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Don’t Make The IRS A Co-Owner Of Your Policy!

Whenever an asset changes hands a risk is involved in the transition of title, especially with life insurance policies! The biggest tax advantage of life coverage is the ability to receive the death benefit income tax-free.

But much of the death proceeds from a transferred policy will be taxable unless the change is an exception under the Internal Revenue Code!

A couple of points:
  • Most intra-family transfers are considered gifts and don’t affect taxation of the death benefit.
  • A policy can always be transferred back to the insured without issues.
  • Even lower-income beneficiaries can feel the effect as the taxable portion of the proceeds is added to, and often exceeds, their normal taxable income.
  • Taxation can be triggered by the transfer of any interest in the policy, not just outright ownership.
  • Most problems occur when unneeded business-owned policies are transferred to someone other than the insured (e.g. a trust).

The good news! Most potentially taxable changes can be avoided, and past taxable changes can usually be fixed.

Reach out to Tom Virkler, JD – Director, CPS Advanced Markets, at 706-614-3796 or tom@cpsadvancedmarkets.com concerning any policy ownership changes you anticipate, or to discuss current policy placement to avoid problems down the road should ownership changes become necessary. 

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Understanding The Nuances Of LTC And Chronic Illness Riders

As more Life Insurance carriers enter into the Linked Benefit marketplace, it’s important to understand that there are key differences in how their policy riders will provide living benefits to the insured.

Knowing the ins and outs of these riders will help save you and your clients from some potential problems in the future.

There are two different ways in which insurance carriers file for these accelerated benefit riders – first as a Chronic Illness Rider or second as a Long-Term Care (LTC) Rider.
 
What are the differences?
 
Chronic Illness Riders generally require a physician to certify the condition as “likely to last the rest of the insured’s life” while LTC Riders can be utilized for either temporary or permanent claims. While on claim for a LTC rider, policy premiums are likely to be waived though some carriers will still require the scheduled premium to be paid.
 
For temporary claims, you’ll want to be mindful that carriers can require a catch-up premium for the waived scheduled premium which was not remitted while on claim if the client recovers and is no longer in need of Long-Term Care. This can become very prohibitive if the scheduled premiums are significant and/or the client is on claim for an extended period of time.
 
One way to work around this issue is to have shortened premium paying period inside of a “paid-up” policy so that there would be no additional premiums due in later policy years when a client is more likely to have a LTC claim.
 
When promoting a Chronic Illness Rider, it is important to understand whether there is a cost or charge for the rider when it is accessed and also if there will be any limitations to the amount of the benefit available to the client.
 
Some products will not charge a cost until the rider is accessed and some carriers will not be able to determine the amount of benefit available until a claim is applied for. Clients should be made aware of these points before making a final purchase decision.
 
Another key consideration is how the benefit will be paid to the client.
 
For Chronic Illness Riders, it may only be a question of how frequently the benefit is paid out. For LTC Riders, you will need to know whether the rider is indemnity or reimbursement style.
 
Indemnity allows for the full benefit to be paid once the client qualifies for the rider without consideration for the actual expenses incurred as result of the LTC provided. Reimbursement riders will only provide benefit for the actual cost of the qualified LTC services and require the client to coordinate the benefit with the carrier.
 
These are just a few of the different features and functions that you should understand when promoting permanent insurance products which include living benefit riders. Additional consideration should be given to the specific details for each product and rider that you are recommending to your clients.
 
If you have any clients that you would like to consider for this concept or if you would like learn more about any of the particular products or riders available, please call your dedicated Life Sales & Marketing Specialist today.
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The Skinny On GLP‑1: Underwriting In The Weight-Loss Era

Obesity is a major risk factor for Type 2 diabetes, heart disease, stroke, sleep apnea, liver disease, and certain cancers.

It’s estimated that around 40% of the adult non-diabetic population in the U.S. is obese.

Over the past few years, GLP‑1 medications have become mainstream for the treatment of both obesity and Type 2 diabetes. GLP-1 receptor agonists – such as Ozempic, Wegovy, Mounjaro and Zepbound – mimic the body’s GLP-1 hormone which helps manage blood sugar levels, suppresses appetite and slows the process of food leaving the stomach.

GLP-1 agonists have been shown to reduce effects of metabolic risk factors including obesity, diabetes and in atherosclerotic cardiovascular disease. However, there is also a high incidence of regaining weight loss after stopping the GLP-1, in some cases with weight returning to baseline levels within 1 to 2 years. Ongoing lifestyle change is key for long term success beyond treatment.

