Wealth Logic Solutions

If something were to suddenly happen to you, would your family be able to survive financially? Make sure you have the coverage you need today!

It took Julie considerable time and effort to convince her husband, David, that he needed to purchase life insurance. Just a year after his purchase, David was diagnosed with colon cancer and died six months later at age 32. With the proceeds from his insurance policy, Julie was able to invest in her own business and provide for their newborn.

The unthinkable happens every day … don’t let another day go by without protecting your loved ones.

A permanent life insurance policy or endowment policy can be exchanged free of income taxation for an annuity under IRS rule 1035 with a carry over of cost basis from one product to another. This is not permitted in reverse, but does provide some choices if a permanent life policy is no longer necessary.

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The problem:

Mary is 72 years old, widowed, and has three children. She has $100,000 invested at a local bank in various CDs and savings accounts. Mary also has various forms of income that she utilizes for retirement. She is satisfied with her current income and would now like to develop a plan that allows her to transfer her wealth to her children when she dies, and she would like to do so without creating a financial burden for them. Mary is hesitant, however, to structure a wealth-transfer plan at this time because of increasing health care costs. She would like to maintain liquidity in her wealth-transfer plan so that she can access the monies in the event of an emergency. Mary has high blood pressure and adult- onset diabetes, which are both controlled with medication.

The solution:

Given Mary’s needs, a possible solution would be to use an IUL with a waiver of surrender charges rider. She agrees to leverage part of the money she has invested with the bank so she can provide a larger inheritance for her children.

Mary decides to put about $75,000 into an IUL. To avoid the contract becoming a modified endowment (which would diminish the tax advantages), she puts the money into the insurance company’s advance premium deposit account and spreads the payment to approximately $15,000 per year for about five years.

Because of the company’s Table 4 to Standard shave program, Mary receives standard rates despite her high blood pressure and adult-onset diabetes. The illustration shows a little more than $132,000 is immediately available as an income-tax-free death benefit for her children. In the event of an emergency, Mary would have access to the entire cash value because of the waiver of surrender charge option. She can access the cash by withdrawals or by income-tax free, contractually guaranteed loans after the sixth policy year.

Mary has confidence in her wealth-transfer strategy. She can’t lose her principal. In fact, she has very real opportunity for potential gains. She has immediate access to her cash. And the cash has been leveraged to provide a larger inheritance for the children.

SOURCE: Annuity News & Lifelines ~ September 2006

Have YOU committed one of these seven deadly sins of life insurance?

Using unrealistic assumptions: Life insurance buyers often use an arbitrary number, for instance two or four times annual income, to determine how much coverage they need. This is poor planning, especially if it was done when you were young and earnings were low. You need to determine how much income is needed to support the survivor’s lifestyle. Then ask your financial advisor to examine potential estate tax liquidity issues.

Not reviewing listed beneficiaries: When did you last review your policies’ beneficiaries? How about the contingent beneficiaries? Have you experienced any events, such as divorce, death, marriage, or birth, that could justify revisions? After all, a death benefit going to an ex-spouse might be worse than no life insurance at all.

Letting policies lapse: Do you no longer want your life insurance policies? You can 1035 exchange your policies into a deferred annuity or possibly an immediate annuity to help pay LTCI premiums.

Thinking term insurance satisfies all needs: In certain cases, term insurance can have a place in your risk management plan. However, term insurance may not be the best choice for long-term survivor or estate liquidity needs. After all, 5, 10 or 15 years down the road, this insurance policy expires. At that time, the need will still exist, but your loved ones will be without protection.

Incorrect ownership: Who owns your policies? You should realize that the life insurance policies you own will be included in your estate, no matter who is the beneficiary. Perhaps it wasn’t a concern when you bought the policies, but over the years, a successful career or prudent investing could have pushed you over the exclusion amount. This means up to 46% of a policy’s proceeds could vanish due to federal estate taxes.

Not watching for new products: New products continually come into the market. Plus, some rates have dropped because of increased life expectancies. And don’t forget that a number of policies now offer LTC riders - something that may not have been around when you bought your policies.

Ignoring Mortality: You may not want to admit it, but we are all going to die. Nevertheless, for the most part, life insurance is for the ones whom you will leave behind (although it can be a fantastic place to grow your money tax free for retirement). And by avoiding the seven deadly sins of life insurance, you can have peace of mind in knowing that the maximum amount will pass to those you care about.