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Peach State Employee Benefits Group is a privately owned financial services company that helps consumers, businesses and communities build and protect wealth in Georgia.We offer many Georgia life insurance products including:
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Term or Whole Life Insurance?Protection against premature death that comes in a form of life insurance called
Term Life Insurance. It pays a benefit only when an insured dies within a specified period, and a designated beneficiary receives the death benefit. If the insured lives beyond the specified period, the beneficiary receives nothing.
Whole life insurance, also called permanent insurance, is permanent and does not expire (assuming you continue to pay the premiums). It provides coverage similar to term life insurance, but it also provides an investment vehicle. A portion of the premium goes for life insurance, while the rest goes into an investment account. This account can be an interest bearing account or a variable (stocks and bonds) investment account.
Which is better (our opinion)? A young family with large financial obligations is usually better off with a term life insurance policy. The substantially lower premiums enable them to purchase sufficient coverage to protect against loss of income. Any discretionary investment funds can be placed in other vehicles (mutual funds, money market accounts, etc.) that are likely to generate returns similar to or better than a life insurance policy. Whole life insurance is often purchased by people for tax and estate planning purposes. Recently, some advisors have started recommending life insurance as an
investment. You should consult with your financial advisor.
Universal Life InsuranceUniversal Life is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a bond or other interest rate index.
Similar Georgia life insurance typesA similar type of policy that was developed from universal life policies is the
Georgia variable universal life insurance policy, or VUL. VUL's allow the cash value to be directed to a number of separate accounts that operate like mutual funds and can be invested in stock or bond investments with greater risk and potential reward. Additionally, there is the recent addition of Equity Indexed Universal Life contracts analogous to Equity Indexed Annuities that invest in Index Options on the movement of an Index such as the S&P 500, Russell 2000, and the Dow (to name a few). These type of contracts only participate in the movement of Index and not the actual purchase of stocks, bonds or mutual funds. They may have a cap (but not always) as to the maximum amount they will credit interest to and a minimum guarantee which keeps the principal of the contract from losing money in a down year. Typically each year the starting point is last year's ending point which means that: the policy amount is locked in at the end of the year; and, the beginning value from which the movement measured is reset.
Georgia Universal life is similar in some ways to, and was developed from whole life insurance. The advantage of the universal life policy is its premium flexibility and adjustable death benefits. The death benefit can be increased (subject to insurability), or decreased at the policy owner's request.
The premiums are flexible, from a minimum amount specified in the policy, to the maximum amount allowed by the contract. The primary difference is that the universal life policy shifts some of the risk for maintaining the death benefit to the policy owner. In a whole life policy, as long as every premium payment is made, the death benefit is guaranteed to the maturity date in the policy, usually age 95 to age 121. A UL policy will lapse when the cash values are no longer sufficient to cover the cost of insurance and policy administrative expense.
To make UL policies more attractive, insurers have added secondary guarantees, where if certain minimum premium payments are made for a given period, the policy will remain in force for the guarantee period even if the cash value drops to zero. These are commonly called "No Lapse Guarantee" riders, and the product is commonly called GUL, or Guaranteed Universal Life.
The trend up until 2007-2008 was to reduce premiums on GUL to the point where there was virtually no cash surrender values at all, essentially creating a level term policy that could last to age 121. Since then, many companies have introduced either a second GUL policy that has a slightly higher premium, but in return the policy owner has cash surrender values that show a better Internal Rate of Return on surrender than the additional premiums could earn in a risk free investment outside of the policy.
With the requirement for all new policies to use the latest mortality table (CSO 2001) beginning January 1, 2009, many GUL policies have been repriced, and the general trend is toward slight premium increases compared to the policies from 2008.
Another major difference between Universal Life from Whole Life Insurance: The administrative expenses and cost of insurance within a Universal Life contract are transparent to the policy owner, whereas the assumptions the insurance company uses to determine the premium for a Whole Life Insurance policy are not transparent.
Uses of Universal Life Insurance * Final Expenses, such as a funeral, burial, and unpaid medical bills
* Income Replacement, to provide for surviving spouses and dependent children
* Debt Coverage, to pay off personal and business debts, such as a home mortgage or business operating loan
* Estate Liquidity, when an estate has an immediate need for cash to settle federal estate taxes, state inheritance taxes, or unpaid income in respect of decedent (IRD) taxes.
* Estate Replacement, when an insured has donated assets to a charity and wants to replace the value with cash death benefits.
