Life Insurance and Supplemental Income

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1 supplemental income using life insurance supplement your retirement income maintain your lifestyle Investment and Insurance Products: Are Not Deposits of Any Bank Are Not FDIC Insured Are Not Insured By Any Federal Government Agency Are Not Guaranteed by Any Bank or Savings Association May Go Down In Value lorem ipsum dolor sit amet consectetur adipiscing elit nam b

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3 benefits of supplemental income using life insurance The life insurance death benefit allows you to protect your family during your working years. With proper ownership, the death benefit can be received by your family income and estate tax-free. Under current tax law, your life insurance cash values can grow tax-free. During retirement, or possibly for other needs, the cash values can be accessed through withdrawals and loans free of income taxation. 1 Depending on the type of life insurance policy you select, you can build policy cash values out of the life insurer s general assets (universal life), or through a variety of managed investment options (variable universal life). Will my 401(k) be enough for my retirement? How can I protect my family, save for retirement and still maintain my lifestyle? If you select variable universal life you can make simple, tax-free transfers among the investment options. Within the parameters of the policy designed for you, you have control over the frequency of contributions and withdrawals, which allows you to better tailor your income and retirement income needs. AXA Equitable s variable universal life and universal life policies are primarily focused on providing death benefits to your beneficiaries. They have the secondary potential to build cash values. For variable universal life, this cash value may vary based on your investment objectives and elections among professionally managed investment portfolios available in the life insurance policy. There are fees and charges associated with variable universal life insurance contracts that may include life insurance mortality and expense charges, administrative fees, investment management fees, surrender charges and charges for optional riders. Additionally, variable universal life insurance policies and riders may have restrictions and limitations. 1 Excessive withdrawals may cause a contract to fail the definition of life insurance and trigger unintended tax consequences.

4 retirement and life insurance How Much Will You Need in Retirement? You work hard to help provide for your family and save for retirement. You may be funding your 401(k) to the maximum and contributing to you IRA, but is it enough? Retirement income comes from three sources: Social Security Pension Personal Savings Limited Control Limited Control Total Control Retirement Myths Can Distort Your Planning Jim I anticipate I will need only about 70% of my current income once I retire. False! Children may be out of the house and the mortgage may be paid, but other expenses linger, such as medical expenses, insurance, vacations, gifts for grandchildren, just to name a few. If You Retire at 65 and Live Until: You ll Need to Start With: Age 75 $661,345 Age 80 $927,274 Age 85 $1,157,642 Age 90 $1,375,204 Age 95 $1,530,081 How much you need for retirement will greatly depend on how long you live. The chart to the right shows how much you need to have when you start retirement, assuming a starting retirement income of $75,000 each year. 2 2 The chart above assumes that you retire at 65 and live until the year described in the table. It assumes a starting retirement income of $75,000 and increases each year by 3% for inflation. This is a gross amount and you would pay income taxes on the income you withdraw each year. It assumes that your assets, the starting amount shown in the chart, would grow at 6% each year, after taxes. 2 retirement and life insurance

5 how life insurance can help You may often think of life insurance as a way to provide for your family in case something happens to you; this is its primary purpose. But, permanent life insurance, which builds cash value, might also help you move toward your retirement goals. Death Benefit Protection If you have established a need for life insurance, it can help you meet multiple objectives. In the event of an unexpected death during your working years, it helps protect your family with a benefit that can be received income tax-free. your complete lifestyle product Few assets offer all the advantages that life insurance can offer, covering both your family s needs during your working years and, possibly, your own personal income during retirement. Build Cash Value for Retirement At the same time, the premiums you pay help build cash value. That cash value grows tax-free inside the life insurance contract. At retirement, when you may not need as high a death benefit, you can take withdrawals or loans from that contract to help supplement your income. Policy cash values can be withdrawn or borrowed in a tax-advantaged manner. This allows for tax-free withdrawals and loans; however, excessive loans may trigger tax implications. Excessive loans and withdrawals may cause a contract to fail to meet the definition of life insurance in the Internal Revenue Code. In that instance, you may face an unexpected income tax liability. Work with your insurance professional to tailor an income stream that meets your needs and allows the life insurance contract to remain intact. With proper planning, funds can be received free of income taxation. If you are in a 28% tax bracket, a $20,000 withdrawal or loan might be the equivalent of $27,778 taxable income. how life insurance can help 3

