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Winning In Overtime With Unneeded Life Policies

“I went to a fight the other night and a hockey game broke out!” The famous one-liner by the late comedian Rodney Dangerfield finds it humorous foundation in the reality that those athletes on skates are resourceful in finding occasion for fist-a-cuffs.
 
But the sport offers a life lesson in making the best of a bad situation. If a team wins a game in regulation it is awarded two points in the standings and the loser gets nothing. But if a game is tied even the team that loses in overtime or a “shootout,” gets one point.

As an insurance advisor don’t miss the opportunity to make the “loss” a client may have in an unneeded policy into a positive transaction.

Example: Your client has a life policy into which he or she has paid $50,000 in premium and has a surrender value of only $10,000. The policy requires too much to maintain or is no longer needed.
 
But rather than tossing in the towel, suggest using the policy loss to earn some tax-free money! Consider:
  • Swap the policy for an annuity in a 1035 exchange.
  • Section 1035 allows for transfer of both the cash value ($10,000) and the old policy tax basis ($50,000) into the new contract.
  • Account values in annuities are taxed only to the extent of gain in the contract, the exchanged-for annuity allows room for $40,000 in growth before there is any potential income taxation on full surrender.
  • Additional premium can be contributed at the time of the exchange allowing for quicker loss recovery (e.g., $20,000 new premium results in an initial policy value of $30,000 and initial tax basis of $70,000 – loss in the policy is not affected!).
A 1035 exchange to an annuity is not without its hoops and details, so contact Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796 concerning these and any opportunities for increasing your annuity business.
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Getting Full Trade-In Value For Exchanged Policies

We all know when you buy a car not to let the dealer know you have a trade-in until the terms or the new automobile are negotiated. Otherwise, the salesperson can more easily make a less than competitive offer on the ole rust-bucket/clunker/hooptie and hide it in the overall transaction for both vehicles.
 
A loss can also occur when trading in an old life insurance or annuity policy using the cash value for a new contract more suitable for a client’s current needs. Surrender of the existing contract triggers income tax on any gain in the policy value, leaving less to purchase new coverage.
Fortunately, IRC 1035 allows a non-taxable exchange, but here the trade-in must be in the picture upfront.
Because the transfer of funds must be carrier-to-carrier there are additional steps in the 1035 exchange process, which we will do for you:
 
  • After you have submitted the application we will take all steps to see that all replacement paperwork (much of which cannot be done online) is completed in a proper and timely manner.
  • We determine the exact amount of the old policy value that is to be rolled over and ensure that your sales illustration reflects that amount.
  • Once we have received approval for the new coverage, we will see that the old carrier transfers the funds promptly so the new coverage can get in force.
Contact Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796 with all your casework that anticipates a 1035 exchange and we will help your clients maximize their trade-in value by taking effective advantage of this tax-saving opportunity.
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Getting Sales Returns From Tax Returns

Way back in time I had the good fortune to work in a firm whose in-house CPA happened to be the author of the joke column for a well-known accountant publication.
 
He well understood the contradiction between the nature of his editorial role and the droll reputation his profession has concerning things related to any form of humor. Thinking about it always caused him to laugh.
 
He would add, “An accountant is an actuary with a personality. I was going to become an attorney, but felt it would be worse to be thought a shyster!” I think he used both of those lines in his column.
 
If the professional stereotype has some substance you don’t have to look far into the Internal Revenue Code to understand the cause, at least among tax accountants.
 
There is nothing funny about it, and you do have to look far and wide to find tax jokes, because there just aren’t any. Such a morose work environment understandably takes a widespread toll on even the most affable of professions.

The only joke, perhaps, is the one played on taxpayers when the government set filing day as April 15.

Note that it is about as far as they could get from Election Day without being too obvious. So by the time you vote in November the sting of taxation is far from your mind as you pull the lever for the folks who will use the next year’s April showers to rain on your parade.
 
