Accumulation phase - The period of time prior to annuitization.
Annuitant - A person who receives benefit payments from an annuity.
Annuitize - A method of receiving annuity benefits through a series of income payments for life or some other defined period of time.
Annuity - A contract with a life insurance company which guarantees an income for life or some other defined period in exchange for premiums you pay.
Back-end load - Company expenses that are charged at the time benefits begin.
Beneficiary - When provided in a contract, the person who receives benefit payments if the annuitant dies.
Contractholder - A person who pays premiums for an annuity. Often the same person as the annuitant.
Death benefit - A provision in certain annuity contracts that pays the beneficiary when the annuitant dies before the payout phase begins.
Deferred annuity - A contract that begins the payout phase at some future date.
Equity-indexed annuity - A contract that combines a guaranteed minimum interest rate with earnings linked to the performance of an external stock or bond index.
Fixed rate annuity - A contract that specifies your funds will earn a specified interest rate and guarantees a return on your premium.
Flexible premium annuity - A contract in which the amount of each premium payment you make can vary.
Front-end load - Company expenses that are charged at the beginning of a premium payment period.
Free look - A period specified in the contract (such as 10 days) during which you can decide whether to keep an annuity or return it for a full refund of your premium. Your free-look period is 20 days when you buy an annuity contract to replace one you already had.
Guaranteed interest rate - A minimum rate of interest specified in a fixed annuity. The actual rate the insurance company credits your contract at any given time may be higher but can never be lower.
Immediate annuity - A contract that begins the payout phase within one year after you pay the single premium.
Level premium annuity - A contract in which the amount of each premium payment you make stays the same.
Loan provision - A feature in certain annuity contracts that allows you to borrow up to a specified percentage of the value. Contract loans are usually subject to taxes.
Morality Tables - Statistics that project ones life expectancy based on many variables.
Payout phase (also called the annuity phase) - The period of time when benefit payments are being made to the annuitant.
Premium - The money you pay to fund an annuity contract.
Refund Annuity - Refunds part or all of the premiums paid if the insured dies before the start of the liquidation period.
Surrender charge - A fee the insurance company will charge you if you cash in (surrender) an annuity before the payout phase begins, or if you make a withdrawal larger than specified in the contract.
Variable annuity - Traditionally, a contract with no minimum guarantee (some newer products do include guarantees). Because the benefit amount depends on the insurance company's investment gains or losses, you share some part of the investment risk with the insurer.
Withdrawal privilege - A provision in many annuity contracts that allows you to withdraw an amount less than the surrender value, without paying a surrender charge. Any withdrawal may be subject to taxes and penalties.
Life insurance provides money typically to beneficiaries after a loved-one who has life insurance dies. Coverage is often provided by employers but can also be purchased separately through an insurance agent. The Ohio Department of Insurance urges consumers to regularly review their need to secure life insurance as part of their financial and estate planning.
Life Insurance Can Help:
- Replace your income with non-taxable death benefit
- Reduce the financial burden on your family of having to continue without you
- Put the kids through school
- Pay the mortgage, car note, and other debts you leave behind
- Pay your funeral expenses
- Pay your estate taxes
Types of Life Insurance:
- Term Life: Generally less expensive than other life insurance products and is designated for a certain time period or to a certain age. Term is named for the contracts limited length or "term" and is pure life insurance. Term policies generally last for 1, 5, 10, 15, or 20 years, or to some specified age such as age 65 or age 100.
- Whole Life: Lifetime coverage at a premium that does not increase with your age after you buy.
- Universal Life: Premium amount and death benefit are both flexible. Able to change the amount of your premium payments and/or death benefit after you buy the policy. Increasing your premium payments as you age is important to maintaining your universal life policy.
Who Can Take Out a Policy on My Life?
- Only someone who has an "insurable interest”, such as someone in your immediate family. A stranger cannot buy a policy to insure your life.
How Much Life Insurance Should Someone Get?
- Your life insurance plan should be structured to meet your life circumstances.
- How much life insurance a person should get depends on their life situation. Some people have life insurance through their employer, which sometimes use 1x salary or 2x salary as a coverage limit and may allow the employee to purchase additional term insurance.
