CAPIS Personal Insurance Services
August, 2005
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Are you getting the most out of your life insurance policy?

Two of the most prominent features of individual life insurance contracts are leverage and favorable tax treatment. With proper planning these two elements can greatly enhance the balance and efficiency of one's financial position.

Dollars can be leveraged to provide substantial benefits. For example, a 55-year-old man in good health can purchase a life insurance policy with a $100,000 death benefit for about $1,000 per year. This policy has a leverage value of 100 to one.

As for favorable tax treatment, the funds in a life insurance contract grow on a tax-deferred basis and in certain circumstances could be withdrawn free of income or capital gains taxes. Additionally, with proper planning and estate coordination, the death proceeds from life insurance can be tax free to a beneficiary.

But life insurance contracts are not usually thought of as investments since paid premiums and the earnings on the accumulated values are offset by insurance charges. Insurance charges (mortality, administrative and management fees) are usually applied to the Net Amount at Risk (NAR). The NAR for a $100,000 policy with $20,000 in cash value is $80,000. The earnings from the $20,000 cash value are offset by the charges for the $80,000 NAR. Higher NAR typically results in lower net return from the life insurance contract.

There are two ways to improve a life insurance contract's performance: Lower the insurance charges and lower the net amount at risk.

Fortunately, life insurance charges have declined significantly over the past 20 years. The 55-year-old man in the previous example probably would have paid double the premium for a comparable policy in 1985.

To learn how to take advantage of declining insurance charges and enhance the performance of your existing life insurance coverage, just complete the CAPIS Life Insurance Review Consultation Request fax sheet below and fax it back to CAPIS at (213) 473-8780. In our simple policy review, we can examine your existing coverage in relation to current plans to make sure your risk protection needs are still being met, that you have adequate coverage, and that your present coverage employs the most efficient leverage and tax advantages.

CAP Affiliated Physicians Insurance Services (CAPIS) is a life and health insurance agency owned and operated by the Cooperative of American Physicians, Inc. CAPIS personal insurance services are only available to CAP Members physicians, their employees and families. Tax advice should only be obtained from your tax professional.