6 Cash Value A Roth IRA Complement If you are already funding your 401k and IRA, or a Roth IRA, but still have additional funds to put aside, consider the cash value of life insurance. Unlike these retirement assets, life insurance doesn t have the strict maximum dollar limitations. With proper planning, life insurance cash values can be withdrawn or borrowed without income tax consequences. Long-Term Care Additionally, AXA Equitable offers the Long-Term Care Services sm Rider with certain life insurance policies. If you are unable to perform what is often referred to as the activities of daily living, this rider allows you to accelerate receipt of the death benefit for your long-term care needs. And, unlike traditional long-term care coverage, if you don t use the benefit your family will still receive something in the form of a death benefit. The Long-Term Care Services sm Rider has certain limitations that you should understand prior to any purchase. The rider comes at an additional cost that may be less than a stand-alone, long-term care policy, but it is important that you weigh the benefits and features of each type of policy or policy rider. If you withdraw funds to supplement your retirement income you will reduce your life insurance death benefit. Ordinarily, if properly planned, this should not trigger adverse income tax consequences. However, if you also have a Long-Term Care Services sm Rider reducing the death benefit, it will reduce the amount of long-term care benefit. You will need to make a choice between maximizing income from your life insurance policy and preserving the death benefit to draw on for future long-term care. 4 how life insurance can help

7 How Supplemental Income Works Generally Ages During your working years When you have a life insurance need You contribute dollars to a life insurance contract as premiums The insurance company will take out certain expenses for its operations and state premium taxes Generally Ages 65 and older During your retirement years When you have a reduced life insurance need Your remaining premium contributions build cash value Any death benefit after your supplemental income will be paid to your beneficiaries You can take withdrawals & loans to help supplement your retirement Please note: Surrender charges will apply if a contract is surrendered early. Please check the policy for the surrender schedule. how life insurance can help 5

8 Special Considerations This strategy makes sense only if you have a life insurance need. Although the cash values grow income tax-free, your premium dollars are assessed premium taxes and the policy values are charged annual costs of insurance and potential surrender charges. Without the added need for life insurance other savings funds might be more appropriate. Care must be taken when taking loans and withdrawals. Excessive loans and withdrawals may erode your death benefit or cause a life insurance contract to fail to meet the definition of life insurance, or lapse. In this case, the otherwise tax-free withdrawals and loans may become taxable. Careful planning must also be taken in paying premiums into contracts. Although not subject to the same limitations as IRAs and qualified plans, there are limits on what can be placed in a life insurance contract and still allow it to meet the definition of life insurance in the Tax Code. Excessive amounts placed in a contract in relation to the death benefit may trigger what is known as Modified Endowment Contract (MEC) status. If this is the case, you will not receive favorable tax treatment on loans and withdrawals, so it is important to work with a qualified life insurance professional. If you select variable universal life with investment options, many of these options will fluctuate in value and may be worth more, or less, than their original costs. As a result of market risks associated with the underlying investment options of a variable universal life insurance policy, policy owners may be subject to the possibility of the loss of the principal amount invested. Also, variable universal life will have additional charges including, but not limited to, mortality and expenses risk charges, investment management fees and administrative fees. 6 how life insurance can help

9 Taking It One Step Further Personally Owned Life Insurance (POLI): Life insurance is a flexible planning device. You can tailor your life insurance contract to meet many of your planning needs simply through the way you set up ownership of the policy, the way in which you fund the premiums and even through the type of policy you purchase. Depending on how you own your policy, you can receive a range of protections. Family Protection: The classic way to own life insurance is to personally own the contract and name your spouse, or family, as beneficiary of the death benefit. That way you maintain maximum control over the policy. Supplement Income: If you reach retirement and want to access the cash value, you can begin to withdraw any value that exists through loans or withdrawals. This is the easiest and most common approach. Asset Protection: In many states, both the cash surrender value and the death benefit receive special protection from creditors. This may vary widely from state to state so always work with your tax and financial advisors. Estate Protection: If you have estate planning issues, you can take additional steps to enhance your planning: You can keep the death benefits outside your estate by having the policy owned by your spouse. Through your spouse and during retirement you can still have the benefits of policy income. You can set up what is sometimes called a Stand-By trust. While you are working and both spouses are alive, you can retain ownership of the policy. On the first death, if you still want to keep the policy out of your estate, the trust that has been standing by all these years is available to take over ownership. You can do this through gifts, the way you titled the ownership of the policy or even estate planning devices intended to pre-fund the Stand-By trust. Depending on the order of deaths, the transfer to the trust might be considered a gift. Under current estate tax law, property, such as life insurance that is gifted away, might still be pulled back into your estate if you die within three years of the gift. Your insurance professional might be able to set up additional planning to help minimize this effect. Your insurance professional and other tax advisors can work with you on the approach that might work best for your situation. Remember, estate planning doesn t always mean estate taxes! Review different ownership options, such as trusts, if you want to do specialized planning to: Protect your surviving spouse from creditors, Protect children from a prior marriage while providing for your current spouse, Provide funds for a special needs child. how life insurance can help 7

