There’s More to Some Life Insurance Policies . . . Than Just a Death Benefit

Although permanent life insurance is most often purchased to provide a death benefit, it can also provide living benefits.

The cash value of a permanent life insurance policy grows income-tax deferred. It can be used to provide:

An income stream during retirement
Help meet other long-term financial goals, such as funding a college education for a child or grandchild.

The guaranteed accessibility to the cash value makes permanent life insurance one of the most valuable assets people can own.

The impact of taxes can make some options more valuable than others. As a general rule, when policy values are surrendered, the amount received is not taxed until it exceeds the amount paid in premiums. Income tax is due on the gain.

Living Benefits
One of the benefits of owning a permanent life insurance policy is that there are ways you can use it while you are living.

As an example:

Take a policy that was purchased 40 years ago as a $100,000 permanent life insurance policy (JJ series) purchased in January 1969 to a healthy male, age 25.

The policyowner paid the premium of $1,717 every year.
He took advantage of all of Northwestern Mutual’s offers to amend the policy.
Dividends were used to increase the policy’s value.
No loans were taken on the policy.

In 2009, the policy values were:

Total Death Benefit: $631,027
Total Cash Value: $389,012
Total Premiums Paid: $68,680

What options does the policyowner have?

Receive Income
Instead of a death benefit, the policyowner could receive a guaranteed income that would last the rest of his life, based on:

Northwestern Mutual rates for 1/1/2009
Male policyowner, age 65
Lifetime Payment Plan selected

The policyowner would have paid $1,717 per year for 40 years. He would receive $27,593 per year for the rest of his life.

Take the Cash
Instead of a death benefit, the policy could be cashed in for $389,012 with the first $68,680 received income tax free.

Stop Paying
If the policyowner no longer wanted to make premium payments, the insurance coverage could be kept in force as “paid-up” with a face amount of $618,068. The policy would still participate in receiving dividends* which could be received in cash or used to increase policy values.

Keep the Insurance
The policyowner could also keep the policy and continue to pay premiums. This option would provide the largest death benefit and cash value overall. As an example, using the 2009 dividend scale* and applying dividends to increase the policy values, at age 80:

Death benefit: $1,146,037
Cash value: $919,497

If future dividends were taken in cash, or in the extreme case the policy never received any future dividends, at age 80:

Death benefit: $631,027
Cash value: $504,487

Learn more about permanent life insurance.

*The policy dividend is reviewed annually by the Company's Board of Trustees. Dividends are not guaranteed.