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Whole Life- A Versatile Financial Product

Whole life is a unique versatile financial product that provides unique benefits, which differentiate it from all other financial instruments. To truly appreciate the value of this financial instrument, it’s important to understand how it works, it use's, and its benefits.

The  protection  and  wealth-­-enhancing  benefits  of  whole  life  make  it one of the most comprehensive and versatile financial instruments available today. Its great value is enhanced by its flexibility, which enables it to be customized for a variety of consumer needs. Premium flexibility is provided by existing paid-­-up additions and dividend options.  The loan feature and the ability to withdraw dividends provide readily available liquid assets. Together, the guaranteed cash value, guaranteed death benefit, and guaranteed premium provide policy owners with a solid foundation for financial protection and the ability to build wealth in a turbulent and uncertain world.

How Does Whole Life Work?

Whole life provides lifetime insurance protection with significant guarantees and tax benefits.

THERE ARE THREE GUARANTEES:

  • A Guaranteed Level Premium

The annual premium is contractually guaranteed to never change.

  • A Guaranteed Death Benefit

The level death benefit is contractually guaranteed to never go down.

  • A Guaranteed Cash Value

The contractually guaranteed cash value will increase each and every year until it is equal to the face amount of the policy at a specified age – typically age 100 or 121.

What Are Dividends & How Do They Work?

Whole life offers the ability to provide additional value in excess of guarantees through dividends. Dividends are paid to policyholders if declared by the Board of Directors of the Insurance Company providing the policy. It is very common for a Mutual life insurance company to pay a dividend. In fact, the top four rated Mutual Life insurance companies have paid a dividend each and every year for over 140 years...even during the "Great Depression". 

What are your options when a policy pays Dividends?

Policy owners have different needs throughout their life. Whole life offers a variety of dividend options to choose from which allow an owner to customize the coverage. The dividend option may be changed year to year based on changing needs:

  • By far the most widely selected dividend option is to reinvest the dividends back into the whole life   policy to purchase guaranteed paid-­-up additions.  This option provides an increase in total cash value and additional death benefit protection. Each year a dividend is reinvested, additional paid-­-up life  insurance  is purchased, which in turn, earns  its  own  dividends.  Over  time,  the  accumulation  of    additional  paid-­-up  life insurance will help offset the effects of inflation by increasing the death benefit protection and accumulated cash values.
     
  • Dividends may be paid outright, tax-­-free, up to the policy basis.
     
  • Dividends may be used to reduce premium.
     
  • Additional term insurance may be purchased with dividends.
     
  • Dividends may be allowed to accumulate with interest.
     
  • Dividends may be used to pay back an existing policy loan.

What Are The Different Uses for Whole Life?

Taxation Protection:

Because of the contribution that whole life insurance makes to the welfare of society by providing protection for surviving family members, it is vested with the following significant tax benefits:

  • Income tax-­-free death benefits
  • Tax-­-deferred buildup of cash values inside of the life policy
  • Access to policy cash values on a tax-­-favored basis by withdrawals or through policy loans4         
  • Withdrawals from a life insurance policy are permitted on a First-­-In First-­-Out Basis (FIFO)5. This means that withdrawals to the extent of cost basis are considered a tax-­-free return of cost basis6

Human Life Value Protection:

  • Property values are the result of human effort. Human life value is created for a family whenever income is earned to provide for that family’s economic needs
     
  • Most people see the importance of insuring the value of property, such as their home or car, for its replacement value and are able to do so through the purchase of casualty
    insurance . The human life value of an individual, which is by far the most valuable asset of a family or business, is also insurable for its replacement value on a permanent basis with whole life insurance. Whole life insurance provides an affordable, effective way of permanently indemnifying a  family or business against the loss of its most valuable asset.

Family Protection:

  • The death benefits of life insurance can help to assure the economic continuity of a family at a time when it is faced with the greatest of all possible traumas: the death of a beloved father, mother, husband or wife.

Whole life insurance can also help to ensure financial stability  through the funding of:

  • Mortgage protection;
  • Education funding; and
  • Income needs
     

Business Protection:

  • Businesses face special insurance funding needs in order to provide a business continuity plan that will protect the owners in the event of death. Whole life insurance is ideally suited to provide the capital needed to adequately buy the interests of a deceased owner and indemnify the business against the loss of the services,  expertise, and skill of a key person. Life insurance is ideally suited to address four major areas of business planning:
     
  • The funding of buy-­- sell agreements and stock redemption plans;
  • The funding of supplemental retirement programs;
  • Key person indemnification;
  • The payment of loans and mortgages.

Estate Planning:

  • Planning for the orderly transfer of property at death  can help to minimize taxes and provide for heirs in a way that will reflect an individual’s desires. Whole life insurance plays a key role in providing for loved ones by offering:
     
  • Adequate liquidity to pay estate and inheritance taxes;
     
  • Assets to generate income for a surviving spouse and children;
     
  • Estate equalization among heirs;
     
  • Funding for special needs children.
     

Asset Maximization:

  • One of the unique benefits of whole life is the way it enhances the value of other assets during retirement. The presence of a guaranteed death benefit gives the owner the ability to use assets in ways that would not be possible if the insurance did not exist. The death benefit provides the “permission slip” that may enable you to spend down principal and interest (maximize retirement income), knowing that the principal will  be replaced to your family upon death.
     
