An Overview Guide for Individuals Guaranteed to Fit Your Life The value of whole life insurance throughout your lifetime Insurance Strategies
Contents 1 Whole Life Insurance Basics 2 Insurance That Fits Your Life, Today and Tomorrow 8 A Portfolio of Solutions People buy life insurance to provide financial security for their family during their working years. However, they may not consider how their life insurance could help them address other financial concerns such as planning for retirement or providing a legacy for their family. A Massachusetts Mutual Life Insurance Company (MassMutual) Whole Life Legacy insurance policy can be a versatile financial asset that may help you address a variety of financial needs throughout your lifetime. The information provided here is not intended or written as specific tax advice and may not be relied on for purposes of avoiding any federal tax penalties. You are encouraged to seek advice from a qualified tax advisor. The decision to purchase life insurance should be based on long-term financial goals and the need for a death benefit. Life insurance is not an appropriate vehicle for short-term savings or short-term investment strategies. While the policy allows for loans, you should know that there may be little to no cash value available for loans in the policy s early years. NOT A BANK OR CREDIT UNION DEPOSIT OR OBLIGATION NOT FDIC OR NCUA INSURED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT GUARANTEED BY ANY BANK OR CREDIT UNION
Whole Life Insurance Basics Whole life insurance offers a combination of life insurance protection, cash value accumulation, guarantees and income tax advantages. The following summarizes the important features and benefits that MassMutual whole life insurance offers. Protection for Life MassMutual whole life insurance provides permanent life insurance coverage to help you meet both your immediate and long-term protection needs. Cash Value In addition to providing life insurance protection, your whole life policy builds cash value over time. Valuable Guarantees MassMutual whole life offers three important guarantees: Guaranteed level annual premiums and premium payment period Guaranteed level death benefit Guaranteed cash values Guarantees are an important part of the financial security and dependability that MassMutual whole life insurance provides to policyowners. Policy Dividends Provide Additional Value As a mutual life insurance company, MassMutual operates for the benefit of its participating policyowners. MassMutual s whole life policies are participating, which means that they are eligible to receive dividends. Although dividends are not guaranteed, MassMutual has paid them consistently since the 1860s. You may use your dividends in a number of different ways. Some of the most frequently selected dividend options include: Paid in cash Applied to reduce the following year s premium Purchase additional paid-up whole life insurance The majority of MassMutual policyowners use their dividend to purchase paid-up whole life insurance (also called paid-up additions), which increase both the policy s death benefit and cash value. Income Tax Advantages Whole life insurance offers valuable income tax advantages that include: An income tax-free death benefit The policy s death proceeds are generally received income tax free by the beneficiary. Tax-deferred cash value growth The policy s cash value accumulates on a tax-deferred basis. Tax-advantaged distributions Policyowners may be able to access their cash value on a tax-advantaged basis through partial surrenders and policy loans. 1 1 Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract (MEC), policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty. Access to cash values through borrowing or partial surrenders will reduce the policy s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. 1
Insurance That Fits Your Life, Today and Tomorrow Consider some of the ways that a MassMutual whole life insurance policy can help you address your financial needs during different times of your life. Protecting your value as a provider: Protecting the value of what you provide for your family is an important responsibility. Your policy can help meet your life insurance protection needs today, and as they change over time. (Page 3) Building a financial safety net: Financial experts often advise people to keep six to eight months of normal living expenses in cash reserves in case of disability, job loss or other financial emergency. The cash value that your policy builds over time may be an additional source of cash when you need it most. (Page 4) Supplemental retirement income: Many individuals realize that traditional sources of retirement income, such as Social Security and employerprovided retirement plans, may not provide enough income to live a comfortable retirement. Your policy can be an effective way to accumulate additional funds for retirement. (Page 5) Live a more secure and comfortable retirement: Individuals often assume that their need for life insurance protection ends when they retire. In fact, a paid-up whole life insurance policy can be a valuable financial asset to help you enjoy a more secure and comfortable retirement, and leave more to the people you care about. (Page 6) Ensuring a legacy for the future: Your policy offers a flexible and efficient way to provide a financial legacy for the next generation or meet your charitable goals. (Page 7) 2