* Business Succession & Continuity, for example to fund a cross-purchase or stock redemption buy/sell agreement.
* Key Person Insurance, Or Keyman Insurance to protect a company from the economic loss incurred when a key employee or manager dies.
* Executive Bonus, under IRC Sec. 162, where an employer pays the premium on a life insurance policy owned by a key person. The employer deducts the premium as an ordinary business expense, and the employee pays the income tax on the premium.
* Controlled Executive Bonus, just like above, but with an additional contract between an employee and employer that effectively limits the employees access to cash values for a period of time (golden handcuffs).
* Split Dollar Plans, where the death benefits, cash surrender values, and premium payments are split between an employer and employee, or between an individual and a non-natural person (i.e., trust).
* Nonqualified Deferred Compensation, as an informal funding vehicle where a corporation owns the policy, pays the premiums, receives the benefits, and then uses them to pay, in whole or in part, a contractual promise to pay retirement benefits to a key person, or survivor benefits to the deceased key person's beneficiaries.
* An Alternative to Long Term Care Insurance, where new policies have accelerated benefits for Long Term Care.
* Mortgage Acceleration, where an over-funded UL policy is either surrendered or borrowed against to pay off a home mortgage.
* Charitable Gift, where a UL policy is donated to a qualified charity, or the policy owner names a charity as the beneficiary.
* Charitable Remainder Trust Replacement, where a policy owner wants to replace assets donated to a Charitable Remainder Trust.
* Estate Equalization, where a business owner has more than one child, and at least one child wants to run the business, and at least one other wants cash.
* Life Insurance Retirement Plan, or Roth IRA Alternative. High income earners who want an additional tax shelter, with potential creditor/predator protection, who have maxed out their IRA, who are not eligible for a Roth IRA, and who have already maxed out their qualified plans.
* Term Life Alternative, for example when a policy owner wants to use interest income from a lump sum of cash to pay a term life premium. An alternative is to use the lump sum to pay premiums into a UL policy on a single premium or limited premium basis, creating tax arbitrage when the costs of insurance are paid from untaxed excess interest credits, which may be crediting at a higher rate than other guaranteed, no risk asset classes (i.e., Certificates of Deposit, US Savings Bonds).
* Whole Life Alternative, where there is any need for permanent death benefits, but little or no need for cash surrender values, then a current assumption UL or GUL may be an appropriate alternative, with potentially lower net premiums.
* Annuity Alternative, when a policy owner has a lump sum of cash that they intend to leave to the next generation, a single premium UL policy provides similar benefits during life, but has a stepped up death benefit that is income tax-free.
* Pension Maximization, where permanent death benefits are needed so an employee can elect the highest retirement income option from a defined benefit pension.
* Annuity Maximization, where a large non-qualified annuity with a low cost basis is no longer needed for retirement and the policy owner wants to maximize the value for the next generation. There is potential for arbitrage when the annuity is exchanged for a Single Premium Immediate Annuity (SPIA), and the proceeds of the SPIA are used to fund a permanent death benefit using Universal Life. This arbitrage is magnified at older ages, and when a medical impairment can produce substantially higher payments from a medically underwritten SPIA.
* RMD Maximization, where an IRA owner is facing Required Minimum Distributions (RMD), but has no need for current income, and desires to leave the IRA for heirs. The IRA is used to purchase a qualified SPIA that maximizes the current income from the IRA, and this income is used to purchase a UL policy.
* Creditor/Predator Protection. A person who earns a high income, or who has a high net worth, and who practices a profession that suffers a high risk from predation by litigation, may benefit from using Universal Life Insurance as a warehouse for cash, because in some states the policies enjoy protection from the claims of creditors, including judgments from frivolous lawsuits.
Living Benefits of Georgia Life InsuranceMany people use Georgia Life Insurance, and in particular cash value Georgia Life Insurance as a source of benefit to the owner of the policy. (as opposed to the death benefit which is provides benefit to the beneficiary.) These benefits include loans, withdrawals, collateral assignments, split dollar agreements, pension funding, and tax planning.
Georgia Life Insurance LoansMost Georgia Universal Life Policies come with an option to take a loan on certain values associated with the policy. These loans require interest payments, which are paid to the Georgia Insurance Company. The Insurer charges interest on the loan because they are no longer able to receive any investment benefit from the money that has been loaned to you.
Repayment of the loan principal is not required, but payment of the loan interest is required. If the loan interest is not paid, it will be deducted from the cash values of the policy. If there is not sufficient value in the policy to cover interest, the policy will lapse.