When it comes to underwriting, here are a few things carriers look for in assessing the use of GLP-1 medications:
  • Indication – What is the medication treating? Weight loss, diabetes, or both
  • Weight loss history over a period of one year – What is the current height/weight and what is the total amount of weight loss in the prior year? To account for stability risk, carriers will underwrite based on an adjusted weight that includes adding back half of the weight lost within the prior 12 months
  • Comorbidities – Are there any diagnoses for co-morbid conditions such as Type 2 diabetes, cardiovascular disease, sleep apnea and hypertension? Additional ratings may apply if comorbidities are present
  • Healthy lifestyle habits – A healthy lifestyle can help with a more favorable underwriting assessment. These include diet, exercise habits, and a lifelong nonsmoker

Contact our Underwriting Team of experts to help get the best possible offers with your GLP-1 scenarios.

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Asking The Tough LTC Questions

When you meet with your clients to fill out a Long-Term Care application you are faced with asking tough questions. At times, not all clients feel comfortable telling you which medications they are on or why, or how much they weigh.

As an agent, it is your job to be thorough when completing the application in order to get your client the best offer available.

Here are some tips on asking the tough questions:
 
Set the Stage
 
Let your clients know why you are asking these personal questions. You could say something like this:
 
“Mr. and Mrs. Client, you don’t have to be in perfect health to get Long-Term Care Insurance, but you do need to be in relatively good health. It’s my job to gather that information, so I need to ask you some questions about your current health and about any medications you may be taking.”
 
Get An Accurate Health Picture
 
Just as a doctor needs complete and accurate information to make a diagnosis, you need it to make the best recommendation for your clients. Encourage them to be completely honest and thorough when answering health questions.
 
Learn The Story Behind The Medication
 
The medications your client takes usually tell the story but you should dig deeper to find out what conditions a medication has been prescribed to treat. It is a good idea to familiarize yourself with common medications associated with uninsurable conditions.
 
Here are some common medications you should be familiar with:
 
  • Prednisone is prescribed for COPD and Rheumatoid Arthritis
  • Requip is prescribed for Parkinson’s Disease
  • Aricept is prescribed for Dementia
  • Avonex is prescribed for Multiple Sclerosis
Don’t Guess How Much Your Client Weighs
 
Ask them and remember to use build charts to assist you when filling out applications.
 
Lastly, it is smart to include a cover letter with the application stating information you learned about your client that may not have been required to disclose on application. This allows you to share more with the underwriter such as your client’s habits, lifestyle and what they are doing to manage current health issues. Remember, the more you can tell the underwriter about your client, the better chance for a positive underwriting outcome.
 
For more information on how to approach your clients about Long-Term Care applications contact your LTC Specialist today.
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DI Sales In The Small Business Owner Market

Small business owners make up 44% of U.S. economic output and are strong prospects for individual disability income (DI) insurance. Many are unprotected by Workers’ Comp and are viewed favorably by DI carriers because owners are highly motivated to return to work.
 
The Opportunity
 
Most business owners aren’t being approached about DI coverage. A 2019 LIMRA study found only 18% carry individual DI, and many who do use it only for business‑related needs—leaving 82% without protection for their own income. This creates a large, underserved market.
 
How to Engage Them
 
Your main task is helping owners overcome the belief that they are “invincible.” Asking what would happen if they became sick or injured opens the door to discussing solutions such as individual DI, Key Person coverage, Business Overhead Expense, and Disability Buy‑Sell insurance.
 
Increase Their Awareness
 
While some professions (physicians, dentists, attorneys) already understand the value of DI, small business owners often don’t realize their vulnerability. Educate them on why income protection matters and focus on those who recognize the need—don’t overinvest time in those who simply “don’t get it.”
 
Make Your Case with Facts
 
Many people underestimate disability risk. Key statistics include:
 
  • Injuries cause fewer than 10% of disability claims.
  • Musculoskeletal diseases (e.g., arthritis, tendonitis, carpal tunnel) are the top cause.
  • Cancer is the second‑leading cause of disability claims.
Support
 
We can provide tools and marketing resources to help you reach this important market. Reach out to your DI Associate to get started today.
 
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Taxes And Trust-Owned Life Insurance: How To Provide Flexibility

The most common strategy that wealthy and healthy taxpayers use to fund against unavoidable anticipated estate tax liability is to purchase life insurance in an irrevocable trust; funding the trust with gifts so the trustee can pay the premiums.
 
Transfers to the trust can be protected from gift taxation by using either available annual exclusions or the grantor/donor’s lifetime exemption. At the death of the insured the proceeds are not included in the taxable estate, but the funds are available to buy assets out of the estate to provide liquidity necessary to pay estate taxes. All is right with the world!
 
But what happens if the insurance is later needed for other purposes outside the trust and back inside the taxable estate?

