Key Features of Life Insurance
Not all insurance policies are alike. A life insurance policy may not be the most entertaining reading but what you find in the contract may make all the difference in the world.
Keep in mind that there are many benefits and add-ons you can include in your life insurance policy.
Some term life insurance policies may be converted to a permanent life insurance policy without additional proof of insurability. Policies purchased during certain age groups offer conversion rights up to a certain age. Partial conversions may also be permitted. The premium on the new policy is based on the insured’s age at the time of conversion.
Participating policies share in profits of the Company returned to policyowners in the form of a dividend.*
You may choose to use your policy dividends in multiple ways. Most policyowners choose to use them to increase policy values. You can use them to help pay your premiums, let them accumulate and earn interest. Or you can choose to receive your dividends in cash.
The following graphs show how these dividend options affect the policy's death benefit and cash value over time.
* The dividend scale and the underlying interest rates are reviewed annually and are subject to change. Future dividends are not guaranteed, although Northwestern Mutual has paid a dividend every year since 1872.
The minimum death benefit that will be paid, regardless of dividend and investment experience. The benefit can be adversely affected by untimely premium payment and policy loans. Death benefits are guaranteed with permanent life insurance; limited guarantees apply for blended products.
The minimum values guaranteed by the life insurance policy that will be available on surrender of the contract, assuming all required or illustrated premiums have been paid to the date of surrender.
Cash values are invested in and benefit from the investments in Northwestern Mutual's general account. The cash value increases when you make premium payments and when interest is credited to the policy.
A nonforfeiture option protects you if you are ever unable to pay your policy premiums. Options include:
- Automatic Premium Loan (APL)
If a scheduled premium payment is missed, money is automatically borrowed from the cash value of a permanent life insurance policy to pay the overdue premium and interest is charged until the loan is repaid.
- Extended Term Insurance
Keeps the full death benefit in force by using the cash value of the policy to purchase Extended Term Insurance.
- Paid-Up Insurance
Keeps some level of protection in force by using the policy's entire cash value to purchase paid-up permanent life insurance. The face value of the paid-up insurance will be less than the face amount of the original policy. The paid-up policy remains in force until the insured dies.
- Cash Surrender
Elect to receive the policy's cash value by surrendering the policy. Any outstanding loan balance and accrued loan interest will be deducted from the cash value.
The following optional policy benefits may be added to a life insurance policy subject to underwriting and additional cost.
- Additional Purchase Benefit
The Additional Purchase Benefit (APB) guarantees the policyowner the right to purchase additional life insurance policies on the life of the insured at specified dates without evidence of insurability.
Why is the APB important? When adults add the Additional Purchase Benefit to their own policies, they are purchasing a valuable asset. With more of their income producing years ahead of them, taking steps to guarantee their own future insurability is a strategic and smart move.
Parents or grandparents can also add the APB to a life insurance policy they are buying for a child. This way, they are not only insuring the child's life, but also protecting the child's ability to purchase additional insurance later in life.
- Indexed Protection Benefit
The Indexed Protection Benefit (IPB) increases a policy's death benefit in specified years in the policy contract. The increase is based on the Consumer Price Index, usually with an annual cap.
Why is the IPB important? With increasing prices and decreasing purchasing power becoming realities of life, and the ever eroding effect of inflation, a life insurance policy bought several years ago may now only be providing a fraction of the protection it originally did.
- Waiver of Life Insurance Premium
With the Waiver of Premium Benefit, the life insurance company will pay an insured's premiums if he or she becomes totally disabled. Total disability must last at least six months before the benefit takes effect and the premiums will be waived for the duration of the disability, potentially for the entire premium-paying period.
During disability, premiums are credited to the policy and the tax-deferred cash value will continue to grow. The dividends and cash value are available to the insured for use in emergencies, to supplement living expenses, retirement income, or to provide education funding. With term insurance, the policyowner may be even able to convert the term contract to a permanent plan and have those premiums waived as well.
Why is the Waiver of Premium important? With the Waiver of Premium Benefit, policyowners, in addition to securing life insurance to protect those who depend on them, can also guarantee that their insurance premiums will be paid, even if they are unable to work due to disability. Few, if any, financial vehicles can offer this type of protection. Any policyowner can become a victim of a disabling accident or illness at any time. To prevent a disability from destroying your life insurance program, make sure your policy has Waiver of Premium.
Most permanent life insurance policies contain the option to borrow from the cash value of the policy. Loans may be taken at a fixed or a variable loan rate determined annually. The amount borrowed from the cash value affects the amount of dividends you will receive. Any unpaid loans, along with accumulated interest, will be deducted from the proceeds at death or if the policy is surrendered prior to death. Within contractual limitations, there is a maximum value that can be borrowed that is less than the total cash value of the policy.