The Opportunity
 
Right now the last thing most clients want to re-address is the return they just did address to the IRS. But herein lies the planning and sales opportunities.
 
Left to themselves clients will wait until after next New Year’s to call and ask what you can do to reduce their income tax for this year. Short of a couple of possible qualified money deductions, maybe, there’s not much to offer.
 
Now is the time to act and several of our core carriers have materials that make the process more focused and beneficial – with illustrations and commentary concerning how to walk through a client’s tax return pointing out opportunities and making suggestions for planning advantages.
 
The material might also be put to good use with CPAs, encouraging them to review the returns of clients they might send to you for planning help.
 
Besides, they are in such a good mood this time of year they may even respond to a couple of your jokes about insurance advisors.
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Put “Side-boosters” On Your Term Insurance Plan

The world watched as Artemis II took the U.S. space program on its first manned step toward beyond Earth’s orbit in 54 years. A common sight is the side-boosters on the rocket that allow for the easy disposal of those sections’ weight once they are no longer needed for a fuel source as the space-craft approaches orbit.
 
Term life insurance plans should be structured so economically!
 
Consider a 35-year-old male preferred non-smoker making $100,000 who wants income replacement protection until anticipated retirement at age 65. The annual level premium for a 30-year $3,000,000 policy ($100,000 x 30 years) is $2646.Not too bad, but the cost over his working life will be $79,380.
 
But he has less years to insure for as time goes on. So, assume he reduces the death benefit to $2,000,000 after year 10, and to $1,000,000 after year 20. His total savings would be $26,460.But many carriers severely limit or do not allow face amount reductions. And even if they do, he has paid 30-year rates on two-thirds of the coverage he did not need for that long.
 
As an alternative implement “side-boosters” by “laddering” three term policies as follows:
  1. $1,000,000 in 10-year term for $298 annually…
  2. $1,000,000 in 20-year term for $509, and…
  3. $1,000,000 in 30-year term for $882 – the total premium over 30 years is reduced to $39,620, a total savings of over 50%!
Laddered term can be accomplished in a single application with instructions in the Comment Section for structuring the multiple policy arrangement. But for a smoother take-off, contact Tom Virkler, JD, Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796.
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Should A Life Policy Be In A Revocable Trust?

If love is blind, and if marriage is an institution, and if love and marriage go together… then, is marriage an institution for the blind? Maybe things don’t always go together, but many times they do.
 
A revocable trust is a common management device that holds assets for the creator/grantor who has freedom to add or subtract property as he or she pleases and which includes instructions to distribute assets at death. It is his or her alter-ego for both income and estate tax purposes, with the same results as if all were owned directly.
 
So, do a revocable trust and a life policy go together?
 
Consider the pluses and minuses of a trust-owned contract:
  • Cost – Creating the trust is an additional expense beyond the fees for the usual last will & testament, power-of-attorney, and health directive.
  • Creditors – Unlike with an irrevocable trust, assets are not protected from claims against the grantor.
  • Court – Death benefits are not subject to probate, but this may not be a compelling reason.Beneficiary designations (other than to the estate of the insured) serve to avoid probate court anyway.
  • Continuity of Control – If an individual owner of a policy is not competent, or cannot be found, management of the policy is onerous. The trust can re-direct authority.
  • Contingent Beneficiaries – This is the biggest advantage.Primary policy beneficiaries are usually simple (e.g., 100% to my spouse).Beyond that things can get complicated quickly (e.g., to my children).Must a child survive?Are there children of more than one marriage?Will distribution be equal among all?Is there a desire to manage the proceeds for a time prior to complete distribution?All these concerns are much better accommodated in a trust document than in the beneficiary box on a policy application.

If you have questions about a client policy and trust planning, or any other case planning issues, contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.

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A Term Policy Is Not A Pork Belly!

