Life Insurance Review

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Find the right life insurance plan for you and your family

Jeffery A. Perry


The fear of death follows from the fear of life. A man who lives fully is prepared to die at any

time.

Mark Twain


What is Life Insurance?

• Contract between you (the insured) and a company (the insurer).

• You agree to give money to the insurer (buy insurance) • When you pass, the company agrees to give money to

your beneficiaries (death benefit-proceeds)

• Legal document

• Many variations can be built into this type of contract• Pay out in case of a terminal illness• Make multiple payments over time


How Much Do You Pay?

• Depends on several factors • Your age• When you begin the insurance plan• Payout amount• Type of plan


Two Types of Life Insurance

1. Single Life• Traditional form of life insurance policies.• Insures one individual and pays the proceeds

upon the death of that person.

2. Survivorship, also known as Second-to-Die• Relatively new form of policy • Only pays a death benefit when the last of two

or more named insured’s die• Provides a low-outlay, cost-efficient source of

cash to fund the estate tax liquidity needs at the death of both a husband and a wife.


Employer Benefits

• Typically, employer-sponsored life insurance plans are group term policies that terminate when you leave the company.

• In some instances, you may be able to pay for the policy on your own, but the cost is usually higher and it is typically a good idea to explore your options.


Term or Permanent Insurance: Which is right for you?

Term Insurance• Guaranteed payment at death• A safety net for lost income during your lifetime• May or may not have a level premium• Can typically be paid over a range of one to 30

years• Typically starts out lower than a permanent

policy• Increases annually, or at the end of a specified

term because the insured’s probability of death increases each year


Term or Permanent Insurance: Which is right for you?

Whole Life, also known as Permanent Insurance• Protection over the entire lifetime of the insured• A fixed death benefit• Note: Depending on the policy and company,

other benefits may be attached.• May or may not have a level premium• Can typically be paid over a range of one to 30

years• Typically starts out lower than a permanent policy• Increases annually, or at the end of a specified

term because the insured’s probability of death increases each year


Variations of Traditional Whole Life Policy

Vanishing Premium• Provides protection over the insured’s

entire lifetime• Requires policy premiums are paid over

a shorter term, typically 7 to 10 years• Requires higher premiums to build value

in the side fund to carry the policy for the balance of the insured’s lifetime



Variable Life• Allows its owner to use the cash value in

the side fund to invest in mutual fund investments

• Shifts investment risk to the policy owner because the owner is making the mutual fund investment decisions



Universal Life• Allows its owner to vary the amount of the

annual premium or even skip a premium• Adjusts annually, by the insurer, to reflect

current charges for mortality, expense, and investment performance

• In certain cases, transfers underwriting and investment risk from the insurance company to the policy owner

• Owner controls the cash flow both inside the policy (side fund) and outside (annual premium payments)


Taxes and Transfer of Ownership

• Life insurance policies that are owned by the decedent are part of the decedent’s gross estate for federal estate tax purposes.

• Owning the life insurance policy is a clear incident of ownership.

• Other incidents of ownership include the:• Right to change the beneficiary designation on the

policy• Right to borrow against the life insurance policy

• The presence of any of these rights in the policy is enough to include the life insurance proceeds in the decedent’s taxable estate.


Transfer Ownership of Life Insurance Policies

• Existing insurance policy can be transferred or gifted to remove the policy from a person’s estate.

• Transfer is treated as a taxable gift.• You must live for 3 years after the

gift of the insurance policy to get the policy value out of your estate for estate tax purposes.


Irrevocable Life Insurance Trust

• It is designed to hold a life insurance policy during the insured’s lifetime.

• When the insured passes away, the proceeds are distributed to the family or other beneficiaries such as a charity or other entity.


Advantages of an Irrevocable Life Insurance Trust

• The gift of the insurance policy to the trust gives the insured more control over the policy than would the outright policy gift.

• The trust, like any trust, can provide for professional management of the proceeds by a carefully selected trustee.


Disadvantages of an Irrevocable Life Insurance Trust

• The cost of preparing the trust agreement and possibly the annual fiduciary income tax returns and accounting fees.

• The procedure for making the annual contributions to the trust is complicated and a record of the “crummey” withdrawal letters must be maintained.

• If the insured dies within three years of transferring an existing policy to a trust, the amount of the policy will be included in the insured’s gross estate.


Factors to Consider: Which Type of Life Insurance is Best

• The amount of money your family needs to support and maintain what you leave behind

• Use a life insurance calculator, to make a precise calculation of this sum.

• Compare different insurance companies’ rates to find the best deal for you.

• Contact an insurance professional or financial planner to help you determine how much money your family will need.

• Most insurance professionals will provide a Financial/Capital Needs Analysis free of cost. • A good life insurance agent can help you to find the right insurance

company, or get you started with a company they represent.• An experienced agent will ask for financial information to help you apply for

the appropriate amount of insurance. • A life insurance agent will also identify various health and lifestyle factors

that determine the costs of life insurance.

• To buy life insurance, you usually need to undergo simple medical examinations to help determine your insurability and the costs of your policy


Documents You Need to Purchase Life Insurance

Identity Proof • Passport• PAN Card• Voters Identity Card• Drivers License• Government issued ID• Consular ID card

Address Proof• Telephone bill• Bank account statement• Letter from any recognized public authority

Application• Medical history (usually past 5-10 years)• Medications (dosage, frequency, and purpose)• Visits to doctors (date, diagnosis, medications, doctors’ contact

information)• Family medical history (usually immediate family)


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Life Insurance Review