Take action today. Call our experts at: phone icon1-800-522-5221

Life Insurance FAQ

Annual Statements

Yes, if you own an AAFMAA Life Insurance Policy issued prior to February of the previous year in which you obtained it, you will receive an annual statement.

All Annual Statements are posted in the AAFMAA Member Center. Most new AAFMAA Members receive their annual statements there. If you prefer paper delivery, just visit the Member Center and select “Account Profile,” then “Delivery Preferences.” You can decide whether to receive your statements online or through the mail.

AAFMAA Members with fewer than five policies receive separate statements to ensure that no one receives another Member’s statement. We consolidate statements for AAFMAA Members with more than five AAFMAA policies.

There are two reasons why your death benefit may not have increased this past year:

1. Recently issued policies must typically be in force for several years before the policy’s cash value reaches the point at which the death benefit begins to increase.
2. Older policies that have experienced artificially high growth in the past may have been converted to a more conservative basis for cash value, temporarily causing the death benefit to stop increasing.

Death benefit increases will resume when the cash value growth is sufficient to support an increase in the death benefit again.

Three factors affect cash value increases:

1. Premiums: All premium payments are added to the previous month’s cash value.
2. Expenses: Deductions for administrative costs, acquisitions costs, services costs, and mortality costs are subtracted.
3. Cash Value: After premium, if any, is added and expenses are deducted, the balance of the cash value is credited with the monthly equivalent of the current annual crediting rate to create a new cash value amount.

Adjustments to your policy’s portion of AAFMAA’s contingency fund reserves may be required to cover the unamortized acquisition costs of establishing your policy or to insulate the Association from the effects of short-term fluctuations in mortality and investment experience.


Yes; however, it’s a good idea to seek legal advice when naming a younger beneficiary. We cannot pay the claim until we receive legal documentation, usually a court order, informing us to whom we should send the payment.

If you would like to change your beneficiary, just download the form under the Decision Center tab choose Beneficiary Designation Form. Print the Beneficiary Designation Form, complete, sign, date and either email it to beneficiary@aafmaa.com, fax to 1-888-210-4882 or mail to 1856 Old Reston Avenue, Suite 200, Reston, VA 20190.

No. The beneficiary receives the death benefit income tax free. There may or may not be an estate tax payable.

If you participate in the Career Assistance Program, your loan balance, as of the statement period, will be indicated on the bottom of your statement. For current information on loan balances, visit our Member Center, or contact AAFMAA Policy Services at 1-800-336-4538. You will also find your CAP Loan balance (as of the statement period) on the bottom of your Annual Statement.

Wealth Builder Life Insurance

Wealth Builder Life Insurance is a Net Single Premium Value-Added Whole Life insurance policy with a graded death benefit in the first two years. It is a Modified Endowment Contract (MEC) and subject to TAMRA rules. If over age 59 ½ the 10% IRS penalty does not apply. Wealth Builder Life Insurance also includes an option to annuitize the cash value for monthly payments to age 100 immediately, at a future date, or never.

Wealth Builder Life Insurance has a net single premium of $780 per $1,000 of death benefit, with a minimum of $10,000 coverage.

Wealth Builder Life Insurance pays a graded death benefit—85% of the face amount in year one, 90% in year two, and 100% each year after that.

Generally, it is suited for older AAFMAA Members interested in growing cash value while getting valuable life insurance, even if they might not meet medical underwriting requirements for a standard permanent policy. However, people of any age can qualify.

The cash value and death benefit grow based on AAFMAA’s present crediting rate, currently 5.75% for 2019, minus an administrative cost (currently 0.75%, for mortality and expenses). Those rates are NOT guaranteed and are subject to change. The guaranteed minimum crediting rate is 3.5% (less 0.75% administrative cost, for a net guaranteed return of 2.75%).

The policy requires no medical records or physicals. Applicants do not undergo extensive medical underwriting. You must be able to answer “no” to three questions on the application:

  1. The Insured must not be in a hospital
  2. Confined to a bed, or
  3. Have a known terminal illness expected to result in death within two years of issue.

The policy is subject to standard two-year contestablity and suicide clauses.

Once you annuitize the cash value, the life insurance policy and death benefit terminate and monthly payments (guaranteed to age 100) begin.

Upon the Insured’s death, AAFMAA pays the present value of the policy’s remaining cash value to the beneficiary in a lump sum payment.

  • Provides a special, “no underwriting” Value-Added Whole Life insurance policy with cash value and a death benefit.
  • Includes an option to annuitize the cash value for monthly payments to age 100 immediately, at a later date, or never
  • Includes a Long Term Care Settlement Option at no additional cost.
  • If annuitized, the life insurance policy and death benefit terminate and monthly payments (guaranteed to age 100) begin. 

