to you all charges that may apply. You can also find a description of the fees and expenses in the prospectus for any variable life insurance policy that you are considering. Remember:
Exchanging One Variable Life Insurance Policy For AnotherIf you are considering replacing one life insurance policy for another, here are some things to consider:
Additional InformationMutual Funds and ETFs – A Guide for Investors Investor Bulletin: Performance Claims Updated Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio Investor Bulletin: How to Check Out Your Financial Professional How To Contact the SEC With Questions or Complaints: Office of Investor Education and Advocacy The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities or tax law. What is a life insurance policy loan?What Is a Policy Loan? A policy loan is issued by an insurance company and uses the cash value of a person's life insurance policy as collateral. Sometimes it is referred to as a “life insurance loan.” While they were traditionally known for their low-interest rates, that's not always the case anymore.
What are the features of an insurance policy?Parts of an insurance contract. Declarations - Identifies who is an insured, the insured's address, the insuring company, what risks or property are covered, the policy limits (amount of insurance), any applicable deductibles, the policy number, the policy period, and the premium amount.
How can I take loan on policy?In order to avail a loan on an insurance policy, the policy must acquire a surrender value. The amount sanctioned for the loans is usually 85% to 90% of the policies surrender value.. Get high loan value.. Can be availed with minimum paperwork.. Lower interest rates.. Disbursed quickly.. What are the essential features of life insurance?Features of life insurance. Benefits. The primary benefit offered by a life insurance policy is known as the death benefit, or the amount paid to the nominee upon the death of the policyholder. ... . Riders. ... . Investment Components. ... . Tax Benefits. ... . Loans component. ... . Term insurance. ... . Endowment policy. ... . Whole life policy.. |