Life Insurance Shopping Tips:
- Your life insurance plan should be structured to meet your life circumstances (for example, a single person may need less life insurance than a couple or a couple with children).
- Life insurance is complicated. Utilize the services of trained insurance professionals.
- An agent is not allowed to be the beneficiary of a life insurance policy the agent has sold you – unless the agent is a family member or a funeral director. Nor is the agent allowed to misrepresent any aspect of the policy being sold or a policy you already own or encourage you to put incorrect information on your application.
- Decide what type of life insurance policy you want: term, whole life, universal life or a combination of these policies. Make sure you calculate your total premiums for the life of the policy. It is possible to pay more in premiums than the face amount of the policy.
- Some policies have an accelerated benefits feature, which is a policy provision that lets the policyholder, under certain conditions, collect part of the death benefit before he/she dies.
- Be alert to any promise that you will never have to pay premiums again (the vanishing premium pitch). Also, make sure you are aware of any surrender penalties.
- Don’t sign any life insurance application that has not been completely and accurately filled in and dated, and make a copy for your files.
- Immediately study the policy once you receive it and make sure it’s exactly what you ordered: many life companies will offer a “free-look” (or “right to review”) provision. Take advantage of it.
- The policy owner is the only person who can cancel the policy. If premium payments are not being made the insurer will generally send a payment notice before cancellation.
- Make your premium payment check to the insurance company, not the agent.
- A failure to pay your premium will cause your policy to lapse or it could be terminated.
- Review your policy periodically. Your insurance needs change during different periods of your life.
As regards variable annuities versus variable life insurance: Both give you
tax deferred buildup in the policy, but since you have to pay for life insurance
in the variable life, you have less growing in the variable life policy. But go
back to basic tax planning again. Even if you do have more money in the variable
annuity, you are going to be subject to probably a 30%+ federal and state income
tax when the money comes out. You WILL lose part of the return anyway, so you
need to adjust the overall returns for taxes. That's because life insurance
gives you a significant opportunity since you can get most of the cash buildup
WITH NO TAXES AT ALL. Simply take out a loan. These are not taxable (some
caveats apply) and the resulting sum can equal or better what was growing in the
annuity MINUS the 30% tax. And during the same period of time, one has the extra
life insurance, even though it may be minimum.
The downside of the variable life is, obviously, the extra cost of initial
purchase, extensive internal annual fees, whether or not you will be accepted
for life insurance (means you will be poked and prodded by a nurse or physician)
and the fact that you effectively will need to keep the policy for life or taxes
WILL occur. But it certainly suggests a detailed review before any purchase
takes place. I will caution you with this however. This is not the vehicle to
buy if you really need a life insurance. It is very, very expensive as compared
to policies designed primarily for insurance coverage and you don't get much
coverage for each $1 of premium. You've got to do a lot of homework before you
buy a variable life policy.
Learn more about annuities and life insurance
Variable Life Insurance - also
called Variable Appreciable Life Insurance - provides permanent protection to
your beneficiary upon your death. This type of life insurance is "variable"
because it allows you to allocate a portion of your premium dollars to a
separate account comprised of various investment funds within the insurance company's portfolio, such as an
equity fund, a money market fund, a bond fund, or some combination thereof.
Hence, the value of the death benefit and the cash value may fluctuate up or
down, depending on the performance of the investment portion of the policy.
Although most variable life insurance policies guarantee that the death benefit
will not fall below a specified minimum, a minimum cash value is seldom
guaranteed. Variable is a form of whole life insurance and because of
investment risks it is also considered a securities contract and is regulated
as securities under the Federal Securities Laws and must be sold with a
prospectus.
Pros:
Variable life insurance allows you
to participate in various types of investment options while not being taxed on
your earnings (until you surrender the policy). You can apply interest earned on
these investments toward the premiums, potentially lowering the amount you pay.
Cons:
You assume the investment risks. When the investment funds perform poorly,
less money is available to pay the premiums, meaning that you may have to pay
more than you can afford to keep the policy in force. Poor fund performance
also means that the cash and/or death benefit may decline, though never below a
defined level. Also, you cannot withdraw from the cash value during your
lifetime.