Category: Insurance - PFwise.com

6 Forgotten Tax Benefits of Life Insurance - Part B

10/25/2021

We discussed 3 forgotten tax benefits of life insurance here, now the next 3 tax benefits.

4. Tax-Advantaged Access to Cash When Needed
Most potential buyers don’t understand that permanent life insurance policies have contractual features that allow the owner of the policy to withdrawal cash from the policy using tax-advantaged loans and withdrawals.

Money borrowed or taken from the cash value of a life insurance policy is generally not subject to income taxes up to the “cost basis” — the amount paid into the policy through premiums.

Also, there are no regulatory restrictions on how the cash taken from a life insurance policy must be used by the owner. This creates significant flexibility to use the cash to fund a variety of needs, be they health or personal needs, such as putting on a new roof.

5. Supplemental Source of Tax-Free Retirement Income
Policyowners can withdraw or borrow against the value of their permanent life insurance contracts for any need, like supplementing their retirement income. If this benefit is used, the policyholder needs to clearly understand that tapping a life insurance policy’s cash value decreases the remaining cash value as well as the death benefit.

6. Tax-Free Way to Leave a Legacy
Life insurance can be used to create an income tax-free legacy to beneficiaries using the income tax-free death benefit. For very large death benefits there is the possibility of triggering estate taxes, which must be planned.

Legacies can be created for family members, charities, religious organizations and educational institutions. This can allow individuals to benefit numerous entities using the leverage that the life insurance death benefit creates.

The key takeaway is this: When you read about tax advantages provided to the middle class, the benefits of life insurance are infrequently mentioned.

Life insurance offers significant tax benefits that provide families with protection, the ability to accumulate cash and leave a legacy to those they care about. We need to beat the drum louder to promote these intrinsic benefits.

6 Forgotten Tax Benefits of Life Insurance - Part A

10/24/2021

Here are the top six tax advantages of cash value life insurance.

1. No Limit on the Amount Purchased
In comparison to qualified plans, there is no limit on the amount of life insurance that can be purchased subject only to the underwriting limitations of issuing life insurance carriers.

Using cash value life insurance as a tool to save for the future and to generate supplemental retirement income are valuable benefits in a world where households need to save more as corporate pension plans disappear.

2. Tax Deferral on Earnings
Permanent life insurance policies can generate cash value over time as premiums are paid and excess cash beyond the policies’ cost is generated. All cash income earned is not taxed currently and is able to earn interest on the taxes not currently paid. As we face the prospect of increasing future income tax rates, this benefit could become even more valuable.

3. Income-Tax Free Death Benefit
One of the most forgotten tax benefits of a life insurance policy is that the death benefit is income-tax free. Beneficiaries receive the policy’s death benefit, usually in a lump sum, and don’t have to report the payout as taxable income.

They can use it as they please. The fact that the payment is received without any federal or state income taxes multiplies its value to the beneficiary.

Keep reading for the next 3 forgotten tax benefits of life insurance.

Income Case Study - Use Annuity to Achieve Income Guarantees

10/23/2021

Do you seek greater certainty in your retirement income strategies? The case study below shows how an index oriented option can help offer income guarantees and increase income success rates.

Life Insurance and Impact on Estate Planning

10/21/2021

Q. How should I deal with life insurance and my estate? Will any of that change in 2026 or sooner, if the estate laws are modified?

A. The death benefit of life insurance is includable in the decedent's gross estate. None of the current tax change proposals contemplate changing the taxability of the death benefit of life insurance. However, there are some potential changes to the gift tax laws that could have an impact on certain estate planning strategies that leverage life insurance.

Currently, there is no limit to the number of annual exclusion gifts, whether to a trust or otherwise. As a result, people with multiple children and/or grandchildren (or other beneficiaries) can utilize their annual exclusion gifts to make $15,000 gifts to each beneficiary of a trust to fund life insurance policy premium payments.

Because an irrevocable trust is a separate and distinct entity for estate tax purposes, the value of a life insurance policy owned by the trust is not included in the estate of the insured.