In 1848 the Chicago Board of Trade opened for business providing a public forum in which to negotiate“forward” contracts for products that were interchangeable with other goods of the same type based on price rather than branding. Known as commodities, the CBOT’s trading platforms were initially dedicated to agricultural products like sugar, corn, and soybeans.
 
In today’s term insurance marketplace spread-sheet availability tends to reduce the transaction to a simple commodity sale.
 
Product choice is determined by the least expensive offer that appears at the top of the list, regardless of whether it is a well-known carrier, or Texas Life & Limb!
 
We can help you make a better choice for your client based on several important factors in addition to the amount of premium:
  • Carrier medical requirements – We will find the insurer with the least burdensome underwriting and placement criteria!
  • Final medical offer – Based on our experience, we will direct you to the carrier most likely to give you the best rating, especially when a condition is known to exist!
  • Coverage availability – Insurable interest requirements and financial underwriting guidelines can vary greater from one carrier to the next. We will make sure you get the most coverage available!
  • Policy issue time – We know what carriers are having processing problems and can direct you to the best insurer for quicker placement, especially when time is of the essence!
  • Carrier internal support – Cases often go side-ways a bit. The quickest solutions come with internal assistance from the carrier team serving us. We know who has the most responsive contacts!
  • Conversion privileges – A decline in health always raises the question of exchanging term coverage for permanent insurance. We will help you choose the term policy with the best options for a conversion down the road!

Contact Tom Virkler, JD – Director of Advanced Markets, at tom@cpsadvancedmarkets.com or 706-614-3796 to go over your next spreadsheet and find the best all-around coverage for your client.

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Life Policy Beneficiaries – 7 Common And Costly Mistakes

The beneficiary designation is one of the smallest areas on an application form. It is also the site of some of the biggest mistakes.
 
Here are the seven most common:
  1. Making the estate the beneficiary – Death proceeds are turned over to the Probate Court where they will be subject to creditor claims.Distribution is according to the insured’s Will and could take two years or more.Everything is a matter of public record.
  2. Failing to name a contingent – The beneficiary will not always outlive the insured, true half the time when married couples have cross-owned policies.
  3. Multiple beneficiaries, improper designation – Is distribution to be made equally or disproportionately?Is surviving the insured necessary to collect?If not, does the share pass per stirpes or per capita? Full instructions are necessary, even if it means an addendum to the application.
  4. Multiple beneficiaries, insufficient allocation – The total death benefit must be disbursed.Carriers insist that shares be on a percentage basis, not in dollar amounts, adding up to 100%.
  5. Designating minors – Every state prohibits distributions before the age of legal majority.A custodian must be appointed for a minor according to the state’s Uniform Transfers to Minors Act.
  6. Insufficient identification – Make sure there is sufficient information on the application or upon delivery to assure the carrier can find the beneficiary.
  7. Ignoring changed circumstances – When beneficial interests change with events it should be reflected with beneficiary changes.The most often overlooked are in response to a divorce.
Plain and simple, beneficiary designations are tricky. We will help you get them properly drafted in a manner approved by the carrier. Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.
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Three Sheets Of Paper, Or Three Sheets To The Wind?

Those familiar with Tom Clancy’s novel Debt of Honor will recall how a radical Japanese financial conglomerate sabotaged the U.S. securities markets by electronically erasing a full day’s trading records. But a solution emerged when Ryan’s wife, Caroline Ryan, MD, advised, “If something isn’t written down, it didn’t happen.” Then all proceeded normally as the financial world simply picked up where prices from previous day had left off.
 
Dr. Cathy’s remark is nowhere more pertinent than in your clients’ estate planning.
 

It doesn’t matter how firmly resolved clients are in the desired future conduct of their affairs, or how many people they have told; if it isn’t written down, it doesn’t matter, the difference here being there is no safety net for failure to put pen to paper.

