The term “MEC” is an acronym for Modified Endowment Contract. A MEC is created when the premiums paid in the first 7 years of a life insurance policy exceed certain limits. Unless you’re an actuary there is no need to know the formulae that defines those limits. If you are contemplating the purchase of a […]
The American Taxpayer Relief Act of 2012 raised the Federal Estate Tax exemption to $5,000,000 per person (indexed) so many people who had been concerned about liquidity for estate tax were relieved. However, states also have the ability to impose taxes when their residents transfer assets. Fourteen states and the District of Columbia have estate […]
Here are a few more insurance terms that could use a little clarification: Surrender Charge A surrender charge is a charge made against the cash Accumulation Value of a Universal Life Policy. The charge begins at a high amount in the first policy year and gradually reduces each year, generally vanishing between the 10th and […]
I’m guilty! There are times when I banter around terms that mean something to me, but are meaningless—or downright misleading—to non-insurance people. That’s why I included a Life Insurance Terminology tab on this site. But, even with that assist, much of our “insider’s terminology” needs clarification. So, here goes on some of those terms that […]
In my last entry I discussed steps to take when replacing one life insurance policy with another. Now I’ll cover what considerations there are when a life insurance policy that has cash value is either being replaced or discontinued. Options available to use the cash to continue insurance with the same policy were covered two […]
If premiums for your car insurance are too high, you simply shop the market and if another insurance company beats what you’re paying, you switch. It’s a pretty easy decision to make. But, the Life Insurance switch is not so easy. Aside from the fact that life insurance policies tend to be more complex, it’s […]
A few years ago you may have established an Irrevocable Life Insurance Trust (ILIT) in order to provide liquidity for estate taxes. At the time, the per-person exemption was only $1,000,000 but now the exemption is north of $5,000,000 and due to rise with the CPI. The life insurance in that ILIT is no longer […]
If you are a smoker and have been coaxed into looking at life insurance by TV ads showing the low cost of term insurance, you have most likely been very disappointed when you responded to these ads. Tobacco users pay much, much more for life insurance than those who do not partake. I covered much […]
In Part One of this discussion on the potential pitfalls of Deferred Annuities I mentioned Surrender Charges. Surrender charges are imposed to compensate insurance companies for the commissions and other acquisition costs they incur when a Deferred Annuity is purchased. If the annuity stays in force long enough, these costs can be amortized over the […]
In my previous entry “The Truth About Annuities” I provided an overview of the two types of annuities, Immediate and Deferred, touching on the strengths and weaknesses of Immediate Annuities as well as the major strength of Deferred Annuities—tax deferral. Now it’s time to cover the downside of Deferred Annuities. But, first it’s important to […]