Careful advisors take the precaution of having the policy in a grantor (or defective) trust that by its terms allows the grantor/insured to purchase the contract out of the trust.

The practice is common and allows for broad future planning options. In the past no one was quite sure if reserving the power to repurchase the coverage didn’t constitute an “incident of ownership” in the policy that would draw the death benefit back into the insured’s taxable estate, even if they didn’t buy the policy back.
 
Not to worry!
 
If your clients are concerned then suggest that they ask their legal or tax advisor about Rev. Rul. 2011-28 which determined that the right to repurchase does not create an incident of ownership so long as:
  • The trustee was obligated to assure that the purchase price paid was adequate.
  • The transaction didn’t shift benefits among trust beneficiaries.
With these provisions in place a trustee can buy life insurance inside the trust without fear of using up a grantor’s insurability that might be needed outside the trust at a later date.
 
Take the planning flexibility one step further.
 
Assume a policy was purchased back from the trust because the grantor/insured needed it for collateral on a business loan (and couldn’t get additional coverage because of medical issues that arose subsequent to the original purchase date). Once the need has passed (i.e. repayment of the loan) the grantor can sell the policy back to the trust without fear, if properly done, of either:
  • The 3-year look-back rule for purposes of estate taxation, because the policy was sold and not gifted to the trust
  • A transfer-for-value for income tax purposes, because the sale to a grantor trust by the grantor is deemed a transfer to himself.
Contact Tom Virkler, JD, at 706-614-3796 or tom@cpsadvancedmarkets.com if your client has concerns about the flexibility he or she may have getting proposed trust-owned life insurance back out if needed down the road or, for that matter, the sale of an existing policy to a trust. Call, too, if you want a copy of Rev. Rul. 2011-28 to read or to pass on the client’s legal or tax advisor.
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Best Rates Are Possible For History Of Gastric Ulcers

Gastric ulcers, also known as peptic ulcers, are localized areas of erosion in the stomach lining that result in abdominal pain, possible bleeding and other gastrointestinal symptoms.
 
The most common cause of these ulcers is infection of the stomach by bacteria called Helicobacter pylori (H.pylori). Other risk factors include alcohol use, smoking and use of nonsteroidal anti-inflammatory drugs (NSAIDs).

Ulcers that are successfully treated with good follow up and documentation of healing generally get more favorable underwriting outcomes.

Take a look at this case study:
 
  • 59 year old male
  • $1 million of Term coverage
  • 5’9”, 140 lbs
  • Lifelong non-smoker
  • No adverse family history
  • Diagnosed with a non-bleeding gastric ulcer in 2018. Takes over-the-counter medication for heartburn symptoms
  • No alcohol use
Underwriting Decision: Select Preferred!
 
Contact our Underwriting Team for more information and let us help you find ways to generate more sales with great underwriting offers!
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8 Ways To Ease Into The Talk

Some of America’s most beloved and recognizable faces — Maria Shriver, Rob Lowe, Maggie Gyllenhaal, Zach Quinto, Angela Bassett and Jim Nantz — encourage having ‘the talk’ now versus later.

While the conversation is not exactly an easy one to have, a discussion of Long-Term Care planning with loved ones is something that should not be put off.

Don’t just have the talk about long-term care planning because of star power. Do it because 90% of American adults don’t currently have long-term care insurance. Do it because 70% of Americans will need some form of long-term care in their lifetime.
 
8 ways to get the conversation started:
  1. Be Open – Tell them that you’d like to talk about these issues and ask if they would mind talking about them – everyone thinks about these things and worries about what the future holds.
  2. Be Reflective – When you’re together, ask them about their past, their childhood, and their parents. Learn about them. Then move on to the future. What do they want most? How do they perceive the future? What worries them?
  3. Discuss Someone Else’s Situation – Chances are that you, your spouse or partner or your parents know someone who is already dealing with some aspect of aging or long-term care. Talking about what’s good or bad about their situation can be a starting point.
  4. Mention an Article or Website – Give them a clipping, or link to information about planning ahead, family conversations, long-term care costs, and move forward from there.
  5. Ask for Advice – This is a great way to get the discussion rolling. Tell them that you’re starting a retirement account or preparing a will and ask for advice. Then ask how they planned ahead and if they feel fully prepared.
  6. Grab an Opening – If, for example, your mother is talking about a family member who’s in a nursing home, and says, “I don’t see how she can stand it,” ask her what she means. What would your mother want in the same circumstance? If you miss the chance, bring it up another time soon – “Hey Mom, remember when you said you couldn’t stand to live in a nursing home…”
  7. Write – If you find the whole conversation thing too daunting – write a letter or e-mail outlining your concerns and what you would like to discuss. This technique can be particularly helpful if you live far away, or otherwise have only a bit of time on the weekend to attempt this type of conversation. By writing, you pave the way and get them to start thinking about it before you get together.
  8. Get Help – Maybe you have a sibling who is more at ease talking with your parents. Maybe your parents are more comfortable talking to someone else in the family about finances or health. Don’t be offended. As long as long-term care planning gets done, all will be good.
We’re here to help! Contact your LTCi Sales Reps for support.
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DI Case Study On An NFL Running Back

As we head into the Divisional Rounds, now is the perfect time to share a case study of an NFL running back we worked on earlier in the off season.
 
