Life Insurance/Annuities

Life insurance provides financial protection for your loved ones by paying out a lump sum or benefit to beneficiaries after your passing. It helps cover expenses like income replacement, debts, or future needs.

Annuities are financial products that provide a steady stream of income, often for retirement. You invest money upfront or over time, and in return, receive regular payments for a set period or for life.

Types of Life Insurance

Term Life Insurance
Term Life insurance is life insurance that you pay for during a specified length of time or term – generally one to 30 years. You select the amount of the death benefit or face amount to meet your needs.

Premiums, or payments, which can be the same amount or increase with time, must be made monthly, quarterly, semi-annually, or annually. If you die during the term of coverage, the face amount of your policy will be paid to your beneficiaries. Term insurance policies do not accumulate cash value and therefore usually offer lower premiums than other life insurance products with the same face value.

Universal Life Insurance
Universal Life is permanent insurance that has the potential to accumulate cash value. However, it offers additional features and options. For example, you can increase or decrease your policy's face amount to accommodate your changing protection needs. You can also increase or decrease the dollar amount of your premium payments and make additional lump sum payments to your policy. Since a Universal Life policy accrues cash value, you can borrow against this cash value for any purpose.

You have the option to skip premium payments if your account has accrued sufficient value because the premiums will be taken from the accrued value. A Universal Life policy also has the potential to earn a higher rate of return than a whole life policy, although there is a risk that your rate of return could drop.

Whole Life Insurance
Whole Life Insurance is life insurance that you own for your entire lifetime. The amount of the death benefit or face amount can be selected to meet your needs.

Premiums, or payments, are fixed and can be paid monthly, quarterly, semi-annually, or annually. As more premiums are paid, your policy accumulates a cash value that grows on a tax deferred basis. In essence, whole life is like buying a house versus renting it. The monthly cost is higher than it would be for a term life policy, but with each payment you make you gain equity. You can borrow against a Whole Life policy for any purpose. Loans, however, require you to pay interest and any borrowed amount you do not pay back is deducted from the payout to your beneficiary at the time of your death.

Final Expense Insurance
Your family means the world to you. The last thing you want is to leave them with major expenses after you’re gone. Final Expense insurance is life insurance that helps provide the money they may need to pay medical bills, funeral expenses, legal fees or unpaid bills. It is an insurance policy that lets you decide how your assets are distributed. By planning ahead, you can help protect your loved ones from unnecessary financial stress when you die.

An Overview of Annuities

An annuity is a contract between you and an insurance company. You pay a premium (either a lump sum or through regular payments) in exchange for a future income stream. Annuities are often used in retirement planning to ensure a steady income, especially as traditional pensions become less common.

Key features

Income for life: Many annuities offer guaranteed payments for as long as you live, addressing the concern of outliving retirement savings.
Tax-deferred growth: Money invested in annuities grows tax-deferred, meaning you don't pay taxes on earnings until you withdraw the money. This allows your investment to potentially grow faster over time.
Customization: Annuities can be customized with riders (additional features for a fee) to meet specific needs, such as inflation adjustments or death benefits for beneficiaries.

Types of annuities

There are several types of annuities, each with its own features and risk profile:

Fixed annuities: Offer a guaranteed interest rate and predictable payouts, making them a conservative choice with minimal risk.
Variable annuities: Offer the potential for higher returns linked to market performance, but also carry higher fees and risks. You could lose money with variable annuities.
Indexed annuities: Combine a minimum guaranteed interest rate with potential growth tied to a specific market index (like the S&P 500). They offer a balance between growth potential and principal protection. Registered Index-Linked Annuities (RILAs) are a type of indexed annuity that offer more growth potential in exchange for limited downside protection.
Immediate annuities: Start paying out within a year of purchase, typically with a single lump-sum premium.
Deferred annuities: Allow your money to grow over time before payouts begin at a future date you choose.

Pros and cons of annuities

Pros

Guaranteed income: Provides a reliable income stream, potentially for life.
Tax deferral: Earnings grow tax-deferred until withdrawal, potentially boosting growth.
Customization: Riders offer flexibility to tailor the annuity to individual needs.

Cons

Complexity: Annuities can be complex to understand, especially variable and indexed annuities.
High fees: Annuities, particularly variable annuities, can have significant fees, including surrender charges, mortality and expense risk charges, and administrative fees.
Limited liquidity: Accessing funds early may incur penalties (surrender charges).

Taxation of annuities

Qualified annuities: Funded with pre-tax dollars (often through retirement plans), and withdrawals are fully taxed as ordinary income.
Nonqualified annuities: Funded with after-tax dollars. Only the earnings portion of withdrawals is taxed as ordinary income. The principal (the original investment) is returned tax-free.
Early withdrawal penalties: Withdrawals before age 59 ½ may be subject to a 10% federal tax penalty on the taxable portion, in addition to ordinary income tax.