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Whole life is the most versatile financial instrument ever devised for the protection of families and businesses and the creation and enhancement of wealth. To appreciate the great values of this type of life insurance protection, this article explores how it works, its uses, its benefits and the options you have in structuring a contract to meet your specific needs, and why Auto-Owners Life Insurance is the company of choice.

“Whole life provides lifetime insurance protection with significant guarantees and tax benefits…”

DID YOU KNOW…

Walt Disney, unable to land a substantial bank loan, used the cash value from his whole life policy to build a sprawling theme park that is now known to the world as “the happiest place on earth.”

How Does Whole Life Work?

Whole life is an insurance policy that provides lifetime insurance protection with significant guarantees and tax benefits for the policyowner. These guarantees can be viewed as either rates or values. When actuaries design a whole life policy, they begin by determining what rates are going to be guaranteed. Once the guaranteed rates have been set, they are used to determine policy premiums and values. Guaranteed rates and values are based upon conservative assumptions. A mutual life insurance company will then adjust these rates and values to current conditions through the mechanism of a non-guaranteed dividend.  Because life insurance is seen as beneficial to the welfare of society, significant tax benefits have been given to it that are not found in other financial instruments.

WHAT ARE THE GUARANTEED RATES?

A whole life policy is built upon a foundation of three guaranteed rates:

  • The guaranteed mortality rate –this guarantee comes from the 2001 CSO table, a table of guaranteed mortality rates that are required by insurance regulations.
  • The guaranteed interest rate – this rate for Auto-Owners policies is 4.0% for the entire life of the policy.
  • The guaranteed expense factor – an allocation for expense that is covered in guaranteed values.

WHAT ARE THE GUARANTEED VALUES?

The three guaranteed rates are combined in an actuarial formula that results in three guaranteed values, and it is this trio of guaranteed features that sets whole life policies apart from all other types of financial instruments. Whole life insurance has:

  • A guaranteed level premium – The annual premium is contractually guaranteed to never change
  • A guaranteed death benefit – The level death benefit is contractually guaranteed never to go down
  • A guaranteed cash value – The contractually guaranteed cash value grows each year until it is equal to the face amount of the policy at a specified age, usually age 121. (Prior to the 2001 CSO table, it was age 100.)

Each Auto-Owners life insurance policy provides an illustration showing the guaranteed values of a whole life insurance policy without any dividend values. For example, a Guaranteed Death Benefit of $500,000 is a combination of Guaranteed Cash Value and Guaranteed Net Amount at Risk. Year by year, the Guaranteed Cash Value increases until it is equal to the face amount of the policy at age 121.

Dividends

Whole life offers the ability to provide value in excess of its guarantees through dividends. Dividends are paid to the policyholders if declared by the Board of Directors. When dividends are declared, they have three components:

  • The insurance company’s current investment rate in excess of the guaranteed rate promised in the policy;
  • Mortality experience which is better than that which is guaranteed in the policy; and
  • Expenses of policy administration which are less than the cost guaranteed in the policy.

WHAT ARE MY DIVIDEND OPTIONS?

The table below describes the dividend options that are available to you. We cannot tell you what option is best for you. You can make that decision. Only one option can be in effect for a policy at any one time. If you have more than one policy in force, different options can be selected for each policy.

Dividend OptionsHow it Works
Use Dividend to Pay Your Annual PremiumThis dividend option automatically applies your annual dividend toward your annual policy premium. If your dividend is less than your annual premium, you will owe the difference. If your dividend exceeds your policy's annual premium, the excess dividend can be:
1. Paid to you in cash
2. Used to purchase paid-up additional insurance, or
3. Paid against a policy loan if you have one or lien if there is one assigned to your policy
Buy Paid-Up Additional InsuranceThis option allows you to use your dividends to purchase additional paid-up insurance, thereby increasing the amount of insurance you have in-force. The insurance purchased with your dividends is in addition to your basic coverage and can be purchased at any age. You can accumulate a substantial amount of paid-up additional insurance coverage over a period of years because you earn dividends on both your basic coverage and the paid-up additions themselves, with most carriers whole life policies. The paid-up additions you purchase will:
1. Provide additional protection for your beneficiaries
2. Have cash and loan values
3. Earn dividends
4. Not require payment of additional premiums
Leave Dividends in an Account That Earns Interest and Protects Your Policy Against LapseThis option allows you to keep your dividend in a "credit account" which earns interest. These interest earnings might not be taxable, if left in the account (see a tax advisor for details). You may withdraw month from the credit account at any time. Another feature of this options is that if you forget to send in your premium payment, the company will automatically withdraw enough money from your credit account to pay one month's premium. You will be notified when premiums are withdrawn from your account. Interest earned on the account changes annually and is dependent on the particular insurance program. This option is generally not available for term policies.

Insure With the People You Trust

There are several different types of life insurance policies that offer different terms and conditions.  Many people who buy life insurance do so because they know it can add value to their financial portfolio as a means of supplementing a number of different financial goals in addition to providing death benefit protection. Contact Kasmann Insurance and let our trained life insurance experts help you navigate through the coverage and dividend options Auto-Owners Life Insurance has to offer.