Life As An Asset Client
- 1. LIFE Life Insurance As An Asset a key component of a diversified portfolio
- 2. preparing for the ifs in life. diversify. These reasons are why a cornerstone of many Life insurance is for living. successful families’ financial plans is life insurance. Wouldn’t you live better It is a flexible product that offers death benefit now if you had more confidence protection and may also offer an opportunity to save for your own future. Evaluating all available in your ability to: financial opportunities may help you to reach your financial goals. Life insurance is one of those • Create financial protection opportunities – providing protection for today and for your family helping prepare for tomorrow. • Grow equity with which to preserve your lifestyle Please note: This document is designed to provide introductory information on the subject matter. MetLife does not provide tax and legal advice. You • Leave a legacy to the ones should consult with your attorney and /or tax advisor before making financial investment or planning decisions. you love
- 3. life insurance- an asset with Advantages ASSET A resource having economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. Investopedia.com Traditionally, life insurance has been thought of as a necessary expense A note about life needed to protect a family’s financial future, but it has the potential insurance distributions: to offer far more when you consider its advantages as an asset. Tax-free distributions assume that the Life insurance can: life insurance policy is properly funded, is not a Modified Endowment Contract • Leverage a limited number of premium payments into a sizable (MEC), and distributions are made up to death benefit to protect your family in the event you die the cost basis and policy loans thereafter. prematurely. Distributions may need to be reduced, • Provide access to cash value which could be utilized to supplement stopped and/ or premium payments may retirement income or help fund a child’s education. need to be resumed if the policy does • Transfer wealth created over a lifetime with an income tax free not perform as expected or to avoid a death benefit. The life insurance death benefit even has the policy lapse. Should the policy lapse or potential to be estate tax free if properly owned and structured. be surrendered prior to the death of the insured, there may be tax consequences. For these reasons, life insurance is more than just a necessary expense — it is an important asset to own within your portfolio. The benefits of a permanent life insurance policy include: • Income tax free death benefit paid to beneficiary • Tax-deferred growth of policy cash values 1 Loans and withdrawals will decrease the cash value • No contribution limits due to income and death benefit. • Potential for income tax-free withdrawals and policy loans1 2 For a MEC policy, income taxes are due upon withdrawal, and, if withdrawn before age 59½, • No 10% penalty tax on cash value distributions prior to age 59½2 a 10% Federal income tax penalty tax may apply. 1
- 4. consider income taxes when funding your Portfolio U.S. FEDERAL MARGINAL INCOME TAX RATES Taxes can have a Average Top Marginal Tax Rate = 59.45% 100 significant impact on how 90 Average income at which top rate becomes effective much of your savings you 80 $256,842 (1942-2009) ultimately get to use to PERCENTAGE OF INCOME 70 enhance your lifestyle. 60 50 Taxes can also have an impact on how 40 much of any remaining assets are received by your beneficiaries. In the last 30 thirty years, U.S. income taxes have been 20 comparatively low. The top Marginal 10 Tax Rate for the highest income earners is currently 35%, but the average top 0 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 rate over the last one hundred years has YEARS Internal Revenue Service, Statistics of Income Bulletin been nearly 60%. Even though the future of income taxes is unpredictable, it would be reasonable to assume they will continue to evolve over time, experiencing high and low periods. You can help protect retirement assets from being diminished by taxes by allocating savings to assets that permit tax-free distributions. This action has the potential to enhance your retirement income because your savings will be sheltered from income tax, regardless of the rates in effect at the time you need income. 2
- 5. 4 assets with tax-advantages Contributions to Roth IRAs are limited to those with • Roth IRAs income below certain levels and Roth 401(k)s have very • Roth 401(k)s limited availability, only 19% of plans in 2009 offered • Municipal Bonds this option.3 For families who need life insurance’s death • Cash Value Life Insurance benefit protection, cash value policies may provide the ability to protect one’s family today as well as the potential to supplement retirement income tomorrow.4 GENERAL OVERVIEW OF FEDERAL TAX FEATURES Life Qualified Plan/ Deferred Roth IRA/ Municipal Feature Insurance Traditional IRA Annuities Roth 401K Bonds Funding/Contribution Limits NO5 YES NO YES NO Potential Income YES YES YES YES TAX EXEMPT7 Tax-Deferred Accumulations Income Tax-Advantaged YES NO NO YES TAX EXEMPT7 Withdrawals/Loans Income Tax-Free Insurance YES6 N/A NO N/A N/A Death Benefit Penalty Tax for Early Withdrawal Only if MEC4 YES YES YES NO Cost of Insurance Charges8 YES NO YES NO NO The table above provides a general overview of certain Federal tax features of the listed asset options. These highlighted features do not present a complete picture of applicable Federal tax rules. Federal tax law is highly specific and depends on individual facts and circumstances. Please make sure to consult your personal tax and legal professionals in your particular situation before purchasing any financial product. 