Premier Business and Commercial Real Estate Broker

Life Insurance - Whole Life

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 Guardian 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.) The graph below illustrates the guaranteed values of a whole life insurance policy without any dividend values. The Guaranteed Death Benefit of $500,000 is a combination of Guaranteed Cash Value and Guaranteed Net Amount at Risk.1 Year by year, the Guaranteed Cash Value increases until it is equal to the face amount of the policy at age 121.


Taxation Protection2

Because of the contribution that life insurance makes to the welfare of society by providing protection for surviving family members, it is vested with the following significant tax benefits:

• Income tax-free death benefits.

• Tax-deferred build up of cash values inside of the life policy.

• Access to policy values on a tax-favored basis. 

o The cash values of life insurance policies may generally be accessed on a tax-favored basis by withdrawals or through policy loans.

o Withdrawal from a life insurance policy is permitted on a First-In First-Out Basis (FIFO). This means that the first dividends paid out to the policyowner are considered a return of cost basis.3

o All of a policy’s cash value may be borrowed from a policy without triggering of income tax on any gain that has been borrowed from the policy.


Tax-free death benefit

The death benefits of life insurance policies are free from all federal income taxes. The enormous value of this benefit must not be underestimated, especially in light of constantly growing government expenditures and taxes.


Tax-deferred growth

The growth of cash value inside of the life insurance policy is deferred from taxation while the funds remain in the policy. This is yet another wealth protecting benefit for families and businesses provided by whole life insurance.


Tax-favorable access to policy cash values through withdrawals of dividends

During the insured’s life, cash values can be accessed under favorable FIFO (First-In-First-Out) tax rules. This means that dividend withdrawals are tax-free up to the amount cumulatively paid in premiums.5 Human Life Value Protection Property values, whether they exist in the context of a family or a business, are in fact the result of human effort. Human life value is clearly seen in a family whenever income is earned to provide for that family’s economic needs. Human life value isclearly seen in a business where a key person is often identified as a significant contributor to revenue and earnings. Whole life insurance provides a means by which an individual may insure their human life value. Solomon Huebner defines Human Life Value as the capitalized monetary worth of the earning capacity resulting from the economic forces that are incorporated within our being: namely, our character and health, our education, training, and experience, our personality and industry, our creative power, and our driving force to realize the economic images of the mind. Most people see the importance of insuring the value of property such as their home or car for its replacement value and are able to do so with their casualty insurance. The human life value of an individual, which is by far the most valuable asset of a family or business, is also insurable for its replacement value on a permanent basis with whole life insurance. Whole life insurance provides an affordable, effective way of permanently indemnifying a family or business against the loss of its most valuable asset. There are many benefits that a family may enjoy from the production of income, such as the purchase of a home, rearing and education of children, and the enjoyment of life. The indemnification of the breadwinners in a family will ensure that these benefits will continue to the survivors in the event of death.


Family Protection

The death benefits of life insurance can assure the economic continuity of a family at a time when it is faced with the greatest of all possible traumas: the death of a beloved father, mother, husband or wife. Whole life insurance can also assure financial stability through the funding of:

• Mortgage protection;

• Education funding; and

• Income needs.

Business Protection

Businesses face special insurance funding needs in order to provide a business continuity plan that will protect the owners in the event of death. Whole life insurance is ideally suited to provide the capital needed to adequately buy the interest of a deceased owner and indemnify the business against the loss of the services, expertise, and skill of a key person. Life insurance is ideally suited to address four major areas of business planning:

• The funding of buy-sell agreements and stock redemption plans;

• Funding of supplemental retirement programs;

• Key person indemnification; and

• The payment of loans and mortgages.


Estate Planning

Planning for the orderly transfer of property at death can minimize taxes and provide for heirs in a way that will reflect an individual’s desires. Whole life insurance plays a key role in providing for loved ones by offering:

• Adequate liquidity to pay estate and inheritance taxes;

• Assets to generate income for a surviving spouse and children;

• Estate equalization among heirs; and

• Funding for special needs children.


Asset Maximization

One of the unique benefits of whole life insurance is the way that it enhances the value of other assets in your estate. The presence of guaranteed whole life insurance gives the owner the ability to use estate assets in ways that would not be possible if the insurance did not exist. Whole life is the “permission slip” that may enable you to maximize retirement income and your personal net worth. For example:

• The Power to Consume – The presence of whole life insurance in your estate will allow other assets to produce greater income by providing access to the principal as well as interest as a source of income. Life insurance gives the owner the power to consume assets that would otherwise have to be managed in an ultra-conservative fashion in order to preserve the principal and the income stream it produces.