Tax Plan Upends Estate Planning Using Trusts With Life Insurance

10/19/2021

Financial-planning.com has an article that details why the proposed tax plan upends estate planning using trusts with life insurance.

‘Crisis stage’
The blow to life insurance in trusts, a bread-and-butter wealth preservation strategy of the rich for decades, is one of many proposals in the emerging tax bill that take aim at the wealthy to finance President Joe Biden’s $3.5 trillion social spending plan.

The draft bill would raise the top individual rate to 39.8% from 37% and bump up the top capital gains rate to 28.8% from 23.8%. It would tax capital gains at the top ordinary rate once income hits $1 million, crack down on large retirement accounts and end backdoor Roth conversions, a favorite strategy of high-income earners to create tax-free profits. And it would kill the use of grantor trusts, the workhorse of estate planning, whether or not they contain life insurance.

It's easy to see what the tax perk has been. Say a person dies owning a $3 million home, $7 million in retirement accounts and $4 million of life insurance not held in a trust. With the current estate tax exemption at $11.7 million, $2.3 million of that $14 million estate would incur the 40% estate tax — a bill of $920,000. Now assume instead that the insurance policy is in a grantor trust. It wouldn’t go into the person’s estate, leaving nearly $1 million more for heirs.

Such savings would no longer be possible under the proposal. In any case, the historically high level at which estate taxes kick in would fall by nearly half to under $6 million in the House plan.

Under the House bill, “the life insurance issue has moved things to crisis stage,” said Steve Parrish, who co-directs the Center for Retirement Income at The American College of Financial Services.

“Right now, webinars, emails and panicked calls are circulating among estate planning professionals.”

One particularly hairy element, he said: Advisors are “trying to draft answers to their clients that avoid professional liability if they’re wrong.”

‘A major impediment’
The legislative proposal has upset financial advisors and estate lawyers because it’s common for life insurance to be held in a widely used type of trust called a grantor trust.

“This problem with insurance is really buried in the legislation,” said Warren Racusin, the head of the trusts and estates group at law firm Lowenstein Sandler in New York.

A grantor trust is a type of trust over which the owner, meaning the grantor, retains control and pays income tax on its gains. It comes in many flavors, including intentionally defective grantor trusts, or IDGTs, and grantor retained annuity trusts, or GRATs — all alphabet soup names well known to estate planners for the rich. Advisors say that most irrevocable life insurance trusts, or ILITs, are set up as grantor trusts, so they’d be hit by the curb, too.

The proposal says, in obscure language, that any assets contributed to grantor trusts come 2022 would become part of the grantor’s estate for estate tax purposes. The issue is that under the plan, a policyholder who pays her annual premiums for a policy that’s held in a trust would be “contributing assets,” thus making the trust subject to the 40% estate levy.

While the proposal would “grandfather” existing grantor trusts, that’s small comfort for those with life insurance. According to Mari Galvin, the chair of the trusts and estates group at law firm Cassin & Cassin in New York, it’s not clear from the proposal whether all of a trust could be shunted into the owner’s taxable estate if premiums are paid after this year, or just the portion related to the premium payments starting next year. “Time will tell,” Galvin said.

In any case, the grandpa safety net could be mighty small. Trusts that already exist and whose policies are fully paid would “most likely” remain grandfathered, according to Andrew Bass, the chief wealth officer of Telemus Capital, an independent advisor with brokerage services in Southfield, Michigan, that manages nearly $2.2 billion for high net worth investors. But only, Bass added, if the terms of the trust prohibit it from using its own income to pay premiums. The problem, he said, is that “most trusts were written with language that allowed trust income to be used for payment of premiums, thus forcing a loss of grandfathered status.”

In any case, wealthy individuals who want to create a future trust for their life insurance couldn’t make their spouse a beneficiary without subjecting the trust to estate tax. That’s because such a trust is automatically a grantor trust and thus would have to pay estate tax under the proposal.

“That is a major impediment, as insurance is typically needed by a surviving spouse,” Bass said.

