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Guide to Variable Universal Life Insurance
Your future. Made easier.SM
LIFE
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Introduction
This guide offers helpful information about variable universal life (VUL) insurance features to help you
understand more about making financial choices that work best for you. While this booklet is primarily
about variable universal life insurance, it does give a brief description of other types of life insurance for
comparison purposes.
This brochure was created to provide accurate and reliable information on the subjects covered.
It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate
professional should be sought regarding your individual situation. At the end of this guide are questions
you should specifically ask your ING financial representative. Make sure youre satisfied with the answers
before you purchase a life insurance policy.
Before investing, you should carefully consider your need for life insurance coverage and the chargesand expenses of the variable universal life insurance policy. You should also consider the investmentobjectives, risks, fees, and charges of each underlying variable investment option. This and other informationis contained in the prospectuses for the variable universal life insurance policy and the underlying variableinvestment options. You may obtain these prospectuses from your agent/registered representative, by
calling 877-253 5050, or from www.ing.com/us and should read them carefully before investing.
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What Is Variable Universal Life (VUL) Insurance?
Life insurance is basically a contract between you and a life insurance company. In the
contract (policy) you make one or more premium payments, and in return the life
insurance company is bound by the policy to pay the death benefit to the beneficiaries when
the insured person dies.
Variable universal life insurance has these major characteristics:
Its life insurance
It may provide lifelong coverage until its maturity date (unless allowed to lapse more
on that later)
It has a flexible premium payment structure
It may provide cash value
It provides the policyowner with the ability to direct premium payments to various
variable investment options
Cash values vary with the performance of the variable investment options and the owner
assumes the investment risk for amounts allocated to the variable investment options,along with potentially greater returns.
Lets look at each of these features in detail.
Its life insurance
VUL has variable investment options that may help generate cash value under the policy. The
cash value can be an important part of a retirement plan. But it is fundamentally a life
insurance policy used to protect and provide for those who may be financially dependent on
the insureds life.
It may provide lifelong insurance coverage
Unlike term insurance, where, when the term of the policy is up, you must buy a new policyor renew the term, VUL may provide lifelong insurance coverage. The only way VUL insurance
coverage stops is if the policy lapses. Unless it lapses it stays in effect until the death of the
insured and then pays a death benefit to the beneficiary or until the maturity date of the
policy, whichever comes first. It can lapse if sufficient premium payments are not made. It can
also lapse if, in later years, there isnt enough in the cash value of the policy to cover the
monthly policy charges. (Please note that a sufficient payment into the policy at that time can
prevent a lapse.)
It has a flexible premium payment and death benefit structure
Like universal life insurance, VUL insurance allows you as the policyowner to determine the
amount and frequency of premium payments and adjust the death benefit up or down, eachdepending on your needs and certain conditions, limits and underwriting requirements that
may apply.
It may provide cash value
Beyond whatever guaranteed death benefit that may exist, a VUL policy has a cash value
feature. Cash value may accumulate from premiums you pay in excess of the policy charges
(like cost of insurance or expense charges). This cash value may earn interest or grow in
value, and these earnings are allowed to grow tax-deferred.1 The cash value may also
decrease in value (see page 2), depending on the performance of the variable investment
options you choose.1
Income and growth on accumulated cash values has been held to be generally taxable only upon withdrawal. Early withdrawalsmay be subject to a surrender charge. In addition, distributions prior to age 59 12 may be subject to a 10 percent tax penalty.
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Provides the ability to direct cash value to variable investment options
Whole and universal life insurance also have a cash value feature, but they do not allow you as the
policyowner to make decisions about how this cash value is invested. With variable universal life insurance
you determine how this cash value is allocated into the variable investment options.
Cash values vary and the owner assumes investment risk along with potentially greater returns
This is what makes it variable. VUL is life insurance, with flexible payments, and a cash value feature likeother types of cash value insurance. Beyond that, the VUL policyowner has several options for investing this
money. This means that you as the policyowner agree to take on more risk in return for the opportunity to
potentially achieve higher returns. Most VUL policies offer a range of variable investment options, from
conservative to aggressive, and you can usually mix-and-match the combination that suits your risk
tolerance and financial goals.
