| Loan: Policy benefits are reduced by any outstanding loans and loan interest. Dividends, if any, are affected by policy loans and loan interest. If the policy lapses, or is surrendered, any loans considered
gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment
Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable distribution from the policy may also be subject to a 10%
federal tax penalty.
Premium Offset: The premium offset year is not guaranteed and relies on the payment of nonguaranteed dividends and the amount of paid-up additions in the policy in order to pay for the
policy’s required premium.
Paid-up Additions Disclosure: Paid-up Additions (PUA) are purchases of additional insurance (death benefit) that have a cash value. These purchases are made with dividends and/or a rider that allows the policyholder to pay an additional premium over and above the base premium. This creates the growth of death benefit and cash values in a participating whole life policy. Adding large amounts of paid-up additions may create a Modified Endowment Contract (MEC). A MEC is a type of life insurance contract that is subject to last-in-first-out (LIFO) ordinary income tax treatment, similar to distributions from an annuity. The distribution may also be subject to a 10% federal tax penalty on the gain portion of the policy if the owner is under age 59 ½. The death benefit is generally income tax free.
Dividends Paid in Cash: Dividends may be paid in cash to the policy owner tax free up to the cost basis in the policy. The cost basis in the policy is the same as the cumulative premiums paid into the policy.
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