Navy Mutual Permanent Plus policy holders have the flexibility of modifying their policies in the future to meet their changing needs. Policy changes include:
- Discounted Single Premium: A discounted single premium (DSP) is a prepayment of all future premiums, at a discount. The advantage of paying off the policy with a DSP is the increased growth potential of both the cash value and death benefit, as well as the reduction of future premium payments. A potential disadvantage is that the policy may become classified as a modified endowment contract (MEC) if the policy is completely paid within seven years from the policy effective date. See the Modified Endowment Contract considerations section for more details.
- Reduced Paid-Up Benefit: A reduced paid-up benefit is an option that ceases all future premiums, thereby reducing the projected minimum death benefit. Once this option is elected, no further premiums can ever be paid into the plan. This is an option for those who are not able to pay any more premiums and do not wish to lose all of their coverage.
- Reduction of Coverage: Death benefits may be reduced in unit increments to a minimum of $20,000. When the coverage is reduced, a refund of cash value may be given along with a reduction of the monthly premium.
- Payment Duration Change: Premium payment durations may be changed to either a longer period with lower monthly premiums, or a shorter period with larger monthly premiums. Extending your payment duration will reduce the amount of monthly premium, but will require the insured to provide proof of insurability. Reducing your payment duration will require the owner to pay a higher premium for the remainder of the newly elected period.
- Modified Endowment Contract (MEC): Permanent Plus plans that become classified as modified endowment contracts (MECs) lose certain tax-advantaged transactions. The internal tax-sheltered growth, substantial death benefit increases, and passage of funds to beneficiaries at death, remain free of income tax. However, when a benefit plan is categorized as an MEC, as defined by the Technical and Miscellaneous Revenue Act of 1988, any amounts borrowed or withdrawn will be taxable to the extent of any earnings. Transactions that will be taxable according to MEC guidelines are plan loans, plan assignments to individuals other than a spouse, or transfers of cash value to an immediate annuity that is paid out for a duration of time less than your life expectancy. Any interest distributed at the time of the transaction will be taxable as ordinary income. The law assumes that taxable earnings are always borrowed or withdrawn before nontaxable principal, so any accumulated interest is considered to be distributed before any return of premiums. Although the cash value and death benefit of an MEC will grow faster than a non-MEC plan, those having MEC-qualified plans give up the option to utilize tax-free policy loans from cash-surrender value in the future. If the plan is surrendered, or any of the above transactions occur prior to age 59½, a 10% tax penalty will be assessed by the IRS on any distributed interest. Most plans that are paid up in less than seven years and/or have a large lump-sum premium payment, will become an MEC. The previously mentioned plan change options require Navy Mutual to provide special calculations. The policy change calculations and possible tax ramifications will be provided to the owner through correspondence. Policy changes will require a change of premium and a signed letter of authorization.
For more information on Navy Mutual Permanent Plus plan changes, please call us at 800-628-6011.