Tag: Permanent Life Insurance

protect income

Income Replacement Coverage

How would your family survive if you could not work and earn an income?

Income replacement coverage is just what the term implies, covering the future income, for those who are counting on it, family, business partners, creditors, etc. 

However, the income replacement calculation can be tricky because of the need to calculate project into the future and make some assumptions about future projected earnings, inflation, changing financial obligations and other items. 

Due to these variables, one could be looking at an increasing need, a decreasing need, or a static need. This must only be calculated with the help of an experienced, knowledgeable professional, as this calculation is too important to guess about.

how to protect your home

Mortgage Protection

Protect your most valuable asset - your home - with life insurance

Mortgage protection coverage is a life insurance policy that covers the balance of a mortgage or loan over the period of that loan.  A mortgage protection life insurance plan can optimize the coverage so that only the approximate coverage that is needed at any given time interval, is being paid for. 

In other words, since the principal balance a mortgage decreases over time, an experienced knowledgeable agent can design coverage for you that declines approximately along with the mortgage balance, so you are not paying for excessive coverage.

best ways to pay for funeral costs

Final Expense/Funeral Coverage

Final expense life insurance policies cover the cost of funeral expenses - and more

Final expense, can be utilized for funeral expenses, hospital/medicare and care facility bills that may otherwise become the obligation of other relatives, estate liquidity, (gives executors money to pay taxes, insurance and other expenses on real estate and other property, while settling the estate of deceased.) as well as other costs associated with the insured person’s passing. 

Heavily-marketed final expense policies may have hidden costs

Final expense insurance is best and most properly addressed with a permanent life insurance policy.  While there are companies that issue small policies through the mail, you must be very careful and understand that many of these policies are age banded, and when the insured reaches the next age band, their premium will increase if they wish to maintain the same amount of coverage.  

Some final-expense life insurance policies are "graded"

Some of these policies may be also be graded.   Grading means that there will be a period of time when the insurance isn’t in effect, and all the deceased’s beneficiaries will get back are the premiums paid and interest. 

What’s also important to know is that since final expense is meant to be available for the entire life of the insured, it is very important to speak with an experienced, knowledgeable professional, even if a policy with a small death benefit is needed or desired.

No Roth, No Problem

Having too much income will prevent you from using a Roth IRA (Roth) to save after-tax money, and grow that money, tax-deferred, as well as use that growth, tax-free. Also, the type of income you have may prevent you from using a Roth, as contributions must be made with earned income, not income derived from dividends and other passive sources.  On top of all of this, the people who are most likely to want to maximize Roth IRA contributions, and may even use strategies like the “back-door Roth”, are likely able, and want to, make substantially higher contributions than allowed by law anyway.  For these folks, who want to enjoy tax-free growth and tax-free use of gains, well into the future, municipal bonds, don’t fill the bill; instead, the only mechanism left is the implementation of a properly designed cash-value life insurance plan. 

Cash-value life insurance has several tax advantages that can mimic a Roth IRA, except without income or contribution “limits” imposed on a Roth IRA (such as income phase-out, earned income requirement, and annual contribution limits). But selecting the correct type of permanent cash-value policy must be done with care for a variety of reasons. Firstly, there is not one type of cash-value insurance that is better than another type, each general type has a unique value proposition.  Also, the individual contract terms, carrier formation, carrier ratings, dividend history, underwriting standards, reserves, optional features and benefits, and other factors of each issuing insurance company’s contract, may play a part in your decision to use one type of insurance over another, with one particular carrier over another.  Said another way, the same type of insurance still differs from one carrier to another!

Complexities of cash-value life insurance should be explained by an experienced, licensed professional

Using permanent cash-value insurance for this purpose should be secondary, the primary purpose of the policy is to provide life insurance and it offers a panoply of benefits above and beyond tax benefits to the cash-value. 

A full understanding of:

  • cash-value crediting method
  • dividends
  • loan interest
  • direct or non-direct recognition
  • general account surpluses/obligations
  • carrier ratings
  • performance history

…along with several other items, need to be understood for all products being considered by the policy purchaser; also reviewing illustrations that can generally show the guaranteed and non-guaranteed aspects/projections of a certain type of policy. That being the case, it is most prudent to speak to an experienced, knowledgeable professional since the choice made, will have to be lived with for years into the future.

