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"Without a doubt, the risks of not having insurance is much greater than the cost. You could be just one accident, one illness away from financial disaster."

Steve Nearman, NFC

Life Insurance / Annuities

Everything in life is a chance. Driving safely to work is a chance. Avoiding the latest virus is a chance. Making it down a flight of stairs without falling and breaking a leg is a chance. Even the best financial plan does not necessarily prevent accidents and illnesses from happening.

We offer our clients quality knowledge of life insurance products and services. There are so many products and programs out there, which is why you need us to guide you through. Have you ever been overwhelmed by the many choices and decisions you have to make on critical issues? Most people usually don't do anything until it's too late. We hate being late!

At Nearman Financial Consulting, we believe that certain forms of insurance coverage are absolutely necessary for the financial viability of ourselves and our loved ones. Two types of insurance - on two of our biggest assets - are mandatory. We must insure our home or the financing company will not lend us the money. We must insure our automobiles or the state in which we are registered will not give us license plates. Both types of insurance are mandatory to protect from loss, in one case from loss of home due to fire, flood, natural disasters, crime, etc., and in the other case from loss from accident, theft or other crime.

But what about the most important assets in the world - ourselves, our families? Are we insured against loss of life, or even worse in most cases, loss of limb or mental faculties? And what about people who are dear to us, who count on us financially? Are we taking care of them by protecting them from our death or demise?

Life Insurance

When it comes to life insurance, the advisors at Nearman Financial Consulting generally believe that many people are over-insured because somebody sold them too much insurance or insurance that they did not need. That happens. If you are single and nobody depends on your financially, life insurance is not critical, unless you want to leave a sum of money to somebody or some organization you believe in.

In many cases, we recommend permanent life insurance. For others who cannot afford to spend a lot on insurance - or do not want to spend a lot on insurance - we look at term life insurance.

In any case, all guarantees are backed by the claims-paying ability of the issuing company.

Permanent Life Insurance

Permanent life insurance provides continuous lifetime protection if premiums are paid when due. Most permanent policies also provide the opportunity to build cash value. With cash in your policy, you can borrow that money or withdraw a portion of it to help pay for a child's education, your retirement, or a large purchase. Life insurance policy cash values are accessed through withdrawals and/or policy loans. Loans are generally not taxable. Withdrawals may be taxable under some circumstances. Unpaid loans and/or withdrawals cause a reduction in policy cash values and death benefits.

There are several types of permanent insurance (see whole life and universal life below), some which offer a guaranteed death benefit and cash value; others offer death benefits and cash values that fluctuate based on the performance of an underlying portfolio of investments.

Permanent insurance may be appropriate if you want your life insurance to provide:
  • A death benefit to help pay off your debts, funeral expenses and to help maintain the lifestyle and financial goals of your loved ones - whether you die next week, or at a ripe old age;
     
  • The opportunity to accumulate cash value (generally tax deferred) that you could borrow or withdraw in the future for emergencies or opportunities; and
     
  • Flexibility to allow coverage to grow with you as your needs change over time.

Term Life Insurance

Term life insurance offers protection for a limited period of time, and pays a death benefit only if you die during the term. For this reason, it is commonly referred to as temporary insurance. You pay either a level premium or an increasing premium (depending on the policy). The company will pay to your beneficiary face amount of the policy if you die within the policy's term. You choose who the face amount of the policy., who should own the policy, who will be the beneficiary, which period of coverage (such as 1, 3, 5, 7, 10, 15, 20, 25 or 30 years), and a level or increasing premium.

With term insurance, premiums pay only for pure insurance protection and policies are often convertible to permanent cash value life insurance without another physical.

Term insurance is appropriate if you:
  • Want life insurance coverage to help protect a short-term need, either to pay off a loan or provide a death benefit during your peak earning years while your children are young;
     
  • Can't afford a permanent policy now but need temporary protection until you can convert to a permanent plan;
     
  • Need to add a large amount of coverage to complement your existing permanent policy at the lowest possible cost;
     
  • Are willing to pay premiums that may increase if you extend coverage past the initial term period;
     
  • Are a business, need coverage on the owner, to allow the heirs to buy back stock., coverage on key employees, and to cover outstanding business loans.

Combined Permanent and Term Insurance

Combined Permanent and Term Insurance: Another option is to combine permanent and term insurance coverage to obtain the advantages of both. This is a common option.

