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Permanent life insurance: death benefit plus increasing guaranteed cash value
Two basic features are characteristic of all permanent life insurance contracts:
- The death benefit provided by the contract—Permanent life insurance provides coverage for your entire lifetime, no matter when death occurs. The death benefit may vary up or down depending on the type of contract selected.
- The cash value in the contract. The cash value may vary up or down depending on the type of contract selected.
Two basic types of permanent life insurance: traditional or flexible
Guarantees are the hallmark of traditional permanent life insurance:
- Guaranteed death benefit—You are guaranteed that your beneficiaries will receive the death benefit when you die.
- Guaranteed level premiums—You know in advance exactly how much you'll have to pay, and for how long.
- Guaranteed cash values—You know from the beginning what your guaranteed cash value will be at any point in the future. The guaranteed cash value increases steadily year by year.
All of these guarantees are contingent on the fact that all premiums have been paid and no loans or changes have been made to the contract.
You can also choose a more flexible type of permanent life insurance, such as Universal Life or Variable Universal Life. Such products may allow you to increase or decrease your death benefit and/or your premium payments (to the extent allowed by law, and subject to any limitations within the contract). Cash value in a Universal Life contract receives interest credited at a current rate (with a minimum rate stated in the contract). The owner of a Variable Universal Life contract has the ability to direct how the cash value is invested among the subaccounts offered where investment performance may have no guarantees.
The advantages of cash value
Under current tax law, the cash value grows tax-deferred inside your permanent life insurance contract. You pay no income tax on the cash value growth except when there is gain in the contract that is withdrawn in cash (other than a loan).
While the contract remains in force, you can choose to access the contract's cash value for any purpose you desire (for supplemental retirement income, to help with college costs, etc.). All permanent life insurance contracts allow the contract owner to exercise a contract loan to use some of the cash value. Some contracts also allow access to the cash value via a withdrawal or a partial surrender.
Loans, withdrawals, and partial surrenders will decrease your cash surrender value and death benefit, and potentially cause your contract to lapse. Interest is charged on any loans, and the interest is not tax deductible. In most cases, loans from your contract are not taxable. Withdrawals may create income tax liability and may be subject to a contractual charge.
Tax advantages
Life insurance, such as permanent life insurance from Thrivent Financial for Lutherans, offers a variety of tax advantages including:
- Tax-free death benefit: One of the most significant advantages of insurance is that the entire amount of the death benefit passes to your beneficiaries free of income taxes.
- Tax-deferred growth: Life Insurance offers one of the few opportunities (outside of retirement plans and annuities) to obtain tax-deferred growth of your cash value.
- Tax-free loans: In most cases, loans from your contract are not taxable. Of course, outstanding loans are subject to interest charges and also will reduce the death benefit and your cash surrender value. (Interest on contract loans is not tax deductible.)
- Tax-free withdrawals: With some types of permanent life insurance, including Thrivent Financial Horizon Universal Life and Thrivent Financial Variable Universal Life, you have the ability to take partial withdrawals. When you take partial withdrawals, you generally are not taxed on them until the cash value withdrawn exceeds the total amount of premiums paid. However, the amount of your withdrawal will reduce the death benefit and the cash value available to pay your insurance costs.
Selecting a permanent life insurance contract
Thrivent Financial for Lutherans offers a number of permanent life insurance products:
Your financial representative with Thrivent Financial for Lutherans understands the features of permanent life insurance and can explain why a certain type of contract may best suit your situation.
Contact your financial representative for costs and complete details of coverage. Like most insurance contracts, this contract has exclusions, limitations, reductions of benefits and terms under which the contract may be continued in force or discontinued.
Please note that neither Thrivent Financial for Lutherans nor any of its agents give legal or tax advice. The brief discussion of taxes in this section is neither complete nor necessarily up-to-date; the laws and regulations are complex and subject to change. A transfer of the contract, a change in the owner or change in the beneficiary may have tax consequences depending on the particular circumstances. For complete details, consult with your attorney or tax advisor. The description of benefits in this section is brief and does not constitute, in itself, a contract.
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