Filling the hole in a portfolio

Using permanent cash-value insurance can fill a significant hole in many people’s portfolio.  Typically, brokers advise clients on investments based on the client’s time horizon for needing to use the money, and risk tolerance.  Younger investors who want to be aggressive in their investing, may not have any “safe” money sitting on the sidelines, growing at a slower, but more stable pace, and this might prevent them from taking advantage of buying opportunities when the market has a correction; but the only significant money they have, might be tied up in securities that have lost value during the correction.  But as investors get older, many are advised to put an increasing percentage of their portfolio into bonds, or other fixed income instruments, but the issue here is that an investor would still have to liquidate securities to have the cash to take advantage of buying opportunities

Another issue is that sometimes an investment doesn’t allow for liquidating only certain segments, like just the bond portion, of the investment.  This might limit the down-side of the portfolio, but it can also inhibit the upside.  But certain types of cash-value life insurance can serve as the conservative aspect of a well-rounded portfolio, by leveraging the long-term stability typically  found in a highly rated insurance company’s general account.  Since access to the cash-value can be done without taxation, or penalty, it gives the policy holder liquidity that is difficult to achieve with regular investments, and when the tax load is considered, it makes the tax free use of an insurance policies cash-value, all the more attractive.

estate taxes life insurance

Estate Tax Recovery

Checking your exposure to estate taxes

At a minimum, estate tax and inheritance taxes can be imposed at the federal and state level, given this, individuals should check with their CPA and/or a tax attorney, regarding the potential for exposure to either of these taxes, now and what the potential may be in the future.

Most people don’t believe they have or will have assets significant enough when they die to make death taxes matter,  but most likely, your heirs and estate will be faced with some tax burden.  Also –  tax laws and rates can change over time.  

And when you’re trying to predict what will happen 20, 30 or 40 years from now — nobody knows, and only a fool would try to guess! 

A device commonly known as an ILIT (irrevocable life insurance trust) is typically used to segregate the life insurance death benefit proceeds from the insured’s estate, for the purpose of having those funds excluded from the taxable estate, and in the case of the estate incurring any tax, using those funds to pay the estate, thereby keeping the estate “intact.”

Keeping the estate “intact” is extremely important if a non-liquid asset is part, or all of the estate, the decedent may wish to pass real estate or a business that has value that subjects the inheritors to taxation, but the estate, or inheritors, don’t have cash to pay the estate or inheritance tax due. This might cause the need to quickly liquidate the asset for a fraction of its value, since the due date on the taxes owed may force a below-market sale of the asset(s).

Using permanent life insurance to manage estate tax funding

Estate tax funding issues are generally only properly addressed with permanent life insurance, and a proper plan from an experienced professional is necessary to design a coverage plan that will most likely fulfill the requirement in the distant future. There are several major considerations when doing insurance policy design for this type of estate planning, some of them are, retention limits of the carrier you and your agent choose, general account rating, booked obligations, earnings history, dividend history, trend of the assets and liabilities.

Your independent agent should be able to produce and review a VitalSignsⓇ comparison of the carriers he or she is recommending to you. In the hands of an experienced agent, the reports on the various carriers can help guide your decision to a company you think is most suitable for your goals, and alleviate future regret about the company you chose.

So if you are now, or think you may be in a position in the future, where you want to make sure you have done some planning around alleviating an estate of inheritance tax burden from your heirs, it would be prudent by engaging an experienced life insurance professional, as well as an estate attorney and/or CPA, who can take you through the first steps of developing a strategy

life insurance for children

Permanent Life Insurance

The benefits of permanent life insurance

Permanent life insurance is intended to pay a death benefit, or return cash-value, at some point in the future. Permanent insurance can be for obligations that are expected to never end, those being: final expense, estate tax payment, legacy creation/giving, and other reasons relating to personal finance and business planning needs.

The type of policy used for a given situation, the policy design, the fixed and variable components of the contract, and the policy’s operation throughout the years, are all crucial to achieving the outcome that was desired at the time the policy was obtained. 

Built-in flexibility of permanent life insurance

And while the needs or goals of the policy owner may change of the years, careful and thoughtful planning with an experienced life insurance professional, can illuminate the process, and possibly “build-in” flexibility and contingencies that otherwise might not have been considered if a consumer had been working with someone less experienced. Permanent policies can come with a number of features, some of which are no charge, or included, some of which are at an extra cost, but can prove valuable to the policy owner. 

