| Q: |
What is Value-Added Whole Life Insurance? |
| A: |
It is permanent life insurance that can stay with you forever. Once you start a whole life policy, you never have to reapply or re-qualify in order to keep it going. Also, it builds cash value. |
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| Q: |
What is "Pay to age 100", "30 Pay", "20 Pay", "7 Pay"? |
| A: |
This is the number of years to pay the premiums for your whole life policy. After you have completed your payment plan, both your cash value and your death benefit will continue to grow even though you are no longer adding premiums. After you have completed your payment plan, AAFMAA guarantees that you will never ever have to pay an extra penny of premium. If you pass away before your payment plan is completed we will still pay the death benefit to your beneficiary (subject to terms and conditions of the policy). |
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| Q: |
What about the Single Premium payment option? |
| A: |
This means you only pay a one-time, lump sum upon approval and that lump sum becomes the base of your cash value. Your death benefit and cash value will keep growing over the years. This option is not recommended if you intend to borrow money from the cash value in the future because you will have to pay taxes and, if you are under the age of 59 ½ when you borrow, you will also have to pay a 10% penalty to the IRS. |
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| Q: |
Will my premiums ever change? |
| A: |
No. |
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| Q: |
Will my Death Benefit ever decrease? |
| A: |
No. Your death benefit will never decrease; but it can increase. |
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| Q: |
What if I want to cancel my policy? |
| A: |
Only the owner can cancel the policy. If you cancel a whole life policy issued by AAFMAA, you are guaranteed to get back all of your premium paid, or the cash value, whichever is GREATER! If you have borrowed money from the cash value and not repaid all of the loan plus interest, the remaining amount will be subtracted from the cash surrender value. Remember, if your cash value is greater than the premiums you paid into the policy, you will have to pay taxes on the gain:
| Example: |
Cash Value |
= |
$50,000 |
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Premiums Paid |
= |
- $15,000 |
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Gain |
= |
$35,000 (this amount is taxable income) |
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| Q: |
Can AAFMAA show me a forecast of how the Cash Value and Death Benefit will grow? |
| A: |
Yes, we can create a growth projection when you request an application and another one when your policy is issued. You will see the growth based on a minimum guaranteed crediting rate of 4.5% and also growth based on our current crediting rate of 7.2% (for 2008 – NOT guaranteed, established annually). |
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| Q: |
Can I increase the Death Benefit on the policy at any time? |
| A: |
No, if you want additional life insurance, you must apply for an additional policy. |
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| Q: |
Can I get a Whole Life policy for other family members? |
| A: |
Yes. Your spouse, children and grandchildren are also eligible. The children and grandchildren must have their policy issued before their 24th birthday. |
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| Q: |
After my policy is issued, will I receive a statement showing the Cash Value? |
| A: |
Yes. Each year, in February, we will send you a detailed Annual Statement showing your death benefit, cash value, policy loan (if any), loan interest (if any) and also the breakdown of expenses. |
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| Q: |
What happens if I miss a premium payment? |
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If there is enough cash value in your policy, an Automatic Premium Loan will be taken from the cash value to keep your policy in force. There will be interest charged on the loan (at 1% above the crediting rate). You will be billed annually for the interest; unpaid interest is added to the loan principal. Be careful because if the loan principal and the loan interest remain unpaid, it will eventually exceed the cash value and cause your policy to lapse. If there is not enough cash value in your policy to cover an Automatic Premium Loan, your policy will lapse in accordance with policy provisions. |
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| Q: |
Does my Beneficiary receive both the Cash Value and the Death benefit upon my death? |
| A: |
No. The beneficiary will only receive the death benefit. The cash value is money that is available to the insured while the insured is still living. The insured can borrow up to 75% of the cash value or can cancel the policy (as described above) and get 100% of the cash value or premiums paid, whichever is greater. |
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| Q: |
How does my Cash Value increase? |
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Three factors affect cash value increases:
- Premium: All premium payments are added to the cash value.
- Expenses: Any insurance and expense charges are deducted (See question “what is included in expenses?” below).
- Cash Value: The cash value is then credited with monthly interest.
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| Q: |
What is included in the Expenses? |
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Expenses are comprised of the following costs:
- Administration: Maintenance costs (the policy’s share of administrative and overhead costs) plus acquisition costs (marketing, underwriting, medical exams and labor). Maintenance costs are incurred for the life of the policy.
- Cost of Insurance: The charge from the premiums paid and/or cash value of the policy to pay for the current year’s risk charge (the cost to insure you).
These expenses will be listed on your Annual Statements. |
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| Q: |
Is the growth in my Cash Value taxable? |
| A: |
No, as long as you keep your policy in force. However, if the policy is surrendered, or cancelled (as described above), any cash value in excess of the premiums paid is taxable income and reported to the IRS on a form 1099R. |
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| Q: |
Is the policy’s Death Benefit taxable to my Beneficiary upon my death? |
| A: |
No, the death benefit goes to the beneficiary(s) tax free. |
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| Q: |
How can I access the Cash Value? |
| A: |
You may access your cash Value in two ways:
- You may borrow up to 75% of your current cash value. The variable loan interest rate is always 1% above AAFMAA’s current crediting rate. For example, if the crediting rate is 7.2% , the variable loan interest rate is 8.2%. The crediting rate is set annually. The money you receive in loan amount is still credited with AAFMAA’s current crediting rate, just as if it had never been borrowed. Although there are no income tax consequences at the time the loan is taken (except for Modified Endowment Contracts) any interest due that is not paid will be added to the loan principal annually. If the combined loan principal and accrued interest exceed the current cash value of the policy, the policy will lapse. When the policy lapses, there may be income tax consequences.
- You can surrender (also known as cashing in or cancelling) your policy. If the amount of cash value surrendered exceeds the premiums paid, the gain will be reported to the IRS as taxable income and you will receive an IRS Form 1099.
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