The solution becomes the problem
The proposal has the potential to upend retirement planning.
“Life insurance is used by the well-heeled to both conserve and create an estate,” Parrish said. But if a policy’s death benefit gets hit with a 40% tax at death, “the insurance becomes the problem rather than the solution.”

The idea of pre-paying premiums revolves around using outside funds, not money inside the trust, as the latter would get caught by the proposed curb.

“We are advising clients to pre-fund their premiums now” by contributing cash or other assets before the new law passes so that no additional outlays are required to pay future premiums, said David Handler, a partner in the trusts and estates group at law firm Kirkland & Ellis in Chicago.

That’s easier said than done. Ponying up early premiums for a large “permanent” policy that lasts for life can cost millions of dollars. Where to find those dollars between now and New Year’s Eve? Individuals might have cash on hand, or they might contribute securities to the trust which can be sold over time to pay the premiums, Racusin said.

Handler said that others "might borrow from banks.” But Parrish said many investors would be left out in the cold, because “in many cases, these policies are financed through loans, so it’s impractical to pre-pay the premiums.”

Flying blind
The proposed curb would hit not just the very rich. People of more middling wealth, for whom a life insurance policy is often their trust’s single largest asset, would also feel pain.

For example, a person might have a net worth under the estate tax threshold but also a large life insurance policy to care for their family if they die prematurely and their income grinds to a halt, Handler said. Which means that when the insurance death benefit is paid, the decedent’s total assets can exceed the estate tax exemption.

Wealth advisors and estate planners say they're flying by the seat of their tax pants.

Advisors, Parrish said, “are feeling damned if they do” (pre-paying or taking other moves) and “damned if they don’t" (adopting a wait-and-see approach to whether the proposal becomes law).

Bass said one solution might involve “decanting” a grantor trust, like a fine wine. That strategy involves “pouring” a trust’s assets into a new trust. Or a trust could pay the insurance premiums through so-called split dollar arrangements, which are common with wealthy executives.

Or it could be set up so that beneficiaries other than a spouse would have to approve any distributions out of the trust to the spouse, “but that could cause family rifts and may have gift tax implications for the kids,” Handler said.

Racusin likened the tax contortions to navigating wealth planning with blinders on. “It’s kind of like an architect telling a builder, ‘hey, I need you to build this house right now, but I don’t have the plan, but you need to start building it right away.’”

Prostate Cancer and Life Insurance Application - Part B

10/15/2021

In last blogpost, we discussed what is prostate cancer. Now we will discuss life insurance underwriting for Prostate Cancer below.

The primary questions to be asked of a proposed insured that presents with this history are:

What was the age at diagnosis and the date when treatment ended?
What was the prostate cancer stage and/or grade?
What was the Gleason score? (This is a tumor grading, based on how different from normal tissue the cells are.)
How was the cancer treated?...and has there been any recurrence?
What was the pre-op PSA reading?
What is the current, or most recent, PSA reading?...and has there been good follow-up?

Underwriting decisions for prostate cancer are based on three things:
(1) the tumor grading,
(2) what the Gleason score and PSA were prior to surgery, and
(3) age and time since treatment ended. Diagnosis prior to age 50 or with a Gleason of 9 or greater will typically have a 5-year postponement period.

A lower stage/grade cancer and a Gleason of 2-6 often are available for offer as soon as treatment as been completed, typically in the Table 2-4 range (depending on the age). Standard offers are possible with low staging, usually at 5 years post prostatectomy, and 10 years if treated with radiation.

Prostate Cancer and Life Insurance Application - Part A

10/14/2021

About Prostate Cancer
The prostate is part of the male reproductive system. It's a gland about the size of a walnut that surrounds the urethra at the base of the bladder. Even though prostate cancer is the most common form of cancer for men overall, it's only the third most common cause of death from cancer in men of all ages. However, it's the most common cause of death from cancer in men over age 75. Prostate cancer is rarely found in men under age 40.

Types & Detection
Most prostate cancers are adenocarcinomas, but another form is sarcoma, which have a worse prognosis. It's usually detected through blood tests and PSA screening, typically before any symptoms occur.