CoverageCash Value
(Accumulation)
Flexible Premium
Payments
Control of
Allocations of
Cash Value
Guaranteed Return on
Allocations of Cash Value
Term Fixed amount oftime (term of
the policy)
No No No Cash Value No Cash Value
Whole Life (sometimes
called Ordinary Life)Lifelong* Yes No No Yes
Universal Life Lifelong* Yes Yes No Yes
Variable Universal Life Lifelong* Yes Yes Yes
Depends on whether the
policy offers a fixed accountoption in addition to
variable investment options
*Provided policy is not allowed to lapse, or mature/expire.
Its also important to note that specific features will vary depending on the product that you buy.
Benefits of Cash Value
You may use the accumulated cash value for emergencies and other needs, or it can be used as supplemental
retirement income. To access the cash value, you may partially or fully surrender the policy, or the cash may be
borrowed under a loan provision, which will reduce the death benefit and available cash values, and may create
an income-tax liability.
VUL insurance policies are often bought for death benefit protection or supplemental income needs. They have
tax deferral features that may make them a good choice for additional retirement funding. Tax deferral is apowerful benefit in two ways. First, any supplemental increases in cash value are not counted on your current
income taxes in any given year. Second, because your returns are not decreased by having to pay current income
taxes, they can stay allocated in the policy and potentially continue to grow until theyre withdrawn.
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Subaccounts, Funds or VariableInvestment Options
When you purchase a variable universal life insurance policy, the
insurer places part of your premiums net of fees and charges
within the various available investment options you can select.The investment options will vary depending on the company
and the specific product you have purchased.
Companies call the variable investment choices options,
subaccounts, variable investment options, portfolios, or
funds. Variable investment options are actually investments in the
subaccounts of the separate account that supports the VUL product.
These variable investment options most often invest in mutual fund
portfolios that have been created and are managed to be available
through variable insurance products. However, these variable
investment options are not mutual funds and are available only
within variable universal life insurance and variable annuity products.Variable investment options are grouped into categories based on
lower and higher risks and possible returns. An important benefit of
a VUL policy is that in most cases you can move money among
variable investment options as your needs and investment objectives
change. You can often do this without additional transaction charges
from the company (usually up to a limited number of times in a year).
In addition, the IRS doesnt count your move from one variable
investment option to another within your VUL policy as creating
income for you and no income tax becomes due as long as no
money is actually withdrawn from the policy. (See also What About
Tax Treatment of a VUL?)
Variable investment option returns may be, on average and over
time, higher than for other types of insurance that have a minimum
guaranteed rate of return. In return for the possibility of achieving
these better returns, you take on the risk that the value of your VUL
policys variable investment options may also go down.
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How Do I Take Advantageof the Cash Value?
Death Benefit
As life insurance, theres obviously a financial consequence. When the
insured dies a death benefit is paid out. Some policies have up tothree death benefit options:
Option A (Level) Death benefit equals the policy face amount.
Option B (Variable) Death benefit equals the policy face amount
plus the accumulation value.
Option C (Face Amount Plus Premium) Death benefit equals the
policy face amount plus premiums paid into the policy.
Accessing Cash Values
In addition to providing a death benefit, VUL insurance policies are a
popular way to accumulate money for retirement, college expenses, orother financial needs. The cash value can be taken out in several ways.
Policy Loans
Policyowners can borrow against the accumulated cash value of the
policy. Cash value is the accessible cash in the policy. The cash value
serves as the collateral for the loan, and interest rates are often lower
than from other lending sources. Another way to think of it is that
the loans are like taking an advance on the death benefit.
Loans and withdrawals may generate an income tax liability, reduce
available cash value and reduce the death benefit or cause the policy
to lapse.