Some of these might be:

  • Waiver of premium
  • Accidental Death and Dismemberment
  • Accelerated benefit
  • Long-term care coverage
  • Additional death benefit through term insurance within the permanent policy
  • Cash-value growth
  • Access to certain investments or crediting strategies for a policy’s cash-value.
  • Dividend payments to the policy owner.

Understanding all of these possible features, and relating them to the policy owner’s own circumstance, is the crucial job of the life insurance agent, and it is why every consumer who wishes to purchase a permanent life insurance policy, should seek a knowledgeable, experienced agent.

Permanent life insurance generally breaks out into two categories, whole life (also known as ordinary life) and universal life (also known as flexible premium life) These two categories are quite different from each other, but each serve a purpose that may make one generally better than the other in a given client’s circumstance. 

Within both categories, both whole life and universal life have variations, and if you are considering using permanent life insurance, you would be well advised to work with a knowledgeable, experienced agent who can thoroughly explain all the different types, and advise you on which one(s) might suit your purposes best. It cannot be overstated that permanent life insurance is a complex product and advice should only be sought from an experienced professional, because without which, you may find out you made a mistake, and years past your ability to do anything out it.

An insurance advocate is crucial to successful insurance policy development

Understanding all of these possible features, and relating them to the policy owner’s own circumstance, is the crucial job of the life insurance agent, and it is why every consumer who wishes to purchase a permanent life insurance policy, should seek a knowledgeable, experienced agent.

Permanent life insurance generally breaks out into two categories, whole life (also known as ordinary life) and universal life (also known as flexible premium life) These two categories are quite different from each other, but each serve a purpose that may make one generally better than the other in a given client’s circumstance. 

Within both categories, both whole life and universal life have variations, and if you are considering using permanent life insurance, you would be well advised to work with a knowledgeable, experienced agent who can thoroughly explain all the different types, and advise you on which one(s) might suit your purposes best. It cannot be overstated that permanent life insurance is a complex product and advice should only be sought from an experienced professional, because without which, you may find out you made a mistake, and years past your ability to do anything out it

Whole life insurance vs. universal life insurance

Permanent life insurance generally breaks out into two categories, whole life (also known as ordinary life) and universal life (also known as flexible premium life) These two categories are quite different from each other, but each serve a purpose that may make one generally better than the other in a given client’s circumstance. 

Within both categories, both whole life and universal life have variations, and if you are considering using permanent life insurance, you would be well advised to work with a knowledgeable, experienced agent who can thoroughly explain all the different types, and advise you on which one(s) might suit your purposes best. It cannot be overstated that permanent life insurance is a complex product and advice should only be sought from an experienced professional, because without which, you may find out you made a mistake, and years past your ability to do anything out it

whole life insurance

Whole Life Insurance

Contractual Guarantees in whole life insurance

With whole life insurance there are generally contractual guarantees in the life insurance policy.

  • The death benefit is guaranteed.
  • The base premium is guaranteed not to increase.
  • The cash-value of the policy may be guaranteed to increase over time.

Generally speaking, a whole life policy is a permanent obligation of the carrier, where the cost of insurance, as a calculation internal to a particular insured’s policy, is fixed at the age and rating at the time of issue. Premiums on a traditional whole life policy are due on the anniversary mode date if the insured is alive on that date. Premiums may sometimes be offset, or completely covered by accrued dividends, loans and/or surrenders of the policy’s cash-value, and/or dividends paid into the policy on the policy’s anniversary (if the policy is “participating” and the company has declared a dividend for that policy year).

Limited pay whole life insurance policies (also known as "paid up" policies)

Another variation is a limited pay whole life policy (sometimes called a paid-up policy), where the policy and the projections of the death benefit and cash-values are based on the policy receiving premiums for a certain length of time, and ending at a date that could be contractually defined, after which no more premiums are due, but the death benefit and cash-value remain a permanent obligation of the insurance company.

Additional features and benefits, can be named similarly among carriers, but the actual definitions and terms, are generally carrier specific. A knowledgeable, experienced agent should be able to help choose the most appropriate carrier and product for a client’s given circumstance. Whole life insurance, and the limited pay variation, are typically the only products that qualify to receive a dividend if the carrier declares one, these policies are called “participating”. Generally speaking, mutual companies issue “participating” policies, but stock companies, because they have a profit obligation to shareholders, may issue participating (where the dividend is divided between policyholders and shareholders), or non-participating (“non-par”) policies.