Loans are not reported to any credit agency and payment or non payment against them will not affect the policyholders credit rating. If the policy has not become a Modified Endowment, the loans are withdrawn from the policy values as premium first and then any gain. Taking Loans on UL will affect the long term viability of the plan. The cash values removed by loan are no longer earning the interest expected, so the cash values will not grow as expected. This will shorten the life of the policy. Usually those loans will cause a greater than expected premium payment as well as interest payments.
Outstanding loans will be deducted from the death benefit at the death of the insured.
An illustration showing the effect of a loan is recommended in order to assess the outcome of this change.
WithdrawalsMost Universal Life Policies come with an option to withdrawal cash values rather than take a loan. The withdrawals are subject to contingent deferred sales charges and may also have additional fees defined by the contract. Withdrawals will permanently lower the death benefit of the contract at the time of the withdrawal.
Withdrawals are taken out premiums first and then gains, so it is possible to take a tax free withdrawal from the values of the policy (this assumes the policy is not a MEC). Withdrawals are considered a material change and cause the policy to be tested for MEC. As a result of a withdrawal, the policy may become a MEC and could lose its tax advantages. [5]
Withdrawing values will effect the long term viability of the plan. The cash values removed by loan are no longer earning the interest expected, so the cash values will not grow as expected. To some extent this issue is mitigated by the corresponding lower death benefit. An illustration showing the effect of a withdrawal is recommended in order to assess the outcome of this change.
Collateral AssignmentsCollateral Assignments will often be placed on life insurance to guarantee the loan upon the death of debtor. If a collateral assignment is placed on life insurance the assignee will receive any amount due to them before the beneficiary is paid. If there is more than one assignee, the assignees are paid based on date of the assignment. ie - The earlier assignment date gets paid before the later assignment date.
TypesSingle PremiumA Single Premium UL is paid for by a single, substantial, initial payment. Some policies do not allow anymore than the one premium contractually, and some policies are casually defined as single premium because only one premium was intended to be paid. [6] The policy remains in force so long as the COI charges have not depleted the account. These policies were very popular prior to 1988, as life insurance is generally a tax deferred plan, and so interest earned in the policy was not taxable as long as it remained in the policy. Further withdrawals from the policy were taken out principal first, rather than gain first and so tax free withdrawals of at least some portion of the value were an option. In 1988 changes were made in the tax code, and single premium policies purchased after were "Modified Endowment Contract (MEC)" and subject to less advantageous tax treatment. Policies purchased previous to the change in code are not subject to the new tax law unless they have a "material change" in the policy (usually this is a change in death benefit or risk). It is important to note that a MEC is determined by total premiums paid in a 7 year period, and not by single payment. The IRS defines the method of testing whether a life insurance policy is a MEC. At any point in the life of a policy, a premium or a material change to the policy could cause it to lose its tax advantage and become a MEC.
In a MEC, the premiums and accumulation will be taxed just like an annuity upon withdrawing. The accumulations will grow tax deferred and will still transfer tax free to the beneficiary under Internal Revenue Service Code 101a under certain circumstances. [7]
[edit] Fixed Premium
Fixed Premium UL is paid for by periodic premium payments associated with a no lapse guarantee in the policy. Sometimes the guarantees are part of the base policy and sometimes the guarantee is an additional rider to the policy. Generally these payments will be for a shorter period of time than the policy is in force; for example payments may be made for 10 years, with the intention that thereafter the policy is paid-up. But it can also be permanent fixed payment for the life of policy. [8]
Since the base policy is inherently based on cash value, the fixed premium policy only works if it is tied to a guarantee. If the guarantee is lost, the policy reverts to it flexible premium status. And if the guarantee is lost, the planned premium may no longer be sufficient to keep the coverage active. If the experience of the plan is not as good as predicted, the account value at the end of the premium period may not be adequate to continue the policy as originally written. In this case, the policyholder may have the choice to either:
1. Leave the policy alone, and let it potentially expire early (if COI charges deplete the account), or
2. Make additional or higher premium payments, to keep the death benefit level, or
3. Lower the death benefit.
Many universal life contracts taken out in the high interest periods of the 1970s and 1980s faced this situation and lapsed when the premiums paid were not enough to cover the cost of insurance.