Combined coverage may be appropriate if:
  • You already own a permanent policy but want to increase your death benefit to pay off a new second mortgage in the event of your death;
     
  • Your employer provides a term policy in a multiple of your annual salary. You decide to purchase your own permanent policy to meet your additional insurance needs and to help ensure coverage exists even if you leave your employer at some future point.

Whole Life Insurance

Whole life insurance is permanent insurance that provides lifetime insurance protection with guaranteed cash values, fixed premiums and death benefits as long as premiums are paid. Whole life insurance is appropriate if you want insurance protection for a long period of time and can pay a fixed premium or if you desire a permanent life insurance policy with guarantees and fixed premiums.

The client chooses the amount of the premium payments: they can either be level for the entire term of the policy, or start out lower in the first few years (usually five), then increase to a permanent level premium.

With whole life, cash value accumulates income tax deferred and death benefits are usually income tax free. Accelerated Death Benefits allows access, under certain conditions, to receive death benefit proceeds before you die. One special feature is that cash value can be borrowed. In doing that, loans will incur interest and any unpaid loan and accumulated interest at the time of death is deducted from the death benefit proceeds and will reduce the amount of death benefit paid to beneficiaries.

Riders can be added to the policy for additional benefits such as paid-up insurance (provides the option to pay in additional lump sum premiums to increase the life insurance protection should the need arise), disability waiver of premium (waives premium payments if the insured becomes disabled), accidental death benefit (provides for an additional benefit in the case of death as a result of an accident), and accelerated death benefits (allow access under certain conditions to receive death benefit proceeds before you die). Riders are offered at an additional cost and may include limitations or restrictions.

Universal Life Insurance

Universal life insurance is a cash value life insurance policy that combines some of the features of traditional whole life (tax deferred cash buildup, death benefit) with a flexible premium and face amount. It is the most flexible type of life insurance coverage - allowing you to change the policy as your life circumstances change - and can provide coverage at a lower premium than whole life.

When the premium is received, a sales charge is deducted and the balance is credited to the owner's cash value. The CV also is credited daily with a variable rate of interest. The each month, deductions are made from the CV for insurance costs and contract fees and charges. The owner can make periodic premium payments or, if adequate cash exists, you can skip premiums and let the monthly charges be deducted from the CV. Once the cash is drawn out, the policy will lapse, and additional premiums will be required to keep it in force.

With universal, you can increase or decrease premium payments, and make additional lump sum payments to the policy, you can increase or decrease the policy face amount as their protection needs change, and you can change the death benefit option depending on whether you need accumulated cash values for income, or an increased death benefit for their family.

Universal life insurance is particularly appropriate for young families seeking to maintain their family's standard of living in the event of the death of the primary income earner or anyone who wants a policy that can grow as their family and income does.

Second-To-Die Life Insurance

Second-to-die life insurance is a life insurance policy that covers the lives of two people. The most common use is coverage on a husband and wife. But it can be used any time that there will be a financial loss suffered when the second of two people die. Second-to-die pays a death benefit only after the death of the second person who is insured.

When the two persons insured are spouses, the proceeds are usually used to pay off the estate taxes due and any settlement costs which may be due at the death of the surviving spouse, so that heirs do not need to liquidate the estate to pay these costs. Federal estate tax rates are as high as 50%.

You need to choose the face amount of the policy, the owner, the beneficiary, and the type of policy (e.g., traditional whole life, universal life, or variable life).

The advantage of a second-to-die policy is that premium payments are lower than they would be for the same total amount of coverage under two single life policies.

Second-to-die policies are appropriate for...
  • Families: when there is concern over the payment of settlement costs, at the death of a surviving spouse particularly when the estate is comprised of non-liquid assets which could not be sold at a fair price quickly enough to pay estate expenses.
     
  • Businesses: for certain Buy-Sell arrangements to provide cash so that the business can redeem its stock and for Key Employee insurance to protect against the death of two key employees as well as for Executive Bonus plans, as an attractive fringe benefit. Premiums are income-tax deductible to the employer, provided they constitute reasonable compensation.

Fixed Annuities

An annuity is a contract between the annuity owner and an insurance company that provides tax-deferred growth from which regular income payments may be received.

The owner agrees to pay a premium (either in a single lump sum or in periodic installments, depending on the terms of the contract). In turn, the insurer agrees to credit the premiums with interest and to convert the premiums and interest into a steady stream of payments to the owner by a specified date.

Under federal tax laws, the owner does not have to pay any federal income taxes on the amounts earned within the annuity until he or she either takes withdrawals from it, or until the annuity is annuitized (converted into a stream of payments). Annuities are intended to be long-term investments that are often used to save for retirement.