 
While we don’t give legal advice, we do well to alert our clientele that at least three written and properly executed documents are the necessary foundation of any estate plan:
 
Durable Power-of-attorney – Who has authority to handle your clients’ affairs when circumstances (e.g. foreign travel) or lack of mental capacity prevent them from doing so?
 
Health Proxy (or Living Will, or Health Directive) – Who will make medical decisions (up to and including life or death determinations) for your clients if they are unable?
 
Last Will & Testament – How, when, and to whom will your clients’ property be distributed in the event of death?
 
Without written directions, a client’s future affairs are in the wind, with no assurance of results. We will get on the call with you and your clients to discuss the importance of these documents and how they can be effectively coordinated with all that you do for them. Contact Tom Virkler, JD – Director of Advanced Markets at 706-614-3796 or tom@cpsadvancedmarkets.com today!
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Don’t Let Business Clients Train Their Future Competitors!

Because that is what they are doing if time and money is spent cultivating a key employee only to lose him or her to another (in a similar line of business, no less) who offers more money.  Or worse, lose one who starts his or her own shop offering the products and services in which your clients made them so proficient!

“Oh, but I have a non-competition agreement in place,” they might say.  Consider: 1) This old form of “iron handcuffs” is proving decreasingly enforceable in most states, and 2) your client has still lost a valuable employee!

Consider instead some “golden handcuffs” that are the easiest and significantly beneficial fringe benefit that protect key people not just during employment, but for their entire life. 

Call it Super Executive Bonus:
  • Purchase permanent life insurance for a selected employee which he or she will own.
  • Include a long-term care rider on the contract.
  • Pay the premiums until retirement, overfunding it so that it will carry for life without further premiums.
The distinct advantages for your business client over other employee benefits:
  • There is no obligation to fund in any given year.
  • Premiums are deductible and are reported on the employee’s W-2.
  • There are no government reporting requirements or regulations.
  • You have provided an attractive triple post-retirement benefit that protects in the event of death, long-term care, or the need for available cash.

We will help design and present the Super Executive Bonus benefit for your client.  All we need to draft a preliminary proposal is the executive’s age, sex, assumed medical classification, tobacco use, and the state of sale.  Contact Tom Virkler, JD, Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com.

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Beneficiaries Aren’t For Kids

At the age of eleven, the great composer Wolfgang Mozart wrote his first full-length opera. But if you had tried to make him a policy beneficiary when he was that young in any state today, he would be deemed legally incompetent.
 
It doesn’t matter how enlightened or precocious your child, the law doesn’t let a carrier pay a death benefit to a minor.
 
If you do try and then die, a long, drawn-out court proceeding will determine who should manage the funds until the child’s age of legal competency is reached.
 
It’s just as well. How many undirected teens might see even a small benefit (say $25,000 or $50,000) as nothing more than an opportunity for a weekend at the beach with friends?
 
But there is an easy solution! All states have in force a Uniform Transfer to Minors Act (UTMA), or something similar.
 
In a nutshell:
  • A custodian is appointed to manage the death proceeds until the minor’s legal majority. Successor custodians can also be named.
  • The state’s law safeguards the child’s interests by dictating the responsibilities and the powers of the custodian concerning the funds. Consider the arrangement an economical default trust, avoiding the cost and management of a full-blown, free-standing trust.
  • The beneficiary wording is uncomplicated but must conform to the state’s statute.
  • The only downside is that the custodianship unavoidably ends at a given age of the child (21 in most states), which may be earlier than desired.
There is a bit of effort involved for an insurance advisor. The correct wording for UTMA beneficiary designations varies from state to state, and from carrier to carrier. Length of the designation may make an addendum necessary to the policy application.
 
But the sales assistance at CPS Insurance saves you any effort and assures the directions for your client’s death benefit are correct. Remember: the most important section on any application is the beneficiary designation!
 
Contact Tom Virkler, JD – Director of Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com, anytime minors are involved in your client’s insurance planning, or if you have any questions drafting a policy’s beneficiary designation.

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