Protecting Your Value as a Provider Your family depends on what you provide for them. This includes the income you earn as well as the value of any benefits you provide. Life insurance is one of the most effective ways to protect your loved ones against the financial loss that could occur after your death. That is why it is important to have both the right amount and the right type of life insurance coverage to meet your needs. A MassMutual Whole Life Legacy insurance policy can be a good foundation for your life insurance protection strategy. It provides permanent life insurance with guaranteed premiums and can help meet your life insurance needs as they change over time. Many people are unsure how much life insurance they need to protect their loved ones. Your financial professional can help you estimate the value you will provide for your family between now and when you retire. It may be more than you think. The following chart illustrates how much would be needed in today s dollars to replace future earnings. It shows the estimated present value of future after-tax earnings at various ages. Estimated Present Value of Future After-Tax Earnings* Age Annual after-tax earnings $ 50,000 $ 100,000 $ 250,000 35 $ 991,184 $ 1,982,369 $ 4,955,922 45 $ 749,919 $ 1,499,838 $ 3,749,595 55 $ 428,418 $ 856,837 $ 2,142,092 * Present value of future after-tax earnings to age 65, assuming 3% annual growth in earnings each year and a 6% annual discount rate. 3
Building Your Financial Safety Net Financial experts often recommend keeping six to eight months of normal living expenses as a safety net for emergencies such as disability, illness or job loss. There may be times when it is challenging to maintain this level of cash reserves and meet your other long-term financial goals, like saving for retirement. In 1929, J.C. Penney borrowed from his life insurance policy to help meet his company s payroll. Walt Disney borrowed from his life insurance policy in 1953 to help fund his first theme park. Source: LifeHealthPro, 6 Famous Brands Started or Saved by Life Insurance, 2012. The cash value of your whole life policy can help provide cash for emergencies. If your policy has accumulated paid-up additions, they can be surrendered for their cash value at any time. In addition, you can borrow against your policy s cash value for any reason. 1 Your whole life policy should not be your only source of cash for emergencies, but it may be a valuable resource in times of need. There may be times when you need additional cash or credit to help meet major expenses such as college tuition or the cost of a wedding. Your whole life policy may also help you meet these and other financial goals. If you are in business for yourself, you know how important it is to have flexible sources of cash or credit to help meet short-term expenses or take advantage of business opportunities. A policy loan may offer better terms than conventional sources of business credit. You can borrow against your available cash value at any time, and there is no fixed repayment schedule. 2 2 Loan interest is charged when a policy loan is taken. If you take additional policy loans to pay loan interest, your policy s cash value will be reduced. At some point, no policy values may be available to pay additional loan interest and out-of-pocket payments will be required to prevent the policy from lapsing. Failure to pay out-of-pocket amounts will result in the loss of life insurance coverage and a tax liability in the year of lapse. 4
A Source of Supplemental Retirement Income Today, many people realize that the traditional sources of retirement income, such as Social Security and employer-provided retirement plans, may not provide enough income to maintain their standard of living in retirement. They recognize the need to supplement these plans with additional personal retirement savings. Your MassMutual Whole Life Legacy policy can be an effective way to supplement your retirement income strategy because it offers: A systematic and disciplined approach to setting aside funds; Stable and consistent tax-deferred growth in cash values; and The ability to provide tax-advantaged income 1 during retirement. Adding the Waiver of Premium Rider, for an additional premium, can help ensure that your coverage will continue and your policy s cash value will continue to grow, even if you are totally disabled and cannot work. Your whole life policy may also help you weather market downturns during retirement. The guaranteed cash value does not fluctuate based on changes in the stock or bond markets, making whole life an alternative source of tax-advantaged supplemental retirement income at a time when your other retirement assets have declined in value. Projected Social Security Retirement Benefits Based on Pre-Retirement Income Level $250,000 Annual Income $200,000 $150,000 $100,000 $50,000 0 41% 30% 22% 16% 13% Pre-Retirement Income Level Difference Between Social Security Benefit and Current Income Social Security Retirement Income Estimated Social Security retirement income benefit calculated on 1/2/2014 using the Social Security Quick Calculator at www.ssa.gov. Percentages are based on projected benefits for an individual currently age 45 retiring at age 67. 5
Living a More Secure and Comfortable Retirement Individuals often assume that their need for life insurance protection ends when they retire. In fact, post-retirement life insurance can be a valuable asset that may help you take some of the uncertainty out of retirement. For example, one of the most common issues facing retiring couples is that their retirement benefits provided by Social Security, pension plans and/or annuities may be reduced after one of them dies. Unfortunately, this may occur at a time when the surviving spouse still needs the additional income. Your whole life policy s death benefit can help make up for the reduction in these benefits by providing an income tax-free payment to the surviving spouse. In general, knowing that your whole life policy s death benefit proceeds will be available as an additional financial resource after your death can give you and your spouse the confidence to fully utilize your other retirement assets, and ultimately live a more comfortable and secure retirement. 6