[edit] Flexible Premium
Flexible Premium UL allows the policyholder to vary their premiums within certain limits. Inherently UL policies are flexible premium, but each variation in payment has a long term effect that must be considered. In order to remain active, the policy must have sufficient available cash value to pay for the cost of insurance. Higher than expected payments could be required if the policyholder has skipped payments or has been paying less than originally planned. It is recommended that yearly illustrative projections be requested from the insurer so that future payments and outcomes can be planned.
In addition, Flexible Premium UL may offer a number of different death benefit options, which typically include at least the following:
* A level death benefit (often called Option A or Option 1, Type 1, etc), or
* A level amount at risk (often called Option B, etc). This is also referred to as an increasing death benefit.
Policyholders may also buy Flexible Premium UL with a large initial deposit, thereafter making payments irregularly.
Key person insurance, also formerly called key man insurance, is an important form of business insurance. There is no legal definition for "key person insurance". In general, it can be described as an insurance policy taken out by a business to compensate that business for financial losses that would arise from the death or extended incapacity of the member of the business specified on the policy. The policy’s term does not extend beyond the period of the key person’s usefulness to the business. The aim is to compensate the business for losses and facilitate business continuity. Key person insurance does not indemnify the actual losses incurred but compensates with a fixed monetary sum as specified on the insurance policy.
An employer may take out a key person insurance policy on the life or health of any employee whose knowledge, work, or overall contribution is considered uniquely valuable to the company. The employer does this to offset the costs (such as hiring temporary help or recruiting a successor) and losses (such as a decreased ability to transact business until successors are trained) which the employer is likely to suffer in the event of the loss of a key person.
Insurable losses
There are four categories of loss for which key person insurance can provide compensation:
1. Losses related to the extended period when a key person is unable to work, to provide temporary personnel and, if necessary to finance the recruitment and training of a replacement.
2. Insurance to protect profits. For example, offsetting lost income from lost sales, losses resulting from the delay or cancellation of any business project that the key person was involved in, loss of opportunity to expand, loss of specialised skills or knowledge.
3. Insurance to protect shareholders or partnership interests. Typically this is insurance to enable shareholdings or partnership interests to be purchased by existing shareholders or partners.
4. Insurance for anyone involved in guaranteeing business loans or banking facilities. The value of insurance coverage is arranged to equal the value of the guarantee.
Who can be a key person?
A key person can be anyone directly associated with the business whose loss can cause financial strain to the business. For example, the person could be a director of the company, a partner, a key sales person, key project manager, or someone with specific skills or knowledge which is especially valuable to the company.
Taxation
The tax treatment for premiums paid for key person insurance and the treatment of monies received from a claim vary among countries. Premiums are tax deductible in the U.S.
CriticismUnlawfully sold to individuals as an InvestmentIn the US it is illegal to offer Universal Life Insurance as an "investment" to individuals, but it is frequently offered by agents as a tax-advantaged financial vehicle from which they can borrow as needed later without tax penalties. This also makes it an alternative for individuals who are not able to contribute to a Roth IRA due to IRS income restraints.
Conflict of InterestProponents respond that it would be inaccurate to state that term insurance is less expensive than universal life, or for that matter, other forms of permanent life insurance, without qualifying the statement with the other factor: Time, or length of coverage.
While term life insurance is the least expensive over a short period of time, say one to twenty years, permanent life insurance is generally the least expensive over a longer period of time, or over one's entire lifetime.
No Lapse Guarantees or Death Benefit Guarantees: A well informed policyholder should understand that the flexibility of the policy is tied irrevocably to risk to the policyholder. The more guarantees a policy has, the more expensive its cost. And with UL, many of the guarantees are tied to an expected premium stream. If the premium is not paid on time, the guarantee may be lost and cannot be reinstated. For example, some policies will offer a "no lapse" guarantee, which states that if a stated premium is paid in a timely manner, the coverage will remain in force, even if there is not sufficient cash value to cover the mortality expenses. It is important to distinguish between this no lapse guarantee and the actual death benefit coverage. The death benefit coverage is paid for by mortality charges (also called cost of insurance). As long as these charges can be deducted from the cash value, the death benefit is active. The "no lapse" guarantee is a safety net that provides for coverage in the event that the cash value isn't large enough to cover the charges. This guarantee will be lost if the policyholder does not make the premium as agreed, although the coverage itself may still be in force. Some policies do not provide for the possibility of reinstating this guarantee. Sometimes the cost associated with the guarantee will still be deducted even if the guarantee itself is lost (those fees are often built into the cost of insurance and the costs will not adjust when the guarantee is lost). Some policies provide an option for reinstating the guarantee within certain time frames and/or with additional premiums (usually catching up the deficit of premiums and an associated interest). No Lapse guarantees can also be lost when loans or withdrawals are taken against the cash values.