  • The existence of permanent whole life insurance in the estate of a donor makes it possible to achieve the desired charitable intent with all the collateral benefits, while maintaining a comparable legacy for the donor’s heirs.
     

Guardian, its subsidiaries, agents and employees do not give tax, legal, or accounting advice. You should consult your tax, legal, or accounting advisor regarding your   individual situation.

Employer-­-owned life insurance must comply with the rules set forth in IRC Section 101(j) in order to ensure tax-­-free death benefits.

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 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 age 59½, any taxable withdrawal is also subject to a 10% tax penalty.

FIFO tax rules apply as long as the policy has not been classified as a Modified Endowment Contract (MEC).

Cost bases is the contribution that is made to a life insurance policy.

The Benefits and Flexibility of Whole Life

  • The protection of an instant, permanent estate: Instantly, with the payment of the first premium, the  entire death benefit is  set aside for your family. Whole life insurance provides a  guaranteed death benefit for the entire life of the insured.
  • Disability Protection.7: Whole Life is uniquely different from all  forms of  savings and  investment vehicles, such  as  bank  accounts, IRAs, 401(k)  accounts, mutual funds, and  brokerage accounts, in that continues to be funded even if you become disabled. Disability usually brings with it the strain of reduced income, increased expenses, and dissolution of existing savings and investments. The Waiver of Premium Rider guarantees that if disabled, your policy's premium will continue to be paid by the insurance company for as long as you remain disabled.
  • Liability Protection: In many states, the benefits of life insurance are protected from the claims of creditors. If your state provides this legal protection, the cash values and death benefit of a whole life policy will be protected from lawsuits that can claim other assets, such as bank accounts, mutual funds, and brokerage accounts.
  • Distribution Like a Will: Whole Life avoids probate and has a  named beneficiary: You specify who and how much of the benefit will be distributed to each beneficiary. Unlike a will, however,  Whole life insurance has the added benefit of privacy. Wills, once probated, become public documents. The distribution of a Whole life insurance policy’s death benefit is a private, contractual-­- driven transaction between the policyowner and insurance company – the distribution passes outside of a will and thus provides privacy for   the beneficiary.
  • Tax Free Death Benefit: The death benefits of whole life are generally free from all federal income taxes. The enormous value of this benefit must not be underestimated, especially in light of constantly growing  government expenditures and taxes.
  • Tax Deferred Growth: The growth of cash value inside whole life is deferred from taxation while the funds remain in the policy. This is yet another wealth-­- protecting benefit that whole life provides to  families and businesses.
  • Tax Favorable Access to Policy Cash Values through withdrawals: During the insured’s life, cash value additions  can be accessed under favorable FIFO (First-­-In-­-First-­-Out) tax rules. This means withdrawals to the extent of cost basis are considered a tax-­-free return of cost basis.
  • Self-­-Funding: You have the option of having the policy pay for itself over time by applying dividends to pay premiums. This feature may  be invoked or changed at any time to  meet the changing circumstances of your life.
  • Ability to Pay Itself Back from Future Dividends: Once a policy loan has been taken, the annual dividend can be used to help pay back a policy loan.
  • You Can Make Direct Loans to Yourself for Any Reason: Whole life can free a policyholder from reliance upon commercial lenders. Cash values can be accessed on a demand basis via a policy loan at any time and for any reason without the  application and approval process that is  required for consumer or business loans.
  • Can be Used as Collateral for a Loan from a Bank: Whole life can be  used  as collateral to obtain a loan from  a bank  at favorable interest rates. The  ability to either borrow directly from the  insurance company or  from a   bank gives the owner of a whole life policy significant flexibility when there is a  need to access policy values. When borrowing from a  Bank and proceeds are  used for a  taxable investment, it is possible that the Loan Interest may be deductible against certain Investment Income (contact your tax advisor)
  • Carries Flexible Loan Repayment Terms: Loans against a whole life policy are flexible to the extent that they do not need to be paid back unless you decide to pay them back. Once a loan is taken out on your whole life policy, it can be paid back at the discretion of the policyowner. If the loan is not paid back during the lifetime of the insured, any remaining loan balance will simply be  deducted from the  death proceeds (Death Benefit).
  • Death Benefit Increase: When dividends are reinvested back into the policy they purchase Paid-­-Up Additions which increase the death benefit, helping to offset the eroding effects of inflation. Once a dividend has purchased Paid-­-Up Additions, the additional death benefit and cash value of the paid-­-up additional insurance is guaranteed.
  • Reduced Paid-­-Up Policy: The policyowner has the right to reduce the death benefit to a "Paid-­-up" policy at anytime. If the policy is "paid-­-up", the policyowner can never make another premium payment.  Both the  cash value and the death benefit will continue to grow  through dividends  for the rest of the insured's life.

 

 

 

 


Dividends are not guaranteed. They are declared annually by Guardian's Board of Directors.
All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy's death benefit and cash values.
Waiver of Premium rider incurs an additional premium.
This material is Intended For General Public Use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. 

2017-47392 Exp. 10/19

 

 

 

 

 


 

 


 

 

 

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Registered Representative of Park Avenue Securities LLC (PAS). OSJ:52 Forest Ave., Paramus, NJ 07652 (201) 843-7700. Securities products offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Certified Financial Services, LLC is not an affiliate or subsidiary of PAS or Guardian

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