3 Drinker Biddle & Reath LLP, Grant Thornton LLP and Plan Sponsor Advisors.Retirement Plan Survey, 2009. 4 Distributions from a life insurance policy are loans and withdrawals. Certain withdrawals may be subject to income tax in the first fifteen years depending on criteria set forth in Internal Revenue Code 7702(f)(7)(B). After fifteen years, assuming the policy is not a Modified Endowment Contract (MEC), withdrawals up to the policy’s tax basis are not taxable. Policy loans are not taxable provided that the policy remains in force until the insured dies. Policy loans may have interest charges. Unfavorable performance of variable life insurance product subaccounts may necessitate the payment of additional premium. Should the policy lapse or be surrendered prior to the death of the insured, there may be tax consequences. Loans and withdrawals will decrease the cash value and death benefit. 5 Life insurance premiums are not limited above certain income guidelines. Generally, there is not a specific limit on dollars allocated to purchase life insurance, however there are maximum premium limits determined by a specifed policy face amount according to the Internal Revenue Code. The face amount of coverage each carrier will underwrite will also differ. 6 For Federal income tax purposes, life insurance death benefits generally pay income tax–free to beneficiaries. In certain situations, however, life insurance death benefits may be partially or wholly taxable. Please consult your professional tax advisor for information regarding your particular facts and circumstances. 7 AMT may apply. 8 Life insurance and annuities have cost of insurance charges associated with providing a death benefit that do not apply to other products. Each of the financial vehicles listed above will have various fees and charges. 3
- 6. taking a closer look at Cash Value MEET JACK Jack Martin is 35 and owns his own landscaping company. He If Jack does not need additional income during his retirement, has recently divorced and needs to make sure his two children he can either continue paying premiums, allowing the cash are provided for financially, should he suffer an untimely death. value and death benefit to increase, or he could allow future He has decided to purchase life insurance to meet this need. dividend payments to reduce his premium outlay and keep the death benefit relatively stable. Jack has always reinvested almost all of his profits back into the company and now he feels the need to catch up on preparing Jack really likes the flexibility of this life insurance product and for retirement. He has a SIMPLE IRA in which he invests the moves forward with his application for the policy. allowable maximum each year and feels comfortable he has an additional $10,000 per year that he can devote to insurance premiums and added savings. Jack’s financial professional shows him an illustration for a MetLife Whole Life policy. Assuming Jack qualifies for a MetLife Whole Life Policy Cash Value preferred, non-smoker rating and pays $10,000 premium each year until age 100, the guaranteed death benefit on the policy Assuming Current Dividend Guaranteed Crediting Rates would be $909,5069. The death benefit has the potential to AGE Cash Value increase with higher crediting rates or dividend payments that Cash Value Yield are non-guaranteed features of the policy. 55 $214,643 $310,721 4.03% 65 $373,807 $644,438 4.56% Jack’s financial professional explains that the cash value grows 75 $543,885 $1,153,122 4.62% slowly in the early years of the policy, but can grow into a 85 $697,591 $1,879,646 4.52% significant source of funds for supplemental income by the time he retires. Then he shows Jack what the policy’s cash value may mean to him at age 55, 65, 75 or 85 depending on his future For Illustrative Purposes Only. Please request a full product illustration from income needs. your financial representative for more details. Based on the policy’s non-guaranteed dividends, Jack would Assumptions: 35 year old male, preferred, non-smoker, $10,000 premium paid annually through age 100, Federal income tax rate = 35% earn slightly more than a 4% rate of return on premiums paid if he waits until retirement age to take any loans or withdrawals Current crediting rates and dividend scale are not guaranteed and are likely to be changed by Metropolitan Life Insurance Company over time. Your policy’s from the policy. However, If Jack initiated a moderate actual non-guaranteed values and benefits will be more or less favorable than supplemental income stream from the