Partial Withdrawals and Surrenders
You can obtain cash from a VUL policy through a surrender or partial
withdrawal. A surrender means that the entire policy is cashed out
(minus any surrender charges, fees, or payment of outstanding loans)
and the policy (and your life insurance coverage) ends. The insurance
company may impose a surrender charge to process the
transaction. Usually the surrender charges are higher during the early
years of the policy.
A partial withdrawal is really a surrender of part of the insurance
policy. The advantage of a partial withdrawal over a loan is that itdoes not have the interest and repayment obligation that a loan
does. A disadvantage of partial withdrawals is a decrease in the
death benefit, usually by an amount similar to the amount of the
partial withdrawal.
Loans and withdrawals may generate an income tax liability,
reduce available cash value and reduce the death benefit or cause
the policy to lapse.
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What Charges May Be SubtractedFrom My Variable Universal LifeInsurance Policy?
Most VUL policies have charges related to the cost of selling or
servicing them, in addition to the cost of insurance itself. Thesecharges may be subtracted directly from the cash value. In a VUL
policy, this means that the actual amount of your premium that is
added to your variable investment options will be the amount
remaining after any applicable charges have been deducted.
Ask your ING financial representative to describe the charges that
apply to your VUL policy. Also check out your VUL policy
prospectus which gives you detailed information on all charges
and expenses and how they are calculated.
Typical examples of charges include:
Surrender or Partial Withdrawal Charges
If you need access to your money, you may be able to take all or
part of the cash value out of your VUL policy at any time. If you
take out all of the cash value and surrender, or terminate, the
policy, you may pay a policy surrender charge. If you make a
partial withdrawal you may pay a proportional surrender or partial
surrender charge.
How these charges are calculated depends on the company and
the specific product.
Remember, withdrawals will reduce the policys death benefit and
available cash value.
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What About the Tax Treatment of VariableUniversal Life Insurance?
Under current federal law, VUL policies receive special tax treatment. Most
states tax laws on VUL policies follow the federal law. Below is a general
discussion about taxes and VUL policies. You should consult a professional tax
advisor to discuss your individual tax situation.
Tax-Deferred Growth
Income tax on any growth in your life insurance policy is deferred. That means
you arent taxed on the earnings while they stay in the policy. Taxes that you
might otherwise have to pay on interest income, dividends or capital gains
remain in the policy.
Tax-Free Loans
You may pay no tax when you take money out as policy loans and your policy is
not considered a Modified Endowment Contract under federal tax laws. In
this case, policy loans will be income-tax-free as long as the policy remains in
force. If the policy is allowed to lapse with an outstanding loan (or loans), you
may have an income tax liability. The amount of the tax liability is calculated
based on how much of the loan amount was a return of your payments (cost
basis) and how much was earnings from the variable investment options.
If the policy is a Modified Endowment Contract under federal tax laws, loans
are treated as taxable distributions to the extent of the gain in the policy.
Taxes on Death Benefit
Your beneficiaries generally do not pay any income tax on the death benefit if itis paid in a lump sum. If installment payments are received, your beneficiaries
only pay taxes on the interest received. However, estate taxes will be
determined by policy ownership.
What Is A Free Look Provision?
Many states have laws which give you a set number of days to look at the VUL
policy after you buy it. If you decide during that time you dont want the policy,
you can return the policy and get some or all of your money back. This is often
referred to as a free look or right to return period. The free look period should
be prominently stated in your policy. Be sure to read your policy carefully during
the free look period.
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These materials are not intended to be used to avoid tax penalties, and were prepared to support thepromotion or marketing of the matter addressed in this document. The taxpayer should seek advice from anindependent tax advisor.
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Final Points To Consider
Before you decide to buy variable universal life insurance, review the policy carefully. Ask yourself if,
depending on your needs or age, this VUL policy is right for you. Terms and conditions of each VUL policy
will vary. Compare information for similar policies from several companies. Comparing products may help
you make a better decision.
VUL insurance is for the long haul. Be sure you plan to keep a VUL policy long enough so that the
charges dont take too much of the money you put in. Be sure you understand the effect of all charges
on the net amount of money invested in your behalf.
Taking money out of a VUL policy may mean you must pay taxes.