There are three parties to an annuity: the owner, the annuitant and the insurer.
  • The owner controls the contract, and can exercise contract provisions, such as withdrawals, designating beneficiaries, etc.
     
  • The annuitant is the measuring life; for example, if the owner decides to annuitize, those payments may be made for the life of the annuitant, not the owner. Usually, the owner and the annuitant are the same person, but this is not always the case.
     
  • The final party is the insurance company that issues the annuity.
Annuities also can be classified by when annuity payments begin:
  • In an immediate annuity, payments begin immediately or within one year from the date the annuity is purchased. There is no "accumulation" phase. Immediate annuities are often purchased on a single premium basis.
     
  • A deferred annuity is a contract which allows the owner to annuitize more than six months after the annuity is purchased. The annuity thus has two phases: a "deferral" or "accumulation" phase and a "payout" phase. The annuity owner usually can access the annuity values during the accumulation phase by making withdrawals. However, withdrawals may be subject to surrender charges, and if made before age 59 1/2, to a 10% IRS penalty tax as well. Upon annuitization, the value that accumulated during the "deferral" phase may be applied to make payments under the payout option selected.
Annuities should be considered by individuals who need to accumulate funds for long term goals, especially retirement. Annuities should be used after other retirement plan alternatives are exhausted.

Warnings About Life Insurance and Annuities

Be aware of the following when you purchase life insurance or annuities:
  • Take your time, but don't put off an important decision that would protect your family. Make sure you fully understand any policy you are considering and that you are comfortable with the company, agent, and product. Don't rush into a decision just because you are feeling pressured.
     
  • When you purchase a policy, make your check payable to the insurance company, not to the agent. Be sure you are given a receipt.
     
  • After you have purchased an insurance policy, keep in mind that you may have a "free-look" period -- usually 10 to 20 days after you receive the policy -- during which you can change your mind. If you decide not to keep the policy, the company will cancel the policy and give you an appropriate refund. Ask your agent about this process.
     
  • If an agent or company contacts you and wants you to cancel your current policy and buy a new one, contact your original agent or company before making any decisions. Surrendering your policy to buy another could be very costly to you.
     
  • If you have a complaint about your insurance agent or company, contact the customer service division of your insurance company. If you still are dissatisfied, contact your state insurance department. Most departments have a consumer affairs division that offer help.
     
  • Review your policy periodically or when your situation changes to be sure your coverage is adequate. Also, the cost of insurance frequently decreases so shop around every few years to save significant money.
     
  • Annuities generally have surrender charges, expenses, and contract fees. This usually makes them unsuitable as short-term investment vehicles, since these costs will impact the value of the contract. Also, once annuitization begins, it is irrevocable.
     
  • Also, some annuities are tax-deferred, they are not appropriate in an IRA as you are paying an expense for the annuity to be tax-deferred while the IRA already is a tax-deferred account.

Other Information Resources

  • Contact the National Insurance Consumer Helpline at 1-800-942-4242. NICH is a toll-free information telephone service sponsored by insurance industry trade associations.
     
  • Look in your local library for magazines or books on insurance or personal finance.
     
  • The consumer affairs division of your state insurance department can provide useful information. We know Virginia has a guide to insurance and it is free for the asking. Some departments have toll-free numbers to respond to consumer questions.
     
  • Check websites of the major insurance companies. Check our Hot, Helpful Links section for those websites
     



 
Nearman Financial
1005 Cameron Street
Old Town
Alexandria, VA 22314

Phone: 703-683-4660
Fax: 703-683-9433
Cell: 703-587-4321
Email: snearman@securitiesmail.com
 
Neither the information nor any opinion contained on this website constitutes a solicitation or offer by Nearman Financial Consulting Inc. or any entity named in this website to buy or sell any insurance, financial securities or investment products or services.

Securities offered through Representatives of Lincoln Financial Securities Corporation, Member FINRA and SIPC to residents of the District of Columbia and the states of Virginia, Maryland, West Virginia, Alabama, New Jersey, New York, North Carolina, Georgia, Florida, Arizona, Pennsylvania, Massachusetts and California. Advisory services are offered to residents of Virginia through representatives of Lincoln Financial Securities Corporation. Nearman Financial Consulting Inc. and Lincoln Financial Securities Corporation are not affiliated. In California, insurance may be offered through LFS Marketing & Insurance Sales Corporation. Some life insurance and annuity policies involved exclusions or limitations. For costs and complete details of coverage, contact your agent.