• Pension Maximization – Most retirees will select a joint and 50% survivor annuity as the retirement income option on their pension plan. The cost of selecting this option is a lower retirement income, as much as 15%, followed by an income to the surviving spouse of 50% of the lowered retirement income. The presence of permanent whole life insurance may enable a retiree to take a much higher retirement income in the form of a single life annuity because the insurance benefits will be available to a surviving spouse as a future source of income.

• Charitable Remainder Trust – The cost of successfully building a business or managing a personal investment portfolio is often measured by the enormous capital gains tax that must be paid when a business owner looks to sell a business interest or portfolio holdings in order to fund retirement income. Often financial success brings with it a desire to express benevolence towards those charitable causes that are of particular interest. With a charitable remainder trust, these two seemingly diverse needs and desires can meet in a plan that provides: 

o A lifetime income for a benevolent donor;

o A substantial bequest to a charity of choice;

o Avoidance of the capital gains tax; and

o Significant income tax deductions.

The existence of permanent whole life insurance in the estate

of a donor makes it possible to achieve the desired charitable

intent with all the collateral benefits while maintaining a

comparable legacy for the donor’s heirs.


The Protection of an Instant Permanent Estate

Instantly with the payment of the first premium, Guardian sets aside the entire death benefit for your family. Whole life insurance provides a guaranteed death benefit for the entire life of the insured.

Disability Protection

Life insurance is uniquely different from all forms of savings and investment vehicles such as bank accounts, IRAs, 401(k) accounts, mutual funds, and brokerage accounts because it can continue to grow even if you are disabled. Disability usually brings with it the strain of reduced income, increased expenses, and dissolution of existing savings and investment. The Waiver of Premium Rider guarantees that if disabled, you will not lose the umbrella of financial protection provided by a whole life insurance policy. The policy will continue to provide death benefit protection, the cash values will continue to grow and dividends will continue to be paid just as they would if you had not been disabled.

Liability Protection

In many states the benefits of life insurance are protected from the claims of creditors. If your state provides this legal protection, the cash values and death benefit of a whole life policy will be protected from lawsuits that can claim other assets such as bank accounts, mutual funds, and brokerage accounts.


Distribution Like a Will

Life insurance is distributed like a will in that you specify who and how much of the benefit will be distributed to each beneficiary. Unlike a will, however, life insurance has the added benefit of privacy. Wills, once probated, become public documents. The beneficiary distribution of life insurance is a private, contractual agreement between the policy owner and insurance company that passes outside of a will and thus provides privacy for the beneficiary.

Tax favorable access to policy cash values through policy loans 

During the insured’s life, loans taken against a life insurance policy will not trigger a taxable event even though the policy may have a large gain in excess of premiums paid.


You have the option of having the policy pay for itself over time by applying dividends to pay premiums. This feature may be invoked or changed at any time to meet the changing circumstances of your life.

Ability to invest cash value in growth securities

Policy values are always available via a policy loan and may be used for a variety of reasons including investment in growth securities.

anticipated earnings 

Once a policy loan has been taken, the annual dividend can be used to help pay back a policy loan. 

You can make direct loans to yourself for any reason

Cash values can be accessed on a demand basis via a policy loan at any time and for any reason without the application and approval process that is required for consumer or business loans. Whole life insurance can then free a policyholder from reliance upon commercial lenders.

Collateral for a loan from a bank

A whole life insurance policy may be used as collateral to obtain a loan from a bank at favorable interest rates. The ability to either borrow directly from the insurance company or from a bank gives the owner of a whole life insurance policy significant flexibility when there is a need to access policy values.

Flexible loan repayment terms

Life insurance policy loans are flexible to the extent that they do not need to be paid back unless you decide to pay them back. Once a loan is taken out on a policy it can be paid back at the option and discretion of the policyowner. When a policy loan is paid back, there will be a commensurate increase in the cash value of the policy which may be reborrowed at a future date or paid out to the beneficiary. Death benefit increase When dividends are used to purchase paid-up-additions, death benefits will grow, helping offset the eroding effects of inflation. Once a dividend has purchased paid-upadditions, the additional death benefit and cash value of the paid-up-Additional insurance is guaranteed.


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Kavita Purohit, Ph.D