Also, while its sometimes possible to transfer the value of an older life insurance policy into a new VUL
policy, the new policy may have a new schedule of early surrender charges or other fees that could
mean new expenses you must pay directly or indirectly. Ask your ING financial representative to do a
complete comparison of your old and new policies before deciding to replace an older policy.
Remember that the quality of service you can expect from the company and your financial
representative is a very important factor in your decision.
When you receive your VUL policy, read it carefully! Ask your ING financial representative to explain
anything you dont understand. Do this before the free-look period ends.
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Glossary
Adjustable death benefit
A life insurance option that allows the
policy owner to increase or decrease the
death benefit.
Administrative fees
Fees charged to cover costs to operate and
maintain the policy; frequently includes costs
to handle transactions, preparing and mailing
statements, and other customer service costs.
Agent
A licensed person or organization authorized
to sell insurance by or on behalf of an
insurance company.
Asset allocationDividing your money among asset classes
according to your investment strategy and
risk tolerance.
Asset class
Categories of investments based on risks
and returns.
Asset rebalancing
An investment strategy designed to help the
owner of a variable life insurance policy or
variable annuity contract maintain his or herdesired allocations among variable
investment options by periodically
reallocating cash values.
Beneficiary
The person designated by the policyowner to
receive the death benefit.
Cash surrender value
The amount an insurer will pay the
policyowner if the policy is surrendered while
it is in force. The net surrender value on the
date surrendered is equal to: the cash value,
minus any surrender charge, minus any
outstanding loan amount, plus any interest
the policy owner paid in advance on the loan
for the period between the date of surrender
and the next policy anniversary.
Cash value
The sum of the variable life insurance policys
value in its variable investment option
accounts and any fixed accounts, less any
applicable fees or charges.
Death benefitThe amount of money the insurance
company will pay to the beneficiary(ies) when
the insured dies.
Diversification
Investment strategy used to try to reduce risk
by investing in a broad range of stocks
and/or bonds, across different industries,
companies, or countries. The objective is to
have potential gains in one area offset by
potential losses in others.
Face amount
The amount specified by the insured to
define the death benefit based on the death
benefit option chosen.
Fixed account
An allocation option that provides a
guaranteed minimum return and payouts in
fixed dollar amounts.
Flexible premium policy
VUL insurance that, within set limits, allows
you to pay as much premium as you want,whenever you want.
Free-look period
A period of time (10, 20 or 30 days) after the
delivery of the policy, during which the
owner may review the VUL policy and return
it for a refund (typically the policy value, or
premium paid).
General account
An account that holds all of an insurers
assets other than those in the separateaccounts. (See also: separate account)
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Illustration
A hypothetical example used to show how
the death benefit, cash value, and net
surrender value of a variable life insurance
policy would change with different rates of
hypothetical investment performance over an
extended period of time.
Insured
The person whose life is insured by the
policy. That person may or may not be
the policyowner.
Interest income
Income derived from an instrument of debt,
such as a bond.
Investment management fees
The fees that each mutual fund portfolio in
which a variable investment option invests is
assessed to pay for the cost of providing
professional money management. The
amount of this fee varies by portfolio.
Life insurance
A contract between an insurance company
and an individual, generally guaranteeing
payment of an amount of money to the
beneficiary(ies) on the insureds death. (See
also: variable universal life insurance)
Loan amount
The total amount of all outstanding policy
loans, including both principal and interest due.
Loan value
The amount which can be borrowed at a
specified rate of interest from the issuing
company by the policyholder using the value
of the policy as collateral. If the policyholder
dies with the debt partially or fully unpaid,
then the amount borrowed plus any interest
is deducted from the death benefit payable.Owner
Person who has ownership rights and
privileges of the policy. (see Policyowner)
Partial withdrawal (see also Surrender)
Taking part of the money in the VUL; may resultin withdrawal or surrender charges. Partialwithdrawals may reduce the VULs cash valueand death benefit amounts, and may create anincome tax liability.
PolicyA written contract of insurance.
