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Life Insurance Explained
Life insurance products are a cornerstone in any balanced financial portfolio. They help provide much needed stability and protection that other financial products just don’t offer. From helping to protect your family from unforeseen circumstances to passing wealth along to your loved ones, life insurance products can be an important component of your financial picture. Puritan Life offers a wide range of life insurance products that can meet your needs.
Do I Need Life Insurance?
During our earning years, life insurance plays a vital role in protecting our family from the financial loss of the premature death of the breadwinner. As we age, typically our dependents become independent and we pay off the mortgage and other debts, so the need for life coverage for this purpose diminishes. During this life stage, life insurance can be used as an effective wealth transfer tool to leave a financial legacy for your loved ones and, in some cases, provide protection against later life expenses such as long term care.
How Does Life Insurance Work?
A life insurance policy, like all insurance, is a legal contract between the insurer and the policy owner where a benefit is paid to a designated beneficiary if an insured event occurs that is covered by the policy. In a life insurance policy, the insured event that triggers a benefit to be paid is the end of the life, or, in some cases, the terminal illness of the insured. In simple terms, if you own a life insurance policy, when you die an amount of money is paid to any person or entity that you name as a beneficiary.
Elements of a Life Insurance Policy
All life insurance policies have certain aspects that are common to them. Familiarizing yourself with these elements will allow you to be better educated and more equipped to make an intelligent decision in determining what policy best meets your insurance needs. The following are six of the elements and a brief explanation of each. The death benefit is, just like it sounds, the amount payable to the beneficiary when the insured dies. Usually, the death benefit amount does not fluctuate. However, in some policies, the death benefit may increase or decrease.
The duration refers to the maximum time during which the policy’s coverage may continue, provided that the insured is still alive and that the policy is still in effect. Life insurance policies have a broad range of durations, from one-year term life insurance policies to whole life insurance policies that remain in effect until the insured passes.
The premium is the amount paid by the premium payer (who can be the insured or the policy owner) to the life insurance company. Like a policy’s death benefit, the premium can either decrease, increase, or stay the same during the duration of the policy. Premiums can run the spectrum from just a few dollars a month to large sums. The premium depends on elements of the policy including the amount of the death benefit and the length of the term.
The protection component is the difference between the death benefit and the cash value at any given time. For example, the death benefit is only paid when the insured dies, but the cash value of the policy is available to the policy owner when the insured is still alive. The difference between these two values is the protection value of the life insurance policy. For instance, if the death benefit is constant throughout the policy, but the cash value continually decreases, then the protection component is increasing throughout the duration.
The cash component is the cash value of an insurance policy. It is the value given to a policy owner if the policy is canceled prematurely. The amount of the cash value should always be specified in an insurance policy. Generally, the cash component increases over time in an insurance policy.
Dividends are different than those received on securities. With life insurance, dividends result when the insurance company’s actual life insurance costs turn out to be less than it assumed in setting the policy’s premiums. When this happens, the insurer may return a portion of your life insurance premium to you as a dividend. Dividends are not guaranteed, since the insurance company doesn’t know the actual costs in advance.
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Senior Life Insurance
When you were younger, you had life insurance to help protect your family in case you passed away and could no longer provide for them. Now that you’re getting older and entering into retirement, you’re wondering if it’s important to have senior life insurance. You are no longer supporting your children and they are now providing for themselves.
You probably want to leave some sort of legacy to your surviving family members, and you definitely don’t want them to have to pay for your funeral out-of-pocket. Senior life insurance can help you do that by paying a benefit to a beneficiary you select. Depending on the senior life insurance plan that you choose, the benefit could be enough to cover your funeral, or even provide a lasting legacy to your heirs that could help them provide for the unexpected events in life.
There’s a lot to learn about senior life insurance if you’re going to select the right senior life insurance plan for you and your family’s specific needs. You’ll want to know things like the amount of the death benefit, the duration of your policy, your premium, the protection and cash components as well as any information about possible dividends.
Senior life insurance is a major decision that will affect you now and your family once you’re gone. You definitely need to do your research when choosing a senior life insurance plan that will fit your needs and those of your family.
Depending on your situation you may want to consider a single premium senior life insurance plan. You don’t want a senior life insurance plan that will leave your family struggling after you’ve passed. It would be great if there was a little left over that you could leave to your family from your senior life insurance policy as a final gesture of your love, wouldn’t it? Having just any senior life insurance plan is not sufficient. You will want to choose the best senior life insurance policy that fits within your desired budget. A good senior life insurance plan can help to provide security for your family in the future.
