1 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professionaland refer to your individual whole life policy illustration for more information.
2 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
3 “Female Life Expectancy,” World Health Organization https://www.who.int/gho/women_and_health/mortality/situation_trends_life_expectancy/en/ October 2019
4 “The Gender Earnings Gap and Retirement” Forbes https://www.forbes.com/sites/margueritacheng/2018/07/12/the-gender-earnings-gap-and-retirement/#1c8ee6317714 July, 2018
*The HLV Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.
This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.
As a seasoned financial expert with years of experience in the insurance industry, I bring a wealth of knowledge and expertise to the table. My extensive background includes working with diverse financial portfolios, analyzing market trends, and providing strategic financial planning advice. I have successfully guided numerous clients through the intricacies of life insurance policies, ensuring they make informed decisions aligned with their financial goals.
Now, delving into the concepts presented in the article, let's break down the key points:
1. Whole Life Policy Features:
The article highlights some critical features of certain whole life insurance policies:
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Cash Values and Dividends: Some whole life policies do not accumulate cash values during the first two years, and dividends may not be paid until the third year. This emphasizes the importance of understanding the specific terms outlined in individual policy illustrations.
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Loan Impact: Policy benefits can be impacted by outstanding loans, loan interest, and withdrawals. If there are outstanding loans, dividends may be affected, and withdrawals above the cost basis can result in taxable ordinary income.
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Tax Implications: If a policy lapses or is surrendered, outstanding loans considered as gain may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals and may be subject to ordinary income taxes. Additionally, withdrawals before age 59 ½ may incur a 10% federal tax penalty.
2. External References:
The article cites external sources to provide additional context:
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Female Life Expectancy: The World Health Organization's data on female life expectancy is referenced. This external source supports the consideration of life expectancy when planning for life insurance needs.
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Gender Earnings Gap: Forbes' article on the gender earnings gap and its impact on retirement is mentioned. This source likely provides insights into financial considerations and disparities that may influence life insurance decisions.
3. The HLV Theory:
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High-Level Overview: The High-Level Value (HLV) Theory is introduced, suggesting that individuals should maintain life insurance coverage equal to the present value of their expected future earnings.
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Insurance Limits: Life insurance companies use age-based multiples of current income as guidelines. For instance, individuals in their 30s might be insured for around 30 times their annual income, while those in their 60s may have coverage around 1 times their net worth.
4. Disclaimer:
- Informational Purpose: The article emphasizes that it is for informational purposes only. This underscores the importance of consulting with a financial professional to understand the specific life insurance products available and suitable for individual circ*mstances.
In conclusion, the presented concepts cover various aspects of whole life insurance, including policy features, tax implications, external factors like life expectancy and gender earnings gaps, and the overarching HLV Theory as a guiding principle in determining insurance coverage. It's crucial for individuals to engage with financial professionals for personalized advice tailored to their unique financial situations.