10 important tax benefits and considerations Tax Benefits With proper planning, your life insurance policy offers some amazing tax advantages. The death benefit in a life insurance contract can be received income tax-free by your beneficiaries. 3 Life insurance policy cash values can grow income tax-free. Policy values received in retirement can maximize your dollars. Under current tax law, funds received from a policy can be received income tax-free. Tax-free means more in your pocket. If you are in the 28% tax bracket, $20,000 out of your life insurance policy in retirement is the equivalent of $27,778 of income during your working years. If you have an estate tax problem, with proper planning the death benefit can also be free of estate taxes. Tax Considerations This approach makes sense only if you have a life insurance need. Although the cash values grow income tax-free, your premium dollars are assessed state premium taxes and the policy values are charged annual costs of insurance. Without the added need for life insurance, other saving options may be more appropriate. Care must be taken when taking withdrawals or loans. Excessive withdrawals and loans may erode your death benefit or cause a life insurance contract to fail, resulting in unexpected income taxes. Although the cash surrender values accumulate income tax-free, life insurance contracts also carry charges not associated with investment products, such as a cost of insurance. For example with variable products, M&E charges and investment management fees are assessed. These charges increase over time so careful planning is required. If you select variable life insurance contracts with investment options, many of these options will fluctuate and may be worth more, or less, than their original value. The Supplemental Income strategy discussed in this brochure involves life insurance. Life insurance can be a complex financial instrument. It is primarily intended to provide a death benefit. The added benefits of tax-free cash value accumulation, as well as the withdrawals and loans that supplement your income, are predicated on the life insurance contract maintaining its status. 3 This is controlled by Tax Code Section 101. To receive this tax-free death benefit, the contract cannot fall into what is considered transfer-for-value status. Work with your life insurance professional and other tax advisors before you make any ownership change to help assure this continued tax-advantaged status. 8 important tax benefits and considerations

11 Contact your financial professional Life Insurance professionals can help you design and select a life insurance product that is ideal for your needs, handling your life insurance protection as well as accumulating cash values. During retirement, your life insurance professional can help you determine the best way to access your cash values. Special care must be taken when withdrawing your funds. If you withdraw or borrow too much, the life insurance contract may fail to meet the definition of life insurance. That could result in unexpected income taxes. Be sure to work with your life insurance professional to help monitor your policy and help maintain your life insurance policy. Visit our Web site at Before considering a variable universal life purchase, all costs of the product should be considered including, but not limited to, guaranteed and current interest rates, surrender charges, insurance charges, features, benefits and riders in the contract and their charges. Variable universal life insurance is sold by prospectus only. Investors should consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus contains this and other information about the variable universal life insurance contract and the underlying investments. To obtain a prospectus, contact your financial professional. Read the prospectus carefully before investing. Variable universal life insurance has the primary purpose of providing a death benefit for your beneficiaries and the secondary potential to build policy cash values, depending on the performance of the underlying sub accounts selected by the investors. Values will fluctuate and are subject to market risk, including the possibility of loss of principal Fixed life insurance is issued by AXA Equitable Life Insurance Company and is co-distributed through AXA Distributors, LLC and AXA Network, LLC and its subsidiaries. AXA Equitable, AXA Advisors, AXA Distributors and AXA Network are affiliated companies. Variable life insurance is co-distributed by AXA Advisors, LLC and AXA Distributors, LLC. All guarantees are based on the claims-paying ability of AXA Equitable. AXA Equitable, AXA Network and AXA Distributors do not provide tax or legal advice AXA Equitable Life Insurance Company. All rights reserved Avenue of the Americas, NY, NY 10104, (212) G23145 GE (11/09) Cat. # (11/09) a lorem ipsum dolor sit amet consectetur adipiscing elit nam