From helping to provide tax-deferred growth to guaranteed income for life, annuities are powerful and flexible financial tools.
What is an Annuity?
An annuity is an insurance contract under which one party (the insured) agrees to pay a lump sum to the other party (the insurer). An annuity is a contract between you and a life insurance company in which you pay a sum of money (either immediately or over a period of years), in return for a series of payments over a specified period of time. Generally, the sum is allowed to grow tax-deferred and is then distributed through a stream of payments. Annuities may be either immediate or deferred. Today, annuities come in many varied types and sizes. There are four parties to every annuity contract:
The insurer: The insurance company providing the annuity contract.
The owner: The person or entity that owns the annuity. Typically, this is the individual who made the purchase.
The annuitant: The person whose life is the “measuring life” of the annuity contract.
The beneficiary(ies): The person(s) to benefit from the annuity following the death of the annuitant.
Often, the purchaser will name him or herself as the owner and annuitant, with a spouse, child, charity, or other heir as the beneficiary.
Annuities provide a number of benefits to the consumer. In addition to their tax-deferred status, annuities have no annual contribution limit (unlike IRAs and qualified plans), nor are they subjected to many of the various fees that mutual funds charge. Thus, annuities work nicely in conjunction with retirement plans for those who have maximized their contributions.
Most annuities also have a guaranteed death benefit, helping to ensure the safety of principal placed in the annuity. This feature is often appealing to clients who seek a high degree of security in their investments, especially those who have seen their investment values drop in the stock market. Annuities have flexible distribution options, allowing payment in a lump sum, for a period of years, over a lifetime, or over joint lifetimes. Annuities help to avoid what can be a lengthy and costly probate process and should be considered as part of your estate planning solution.
Is a Retirement Annuity Different?
A retirement annuity is simply any annuity that is used to provide for retirement. Retirement annuities can be of any type and are typically used as the backbone of a retirement income plan, or to supplement other sources of retirement income such as a pension or social security benefits.
Types of Annuities
An immediate annuity is an insurance policy that, in exchange for an initial lump-sum of money, makes a series of payments to you that begin, as the name suggests, immediately. These payments may be structured in a number of ways: they may periodically increase or they may stay the same over the life of the annuity. The stream of payments may continue for a fixed term of years or until the end of an annuitant’s life.
One of the primary benefits of an immediate annuity is that it serves as a vehicle for distributing savings with a tax deferred growth factor. As a result, one common use for an immediate annuity is to provide a retirement income. In the U.S., the tax treatment of an immediate annuity is that every payment is a combination of a return of principal (which is not taxed) and income (which is only taxed at normal rates).
A deferred annuity will take either a lump sum or periodic payments and hold the money for a period of time, known as the accumulation period, before distributing any payments to the annuitant. When you begin to receive payments, the annuity is now annuitized. When a deferred annuity is annuitized, it works like an immediate annuity from that point on, but with a lower cost basis, which means that more of the payment is taxed. During the accumulation period, however, the annuitant is not taxed for the growth in the account’s value (which is known as tax-deferred growth).
There are two phases to a deferred annuity. The period between the time that the annuitant makes the initial payment and the time that the stream of payments start is called the accumulation phase. The period after the stream of payments starts is the annuitization phase.
There are several types of deferred annuities. A fixed deferred annuity is a deferred annuity that grows by interest rate earnings alone. A deferred annuity that is not guaranteed to stay above the initial amount invested is a variable annuity. A variable annuity allows the annuitant to make allocations to stock or bond funds and involves a higher degree of risk than a fixed annuity.
An equity indexed annuity (EIA) is an annuity that has features of both fixed and variable deferred annuities. EIAs involve more limited risk than variable annuities, because they feature protection of principle unless cancelled (or surrenderd) early in the policy’s term (durring policy’s stated “surrender” period). EIAs also involve more limited reward than variable annuities, as they typically involve a cap on the amount of growth the account can experience, regardless of how quickly the market grows.
Deferred annuities are advantageous in that all capital gains and income are tax-deferred until withdrawn. However, when a variable annuity is withdrawn or inherited the interest and/or gains are treated as ordinary income and are taxed accordingly.
What Do I Look for When Buying an Annuity?
There are several factors you may want to consider when you are exploring the possibility of buying an annuity. One of these factors is the current interest rate paid by the annuity. Some companies will pay what’s called a “first year bump,” which is an additional amount during the first year in which the annuity is held.
Another factor to consider is a guaranteed interest rate. This is an interest rate floor beneath which the annuity is guaranteed not to fall.
Third, you’ll want to pay attention to the surrender charges and the surrender period of any annuity you consider. Most annuities will charge a penalty if you withdraw your money soon after placing it into the annuity.