For more information about Wealth Builder Life Insurance and to apply, call a Membership Coordinator at 877-398-2263.

Modified Endowment Contract (MEC)

When premiums are paid into a life insurance policy more quickly than normal (usually less than 7 years), the policy is still a life insurance policy but it is considered a Modified Endowment Contract, or MEC, by the IRS.

Under the Technical and Miscellaneous Revenue Act of 1988 (TAMRA), the federal government limits the amount of money that can be paid into a life insurance policy within the first 7 years from the date of issue. This is referred to as the 7 Pay Test. If the amount paid within the first 7 years exceeds the limit, the policy will be classified as a MEC.

Yes. TAMRA makes any net single premium life insurance policy, such as AAFMAA’s Wealth Builder Life Insurance and Single Premium Value Added Whole Life policies, a MEC.

Gains are taxed first for any withdrawals, either by loan or cash surrender, under last in first out (LIFO) accounting. The cost basis is not taxed however it will be considered the last money to come out of the MEC for tax purposes. The gain is taxed as ordinary income to the owner.

Yes. Any withdrawals before age 59 ½ is subject to a 10% penalty on the amount of any gain.

The death benefit of a MEC can still be passed to beneficiary’s tax free.

Once a life insurance policy is classified as a MEC, it cannot be changed back to a non-MEC policy.

The IRS considers Wealth Builder Life Insurance, or any other MEC policy, issued by the same insurer to the same policyholder during the same calendar year, to be aggregated when determining the amount of any distribution that is taxable.

If you decide to cash surrender one of several policies purchased during the same calendar year, you will have to pay taxes on the interest earned for all of the policies with that first policy. When you cash surrender subsequent policies, since you have already paid some or all of the taxes, you will pay less tax on the gain for those subsequent policies. Ultimately, the amount of total taxes if the polices are surrendered will be the same, because the tax basis of the subsequent policies will be increased to reflect the taxes already paid. There will be no impact on policies that are annuitized, if all polices surrendered simultaneously, or if the policy owners dies.

YES - Although these policies have a slightly reduced tax benefit if they are cashed in separately, they still serve as a stable retirement planning tool. They are good alternatives to annuities, which immediately become taxable upon the death of the owner. All AAFMAA life insurance benefits pass tax-free to heirs. Wealth Builder Life Insurance can be appropriate for members who do not qualify for other insurance products, for members looking for a way to leave a tax-free inheritance to family members, or for members who wish to annuitize their policies and receive a steady stream of income for the remainder of their life.

For more information, please contact a membership coordinator today at 1-877-398-2263. The information provided in this FAQ should not be construed as specific tax advice. Please consult a qualified tax advisor for more information.

Value-Added Whole Life

Yes. Your Value-Added Whole Life Insurance policy is guaranteed over the life of the policy to earn a minimum crediting rate (specified in your policy) less charges for mortality and expenses. The initial death benefit is guaranteed for your life. Your premium is fixed and will never increase. Learn more about our Value-Added Life policy

Yes, AAFMAA offers a single premium payment option 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. However, we don’t recommend this option 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 59½ when you borrow, you will also have to pay a 10% penalty to the IRS.

AAFMAA 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 and growth based on our current crediting rate (adjusted annually and not guaranteed). You must apply for an additional policy to increase the Death Benefit on the policy.

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. Learn more about Beneficiaries.

Three factors affect cash value increases:

1.  Premium: All premium payments are added to the cash value

2.  Expenses: Any insurance and expense charges are deducted

3.  Cash Value: The cash value is then credited with monthly interest

It’s important to note that as long as you keep your policy in force, the growth in your cash value is not taxable. 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. Also, the death benefit goes to the beneficiary(s) tax free.

AAFMAA Life Insurance Fees

Insurance policy loans (whole life policies only):

  • Loan proceeds by First Class Mail: No charge
  • Loan proceeds by USPS Priority Mail or FedEx: $7.00 (deducted from loan amount)
  • Loan proceeds by USPS Express Mail: $20.00 (deducted from loan amount)
  • Loan proceeds by electronic transfer (ACH or Wire): $10.00 (deducted from loan amount; Member’s bank may charge additional fees.)

Cash surrender of a whole life policy:

  • Check by First Class Mail: No charge
  • Check by FedEx: $7.00
  • Check by USPS Express Mail: $20.00

Insurance claim settlements:

  • Life annuity (for life, 10 years, 15 years or 20 years): No charge
  • Interest only: No charge
  • Lump sum by check: No charge
  • Lump sum deposit by FedWire ($100,000 or more only): No charge (Member’s bank may charge additional fees)

Exercise of Long Term Care Settlement Option (LTCSO) (whole life policies only):

  • Administrative Fee: $20 / month while LTCSO is in effect

Returned Checks:

  • Returned check for insufficient funds: $25

All fees are subject to change without notice.