cash value using those shown. withdrawals and loans—being careful not to lapse the policy- he may realize this income on a tax-free basis.10 A significantly 9 Guarantees are based on the claims paying ability and financial strength of the issuing company. higher rate of return would be necessary to distribute an 10 Tax-free distributions assume that the life insurance policy is properly structured, equivalent amount of income from a taxable account, due to is not a Modified Endowment Contract (MEC) and distributions are made up capital gains or ordinary income taxes. to the cost basis and policy loans thereafter. Should the policy lapse or be sur- rendered prior to the death of the insured, there may be tax consequences. Loans and withdrawals will decrease the cash value and death benefit. 4
- 7. life insurance as a value added asset in your Portfolio While the policy’s death benefit is the primary reason for purchasing life insurance, it is important to know that the For more information policy you choose may provide more value to your family about MetLife’s life than just a death benefit. insurance products, Protecting income for your loved ones is valuable in please contact your itself, but permanent life insurance can easily transition to providing supplemental retirement income should you financial professional. enjoy a long and healthy retirement.11 Finally, it can transfer any remaining death benefit to your beneficiaries in the form of an income tax free legacy. The flexibility to help you protect, accumulate and transfer wealth can make life insurance a significant value within your portfolio. When attempting to prepare financially for the future IFs in life, it is important to include assets that can change and grow with you. A diverse mix of products may better enable your portfolio to adapt to future accumulation, protection and transfer needs. Life insurance deserves to be considered as an integral asset within your portfolio. why life insurance? COMMON GOALS FOR BUYING LIFE INSURANCE Many people who buy life insurance do so 100 because they know it can add value to their Older Families PERCENTAGE STATED GOAL 80 Married Couples financial portfolio as a means of supplementing WAS IMPORTANT Not Married a number of different financial goals in 60 addition to providing death benefit protection. 40 20 0 Provide Financial Transfer Wealth/Pay Tax-Advantaged Pay off Debt/Cover 11 Not all products provide guaranteed cash value accumulation. Security for the family Estate Taxes Savings or Investment Final Expenses Supplemental Income Investments in variable life insurance are subject to market risk including loss of principal. LIMRA, How and Why People Buy High Face Life, August 2008. 5
- 8. Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife. The policy prospectus contains information about the policy’s features, risks, charges and expenses. The investment objectives, risks and policies of the investment options, as well as other information about the investment options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product availability and features may vary by state. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in a variable life policy will meet their stated goals or objectives. The account value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances. Life insurance is medically underwritten. Clients should not cancel their current coverage until their new coverage is in force. Surrender charges may be due on an exchange of one contract for another. A change in policy may require a medical examination. Surrenders may be taxable. Clients should consult their own tax advisors regarding tax liability on surrenders. Guarantee Advantage Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-34-07 and in New York, only by Metropolitan Life Insurance Company on Policy Form Series 1E-34-07-NY. Legacy Advantage Survivorship Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-32-05 and in New York, only by Metropolitan Life Insurance Company on Policy Form Series 1E-32- 05-NY. Equity Advantage Variable Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-46-06 and in New York only by Metropolitan Life Insurance Company, Policy Form Series 1E-46-06-NY-1. Whole Life is issued by Metropolitan Life Insurance Company on Policy Form Series 8-90(08). Guaranteed Level Term is issued by MetLife Investors USA Insurance Company on Policy Form Series 5E-21-04 and in New York, only by First MetLife Investors Insurance Company on Policy Form Series 5E-21-04-NY. All guarantees are based on the claims-paying ability and financial strength of the issuing insurance company. All products are distributed by MetLife Investors Distribution Company (MetLife Investors), 5 Park Plaza, Suite 1900, Irvine, CA 92614. August 2010 Life Insurance Products: • Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency • Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value Metropolitan Life Insurance Company MetLife Investors Distribution Company 200 Park Avenue 5 Park Plaza, Suite 1900, Irvine, CA 92614 New York, NY 10166 metlife.com 1008-2630 CLVL20822 © 2010 METLIFE, INC. L0810123853(0911) PEANUTS © 2010 Peanuts Worldwide