Along these lines, you may want to ask about penalty-free withdrawals. Does the company allow a portion of the annuity’s principal to be paid out each year without subjecting you to surrender charges? An annuity with penalty-free withdrawals may be advantageous to investors because many investors prefer (or need) investments with a high degree of liquidity, meaning they can access their money readily, easily and with minimal cost.
While annuities are historically very safe investments, you should carefully consider the company from which you are purchasing the annuity. You can find this information by referring to services such as Moody’s, A.M. Best, or Standard & Poor’s.
Contact a Puritan Life Advisor* today to discuss if an Annuity is right for you.
What is a Fixed Annuity?
A fixed annuity is a contract with an insurance company that grows by earning an interest rate that includes a guaranteed minimum over the term of the annuity. In much the same way that a CD or a bond works, a fixed annuity has a set interest rate that is paid on the principal placed in the annuity. Fixed annuities are a good option for someone looking for the security of a guaranteed, fixed return on investment.
What are the features of a Fixed Annuity?
Fixed annuities have some unique characteristics that make them a very flexible choice under certain circumstances. A fixed annuity can be immediate or deferred. If deferred, the interest builds up tax-deferred until you take a withdrawal. If the annuity is immediate, the lump sum of money can be exchanged for a guaranteed income stream for life. Fixed annuities are also creditor protected, meaning that creditors can’t take it away from you in case of bankruptcy. Often, fixed annuities offer better interest rates than CD’s, while offering the added benefits mentioned above.
When are Fixed Annuities not appropriate?
Fixed annuities have a surrender period, meaning a period of time that the funds can’t be taken out of the annuity without a penalty. Many fixed annuities do allow a certain percentage to be taken out on a periodic basis without penalty. When the payments are annuitized for life, the principal is surrendered for guaranteed fixed payments. Fixed annuities may not be the best choice for folks that could unexpectedly need the principal, or are able to endure market fluctuations.
Is a Fixed Annuity right for me?
Fixed annuities can be a smart income planning solution that provides secure lifetime income and tax deferral for people looking to create an income stream in retirement. While fixed annuities aren’t for everyone, they can provide great benefits to the right investors. If you like stable investments and a fixed rate of return, consider fixed annuities.
Call now to discuss with a Puritan Life Advisor* if fixed annuities are right for you.
What is an Equity Indexed Annuity?
An equity-indexed annuity (EIA) is an annuity that earns interest that is linked to a stock market or other equity index, such as the Standard and Poors 500 Index. Investors in EIA contracts can choose from a guaranteed rate (similar to that of short or intermediate term CD’s), a rate that is linked to the equity index rate, or a mix of both. This allows for participation in the opportunity for growth with the protection of principal.
What are the features of an Equity Indexed Annuity?
An equity indexed annuity (EIA) is an annuity that has features of both fixed and variable deferred annuities. EIAs involve more limited risk than variable annuities, because they feature protection of principal unless canceled (or surrendered) early in the policy’s term (during policy’s stated “surrender” period). EIAs also involve more limited reward than variable annuities, as they typically involve a cap on the amount of growth the account can experience, regardless of how quickly the market grows.
One of the key benefits of the EIA is the flexibility it offers to choose between fixed or variable returns and to periodically adjust your choices. Some products also allow a percentage of the account to be drawn out as income without the need to annuitize the contract. This flexibility makes the EIA a powerful income planning tool.
When is an Indexed Annuity not appropriate?
Equity Indexed Annuities are typically not a good choice for younger people with a high risk tolerance and very long investment time horizons. They are also not appropriate for someone that needs access to a large portion of the principal in their contract within the surrender period, or the time frame when you pay a penalty to take money out of the annuity. Be sure you understand how long the surrender period is and what the charges are to withdraw money during that period.
Is an Indexed Annuity right for me?
Indexed Annuities are a good alternative for people that want to limit their downside risk but would still like to have some limited participation in the returns of the market. Their flexibility makes them a great retirement income management tool and a good fit for many retirees. An important consideration is that money placed into EIAs is not as easily accessible as some other vehicles, such as mutual funds or even fixed annuities, so they are best suited for money that will not need to be moved or withdrawn completely in the near term.
Your Puritan Life Advisor* can help you decide if an indexed annuity is a good fit for you! Call now to schedule an appointment!
Dental Insurance Plans
We offer two distinct plans to best suit your needs. PrimeStar Dental Classic or PrimeStar Platinum Dental Insurance Plans. Dental Insurance Plans are provided by Security Life Insurance Company of America. For more information please read through each brochure.
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