variable life |

Buy the Company of your Choosing…

Posted on November 18, 2014 by Thad

What Is Stock?

Most people know something about the stock market, but many investors who see stock as a way to get rich quick might not understand exactly what stock is and how it works. Before jumping feet-first into investing in stocks, it is important to understand some of the basics and the risks involved in owning stocks.

A company can raise money by “going public” and selling a portion of the company by issuing stock; this is called equity financing. The advantage to the company is that it doesn’t have to pay back the money or pay interest right away, as it would to a bank if it borrowed the money it needed. The advantage to the shareholder is the potential to make money through dividends and/or capital appreciation.

Dividends are taxable payments to shareholders from the company’s earnings. They are generally paid quarterly in cash, but there is no guarantee that dividends will continue to be paid. Capital appreciation is the difference between the amount paid for a stock and its current value. Shareholders also have the ability to trade their stocks on an exchange at any time.

Stock is quite simply a share in the ownership of a company, which is why stockholders are called shareholders. When you buy stock, you are actually buying a piece of the company it represents; you have a claim on part of the corporation’s assets and earnings.

As a partial owner of the company, you therefore take on the potential risks and benefits of that position, but you don’t have to put any effort into running it. Your ownership is determined by the number of shares you own divided by the total number of shares sold by the company. For example, if a company has issued 1,000 shares and you have 10, you own 1 percent of the company. Of course, if you own 10 shares of a large company that has issued millions of shares, your equity in the company is quite small.

If a company is profitable, it may decide to pay dividends to shareholders from its earnings. On the other hand, some companies may decide to reinvest profits back into their businesses rather than pay dividends. Investors have the potential to make money from dividends as well as from appreciation in the value of stock shares on the open market. Thus, stockholders have the potential to make money if the company does well and the potential to lose money if the company does poorly. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Shareholders of common stock often have voting rights on major issues at annual meetings, usually electing a board of directors. In this way, shareholders have a say in the way the company is run. Owners of preferred stock usually don’t have voting rights but have a higher claim on the company’s assets and earnings than common stockholders do. If a company pays dividends, preferred stockholders receive theirs before common stockholders.

There is always a risk when investing in stocks. Generally, the greater the risk, the greater the potential reward. You should determine your risk tolerance and financial goals before deciding to invest in stock investments.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2014 Emerald Connect, LLC

“Types” not “Type” of Life Insurance…

Posted on November 4, 2014 by Thad

What Are the Basic Types of Life Insurance?

One of the best ways to protect against the financial consequences of a primary wage earner’s premature death is life insurance. However, only about 6 out of 10 Americans actually own life insurance and half believe they do not have enough.¹ However, choosing from the many types of life insurance policies that are available can be a difficult process. A few main categories are described here to help you search for a life insurance policy that is appropriate for you.

Keep in mind that the cost and availability of insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving insurance, it would be prudent to make sure that you are insurable.

Term Life Insurance

Term life insurance is the most basic and usually the most affordable. Policies can be purchased for a specified period of time. If you die within the time period defined in your policy, the insurance company will pay your beneficiaries the face value of your policy.

Policies can usually be bought for one- to 30-year time spans. Annual renewable term insurance usually can be renewed every year without proof of insurability, but the premium may increase with each renewal. Term insurance is useful if you can afford only a low-cost option or you need life insurance only for a certain amount of time (such as until your children graduate from college).

Permanent Life Insurance

The other major category is permanent life insurance. You pay a premium for as long as you live, and a benefit will be paid to your beneficiaries upon your death. Permanent life insurance typically comes with a “cash value” savings element. There are three main types of permanent life insurance: whole, universal, and variable.

Whole life insurance. This type of permanent life insurance has a premium that stays the same throughout the life of the policy. Although the premiums may seem higher than the risk of death in the early years, they can accumulate cash value and are invested in the company’s general investment portfolio. You may be able to borrow funds from the cash value or surrender your policy for its face value, if necessary.

Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase.

Universal life insurance. Universal life coverage goes one step further. You have the same type of coverage and cash value as you would with whole life, but with greater flexibility. Once money has accumulated in your cash-value account, you may be able to vary the frequency, as well as the amount, of your premiums. In fact, it may be possible to structure the policy so that the invested cash value eventually covers your premium costs completely. Of course, it’s important to remember that altering your premiums may decrease the value of the death benefit.

Variable life insurance. With variable life insurance, you receive the same death protection as with other types of permanent life insurance, but you are given control over how your cash value is invested. You have the option of investing your cash value in stocks, bonds, or money market funds. The value of your policy has the potential to grow more quickly, but there is also more risk. If your investments do not perform well, your cash value and the death benefit may decrease. However, some policies provide a guarantee that your death benefit will not fall below a certain level. The premiums for this type of insurance are fixed and you cannot change them in relation to the size of your cash-value account.

Variable universal life is another type of variable life insurance. It combines the features of variable and universal life insurance, giving you the investment options as well as the ability to adjust your premiums and death benefit.

As with most financial decisions, there are expenses associated with life insurance. Generally, life insurance policies have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most policies have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; it is not a deposit of, nor is it guaranteed or endorsed by, any bank or savings association.

Withdrawals of earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Withdrawals reduce contract benefits and values. For variable life insurance and variable universal life, the investment return and principal value of an investment option are not guaranteed and fluctuate with changes in market conditions; thus, the principal may be worth more or less than the original amount invested when the policy is surrendered.

Variable life and variable universal life are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses before investing. The prospectus, which contains this and other information about the variable life or variable universal life insurance policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Source: 1) LIMRA, 2013

UNIVERSAL Life Insurance…

Posted on September 18, 2014 by Thad

What Is Universal Life Insurance?

Universal life insurance was developed in the late 1970s to overcome some of the disadvantages associated with term and whole life insurance. As with other types of life insurance, you pay regular premiums to your insurance company, in exchange for which the insurance company will pay a specific benefit to your beneficiaries upon your death.

As with whole life insurance, a portion of each payment goes to the insurance company to pay for the pure cost of insurance. The remainder is invested in the company’s general investment portfolio, with the potential to build cash value.

Most universal life policies pay a minimum guaranteed rate of return. Any returns above the guaranteed minimum vary with the performance of the insurance company’s portfolio. The policyholder has no control over how these funds are invested; funds are managed by the insurance company’s professional portfolio managers.

However, universal life policies are very flexible. As the policy owner, you can vary the frequency and amount of premium payments and also increase or decrease the amount of the insurance to suit changes in your situation.

For example, if your financial situation improves significantly, you can increase your premiums and build up the cash value more rapidly. On the other hand, if you find yourself under a financial strain, you can reduce your premiums, or you may even be able to deduct premium payments from the cash value of the policy. Of course, changing the premium or withdrawing part of the cash value in your policy will affect the rate at which your cash value accumulates. It may also reduce the size of the death benefit.

Any cash you withdraw from your universal life policy is considered “basis-first.” You won’t incur a tax liability until your withdrawals exceed the premiums you’ve paid into the policy. Any amount that exceeds the premiums will be taxed as ordinary income.*

It is possible to structure many universal life policies so that the invested cash value will eventually cover the premiums. You would then have full life insurance coverage without having to pay any additional premiums, as long as the cash-value account balance remains sufficient to pay for the pure cost of insurance and any other expenses and charges.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

For investors who want the flexibility to change their premiums or death benefits, a universal life insurance policy may be ideal. If you are considering purchasing life insurance, consult a professional to explore your options.

* Under current federal tax rules, loans taken will generally be free of current income tax as long as the policy remains in effect until the insured’s death, does not lapse or matures, and is not a modified endowment contract. This assumes the loan will eventually be satisfied from income tax-free death proceeds. Loans and withdrawals reduce the policy’s cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, matures, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.