Policyowner
The person(s) typically responsible for making
premium payments. This person has all
ownership rights, including the rights to
make investment decisions, transfer funds,
make withdrawals, name beneficiaries, and
surrender the policy.
Portfolio
An underlying mutual fund in which acorresponding variable investment option
invests under the VUL policy. (See also:
variable investment option.)
Portfolio manager
The investment professional responsible for
managing the securities within a portfolio
while adhering to the portfolios stated
investment objective and policies.
Premiums
All payments made under the policy otherthan loan repayments.
Prospectus
A legal document containing information
about the specific VUL insurance product for
sale. The prospectus contains information on
the investment objectives, risks, sales charges
and management expenses, services offered,
as well as other information.
Reinstatement
Restoring a lapsed policy and coverage. Some
companies require evidence of insurability
and payment of past due premiums and
interest to reinstate some policies.
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Rider
An amendment to a policy that provides
additional specific benefits or amounts of
coverage to a policy (for example, an
accidental death benefit rider).
Separate account
Holds assets which are invested in your VUL
policys variable investment options. The assets
are literally held separate from the general
assets of the insurance company. Any money
held in separate accounts is not accessible to
creditors or others making claims against the
insurance company.
Subaccount
(see Variable investment option)
Surrender
The termination of a policy at the option ofthe policyowner. Canceling your policy
completely and receiving the current value
of your VUL policy, less any surrender charges,
other fees, or taxes.
Surrender charge
The charge some issuers assess for taking
withdrawals or surrendering the policy in the
early years of the policy.
Tax-deferred
The postponement of tax liability onaccumulated earnings until a taxable
distribution from a policy is made.
Transfers
The ability to make a transfer between the
variable investment options available within a
particular VUL policy. You can make transfers
in dollar amounts or percentages.
Underwriting
The process of selecting applications for
insurance and classifying them accordingto their degrees of insurability so that
the appropriate premium rates can be
charged. The process includes rejection
of unacceptable risks.
Universal life insurance
An interest-sensitive, flexible-premium policy
that provides protection under a contract
that separates the protection and
savings components.
Variable investment options
The subaccounts of the separate account that
supports a VUL policy. A typical VUL offers a
range of variable investment options which
invest in underlying mutual fund portfolios
which have investment objectives that range
from conservative to aggressive.
Variable universal life insurance
A form of universal life insurance that allows
the policyowner to invest the cash value in
a wide variety of investment options without
any minimum guaranteed rate of interest orminimum cash surrender value. A fixed
account option may also be available which
provides a minimum guaranteed rate
of interest.
Whole life insurance
Life insurance designed to stay in force
throughout ones lifetime, provided that
premiums have been paid as specified in
the policy.
1035 ExchangeNamed for a section of the Internal Revenue
Code, a 1035 exchange enables individuals to
transfer assets from one life insurance or
annuity contract to another without incurring
income taxes. Life insurance may not be
transferred into an annuity.
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Life insurance products are issued by ReliaStar Life InsuranceCompany (Minneapolis, MN), ReliaStar Life Insurance Companyof New York (Woodbury, NY) and Security Life of DenverInsurance Company (Denver, CO). Variable universal lifeinsurance products are distributed by ING America Equities, Inc.Only ReliaStar Life Insurance Company of New York is admitted,and its products issued within the state of New York. All aremembers of the ING family of companies.
These materials are not intended to be used to avoid taxpenalties, and were prepared to support the promotion ormarketing of the matter addressed in this document. Thetaxpayer should seek advice from an independent tax advisor.
Variable insurance products are subject to investment risk, arenot guaranteed and will fluctuate in value. In addition, there isno guarantee that any variable investment option will meet itsstated objective.
2009 ING North America Insurance Corporationcn34557012010
ReliaStar Life Insurance Company20 Washington Avenue SouthMinneapolis, MN 55401
ReliaStar Life Insurance Companyof New York1000 Woodbury Road, Suite 208Woodbury, NY 11797
Security Life of DenverInsurance Company1290 BroadwayDenver, CO 80203