Ensuring Your Legacy for the Future Many people work hard to build wealth and feel it is important to leave something to the next generation or a charity. Whole life insurance offers a flexible and efficient way to ensure a financial legacy for the people who matter most to you. It is important to consider the types of assets you will leave and how they may impact your wealth transfer goals. For example, the value of assets such as real estate and securities may vary based on market conditions. Some types of financial assets, such as individual retirement accounts and annuities, may be reduced by income taxes after passing to your heirs. In addition, property such as business interests, vacation homes or family heirlooms are not easily divided among family members, and may not be quickly converted into cash at a time when cash may be needed to pay taxes or expenses. Your MassMutual whole life insurance policy can help ensure your legacy to your family, and may be an essential part of your overall wealth transfer strategy. Consider some of the advantages that whole life insurance offers as a means of transferring wealth to the next generation: Income tax-free death benefit The beneficiary will generally receive the death proceeds income tax free. Easily divided The death benefit is paid in cash directly to your beneficiaries based on your wishes. Value not subject to market conditions Unlike other assets such as securities or real estate, your whole life policy death benefit will not vary based on market conditions. Cash to pay taxes due at death The proceeds of a whole life policy can provide cash exactly when needed to help pay income or estate taxes that are due at death. Reduce estate taxes The ownership of the policy may be set up in such a way that the death proceeds will not be included in your estate for estate tax purposes. Avoid probate Death proceeds of your whole life policy paid directly to your beneficiaries will avoid the costs and delays of probate and will not be part of any public record. These advantages mean that your MassMutual whole life policy may be a valuable estate planning tool that can help you to achieve your wealth transfer goals. The values of assets such as real estate and securities may vary based on market conditions. Some types of financial assets, such as qualified retirement accounts and annuities, may be reduced by income taxes after passing to your heirs. 7
A Portfolio of Solutions MassMutual offers different types of whole life policies to help meet a variety of financial objectives. Each policy is guaranteed to be paid-up (premiums are no longer payable) at a certain age or after a specific number of premium payments. In general, a policy with a shorter premium payment period will have a higher annual premium and accumulate cash value more rapidly. MassMutual s Whole Life Policies Policy name How long premiums are paid Whole Life Legacy 100 SM To age 100* Whole Life Legacy 65 SM To age 65* Whole Life Legacy 20 Pay SM Whole Life Legacy 10 Pay SM 20 years 10 years Whole Life Legacy HECV SM To age 85* * Final premium payment at attained age less one year. 8
Helping You Prepare for the Future It is important to have financial resources that will help you prepare for whatever life brings. A whole life policy from MassMutual can help you protect your family during your working years, allow you and your spouse to live a more comfortable retirement and may help you leave more to your children and grandchildren. A whole life policy may be a good choice if you: Need life insurance to protect your family; Value guarantees and dependability; Want to accumulate cash value on a tax-deferred basis as a potential source of tax-advantaged supplemental retirement income; 1 or Want to include permanent life insurance as part of your legacy to your family. Important Considerations When Purchasing Whole Life Insurance A MassMutual whole life policy may help you address different financial concerns over your lifetime. However, you should keep in mind that your ability to use your whole life policy to help meet multiple financial needs will depend upon a number of different factors. Your financial professional is an important resource for you throughout the life of your policy. He or she can guide you through important decisions like: How much coverage and what type of whole life policy to purchase; How long you pay out-of-pocket premiums; The dividend option 3 to best complement your goals; and Accessing income from the policy in the form of partial surrenders or policy loans. Get started by asking your financial professional for a whole life illustration today. 3 Dividends are not guaranteed. 9
MassMutual. We ll help you get there. There are many reasons to choose a life insurance company to help meet your financial needs: protection for your family or business, products to provide supplemental income and the confidence of knowing you will be prepared for the future. At Massachusetts Mutual Life Insurance Company (MassMutual), we operate for the benefit of our participating policyowners. We stand strong in the fundamental belief that every secure future begins with a good decision. And when choosing a life insurance company ownership, strength and stability matter. Learn more at www.massmutual.com/mutuality The Whole Life Legacy Series (WL-2007 and WL-NC-2007) are level-premium, participating, permanent life insurance policies issued by Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001. 2014 Massachusetts Mutual Life Insurance Company, Springfield, MA 01111-0001. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. LI1713 1014 CRN201610-186021