AnnuitiesA life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.
The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.
Phases of an annuityThere are two possible phases for an annuity:
* The accumulation phase in which the customer deposits and accumulates money into an account, and ;
* The distribution phase in which the insurance company makes income payments until the death of the annuitants named in the contract.
It is possible to structure an annuity contract so that it has only the distribution phase; such a contract is called an immediate annuity.
Annuity contracts with a deferral phase—deferred annuities—are essentially two phase annuities, but only having growth of capital by investment in the accumulation phase (now the deferral phase), with no customer deposits.
The phases of an annuity can be combined in the fusion of a retirement savings and retirement payment plan: the annuitant makes regular contributions to the annuity until a certain date and then receives regular payments from it until death. Sometimes there is a life insurance component added so that if the annuitant dies before annuity payments begin, a beneficiary gets either a lump sum or annuity payments.
Decision to defer or not to defer an AnnuityThe option to defer purchase of an annuity (income drawdown) has the benefit of investment flexibility, offset by the risk of falling annuity rates as the life expectany of the surviving individual rises (mortality drag). Interest rates and inflation can affect the decision to purchase, as they are reflected in the annuity rates, and also affect secure investment potential by varying bond yields. Inflation deteriorates the buying power of an annuity and can therefore be a concern.
Types of life annuityWith the complex selection of options available, consumers can find it difficult to decide rationally on the right type of annuity product for their circumstances.
Fixed and variable annuitiesAnnuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called fixed annuities. Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds.
Variable annuities are used for many different objectives. One common objective is deferral of the recognition of taxable gains. Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made. Variable annuities offer a variety of funds ("subaccounts") from various money managers. This gives investors the ability to move between subaccounts without incurring additional fees or sales charges.
Guaranteed annuitiesWith a "pure" life annuity an annuitant may die before recovering the value of their original investment in it. If the possibility of this situation, called a "forfeiture", is not desired, it can be ameliorated by the addition of an added clause, forming a type of guaranteed annuity, under which the annuity issuer is required to make annuity payments for at least a certain number of years (the "period certain"); if the annuitant outlives the specified period certain, annuity payments then continue until the annuitant's death, and if the annuitant dies before the expiration of the period certain, the annuitant's estate or beneficiary is entitled to collect the remaining payments certain. The tradeoff between the pure life annuity and the life-with-period-certain annuity is that in exchange for the reduced risk of loss, the annuity payments for the latter will be smaller.
Joint annuitiesMultiple annuitant products include joint-life and joint-survivor annuities, where payments stop upon the death of one or both of the annuitants respectively. For example, an annuity may be structured to make payments to a married couple, such payments ceasing on the death of the second spouse. In joint-survivor annuities, sometimes the instrument reduces the payments to the second annuitant after death of the first.
Impaired life annuitiesThere has also been a significant growth in the development of Impaired Life annuities. These involve improving the terms offered due to a medical diagnosis which is severe enough to reduce life expectancy. A process of medical underwriting is involved and the range of qualifying conditions has increased substantially in recent years.[citation needed] Both conventional annuities and Purchase Life Annuities can qualify for impaired terms.
PSEBG offers Life Insurance and Annuity Product from over 50 Life Insurance Carriers in Georgia. Below is a list of some of Georgia Life Insurance and Annuity Carriers:
AIG American General
Allianz Life
Allianz of New York
American Equity
American National
Assurity Life
AXA Equitable
Banner Life
Fidelity Life
Foresters
Forethought Annuity
Genworth Life and Annuity - Fixed Life & Annuity
Guaranty Income
Hartford Life
ING Life - ReliaStar Life
ING USA - Annuities
John Hancock Life Insurance Company of (USA)
Lafayette Life
Legacy Marketing Group
Lincoln Benefit Life
Lincoln Financial
MetLife
Minnesota Life
Mutual of Omaha Insurance Company (United of Omaha Life Ins. Co., United World Life Ins. Co.)
Mutual Trust Life
Nationwide
New York Life
North American Company (NACOLAH)
Pacific Life
Presidential Life
Principal Financial Group
Prudential Financial
RBC - Liberty Life Insurance Company
Savings Bank Life of MA
Sun Life Assurance Company of Canada
Trans-Family Markets (Life Investors)
Transamerica Insurance & Investments
West Coast Life
Western Reserve Life
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