In this case, the NFL Running Back being drafted in the second round of the NFL draft and completing three successful seasons, the player was approaching free agency and his biggest paycheck to date. To protect himself and his future income, he needed an insurance policy in place before he hit the field in the fall.
 
Assessment
 
Due to the physical nature of the sport, it was made apparent that if the player suffered an injury or illness resulting in a permanent total disability before he signed a new contract, his future income would be lost. The first policy placed covered $5 million in benefit, but his recent stellar performance moved the advisor on the case to request an increase in disability benefit at the time of renewal.
 
Solution
 
Our Disability Income Support Team worked with the player’s Agent and Insurance Advisor to develop a $10 million permanent total disability policy, which would soften the blow in the event the player became permanently totally disabled before his next big contract was signed.
 
Result
 
This tax-free benefit gave the player peace of mind – if he suffered a serious injury or illness while playing football, his future contract and lifestyle would be protected.
 
The premium for this case was roughly $90,000 plus taxes and fees.
 
Even though NFL super-stars need specialized coverage due to the nature of their sport, it’s important to remember that high-earning individuals have a gap in disability income protection as well.
 
Contact your DI Sales & Marketing Specialists for more information on unique DI solutions.
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Irrevocable Trusts: Pay The Trustee

A long time ago, in a galaxy far, far away I remember reading an IRS Private Letter Ruling that had about it the worst method an insured/grantor could use to pay premiums on a policy inside an irrevocable trust.
 
He was the sole owner of a business that each year cut a check directly to the carrier for the total amount due. The taxpayer was asking for a determination as to whether this quick-and-easy A-to-B transaction for maintaining a policy outside of his taxable estate would be deemed an incident-of-ownership resulting in the inclusion of the benefit in his taxable estate at death.

I’ve searched half-heartedly and unsuccessfully for the ruling. But if memory serves me well, which it well may not, the Service did some “deeming”, but not in the unfavorable direction of finding an incident-of-ownership anywhere in the works.

It treated the taxpayer’s monetary circumlocution as: first, deemed income to the taxpayer from the company that must be reported as income; second, a deemed gift from the taxpayer to the trust that must be reported as such; then third, a deemed premium payment by the trustee to the carrier – all without giving rise to any incident-of-ownership in the grantor/insured. Well, how about that?
 
It’s tempting to jump on such reasoning when it becomes bothersome to set up a trust checking account, or go through the multi-step process of actually gifting money to the trust and hoping that the godparent of the beneficiaries (who graciously offered to serve as trustee) doesn’t forget to pay premiums in the years following his or her retirement to the beach. But there are some serious concerns created by the convoluted route taken by the premium in the illusive PLR mentioned.
 
If avoiding gift taxation is dependent on use of available annual exclusions then two things are necessary to qualify for protection.
 
The beneficiaries must receive notice of their right to withdraw contributions made on their behalf, usually accomplished through timely “Crummey letters”. More important, the trustee should be in a position to actually fulfill requests from beneficiaries should they choose to exercise their Crummey withdrawal privilege.
 
If the only asset in the trust is the policy and the cash for premiums that constitute the annual gift merely flies over the trust each year, the Service is in a strong position to argue that the present interest necessary to qualify for the exclusion is only an illusion.
 
In addition, a properly drafted irrevocable trust implemented to keep death benefits free of estate taxation will only allow and not require a trustee to purchase life insurance on the grantor’s life. This avoids any argument of grantor control over the policy. However, if each year, premiums are paid directly to the carrier the grantor has, in effect, forced the trustee to purchase coverage. So, how do you spell a-u-d-i-t?
 
Too often shortcuts are taken in the establishment of irrevocable trusts and too often insufficient attention is given to their ongoing administration. While it is not the legal responsibility of the insurance advisor to see that all is done according to Hoyle, it should be his or her annual practice to make sure that the proper parties are fulfilling theirs.
 
Contact our Advanced Markets Team with questions you have concerning your casework that involves trust planning or estate and gift tax concerns, at 706-614-3796 or tom@cpsadvancedmarkets.com.

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