Once a PSA reading of 4.0 or higher is seen, typically the doctor will request a biopsy to determine if there are signs of cancer. Treatment for prostate cancer may be done in several ways, including prostatectomy (removal of the prostate), chemo and radiation, and hormone therapy.

In next blogpost, we will discuss life insurance underwriting for prostate cancer.

Retirement Solution Shopping Video

10/6/2021

Are you ‘shopping’ for retirement solutions? You may have growth, guarantees, lifetime income, tax advantages and more on your list … but do you know annuities could offer you all?

Here is a “Retirement Shopping” video.

Washington State Long Term Care Act - Part D

9/30/2021

In last blogpost, we discussed some considerations you should have when deciding opt in or out, now we will introduce a few alternatives.

Alternatives to emerging state-provided options:

Stand-alone LTC policy
Life insurance with an LTC rider
Annuity with an LTC rider
Single-premium options for all of the above

Lifestyle consideration points:

Is there a need for life insurance as well as LTC benefits? If so, are you insurable? If not, an annuity with LTC rider might be the best way to provide LTC benefits without underwriting.
Are you planning to retire outside your current home state? If so, a state-run program might not work for you in the long run.
Have you considered changing you target retirement date? For Washington employees in particular, this is now a valid question. For example, if you need two more years to vest in the state plan, is it worth working longer? How would that change your current retirement plan?

Washington State Long Term Care Act - Part C

9/29/2021

In last blogpost, we discussed Washington state long term care act and should you opt in or out.

Program caveatsWashington’s program isn’t intended to be a cure-all. It’s intended to help mitigate costs, not pay for all of them. That $36,500 will be indexed for inflation, but it’s currently a lifetime maximum. If someone needs LTC, it’s very likely it will cost more than $36,500.
That means you still need a plan!
There are lots of questions to go over before you decide whether to stay in the program or opt out:

Is it likely you’ll be eligible? There are any number of reasons you might not be eligible – if you’re set to retire within a year or two, for example.
Is it likely you’ll still be in Washington when it’s time to make a claim? Let's say if you pay into the system for the required amount of years. But if you retire in, say, Arizona, you aren’t eligible to receive benefits after leaving the state.
How much do you likely to pay into the system…versus how much do you likely to get out? Interestingly, there’s no cap on how much income is taxed for this program. That means high net worth people could pay more than the amount of benefits they’d stand to receive.
How comfortable are you with the “use it or lose it” aspect of the program? A lot of people don’t like the idea of a stand-alone LTC policy because they might not need its benefits. This state program works the same way. What if you pay into the system for years and never need care? You might be more comfortable with an annuity or life insurance rider that allows you to pay for care if you need it, but you aren’t losing any benefits if you don’t.

In next blogpost, we will discuss the alternatives you could consider.

Washington State Long Term Care Act - Part B

9/28/2021

In last blogpost, we introduced the new Washington state long term care act.

How to become eligible for the benefits?For program participants to claim a benefit, they'll need to meet both (a) LTC impairment requirements, and (b) a certain amount of vested contributions to the plan in order to qualify. Currently, here are the requirements:

LTC requirement: Unable to perform 3 out of 10 activities of daily living (ADLs) or have a cognitive impairment.
Contribution requirement: The equivalent of 10 years paid into the system (with at least 5 of those consecutive) OR 3 of the last 6 years. In both instances, the employee must work at least 500 hours a year for the years that apply.

Recipients can use the money to pay for a variety of types of care: in-home healthcare, assisted living, or a nursing home. Family members can even take state training courses to qualify for reimbursements if they help with in-home healthcare.

Will other states follow?

It’s likely. Other states that have brought up similar ideas include California, Illinois, Michigan, and Minnesota.

In next blogpost, we will discuss the program caveats.

Washington State Long Term Care Act - Part A

9/27/2021

What is the Washington State long-term care act?

Effective January 1, 2022, workers in Washington state will see a payroll deduction of $0.58 per $100. That money will go into the Washington State Long-Term Care Trust, created by the 2019 state law, H.B. 1087. In return, that trust will pay a benefit to qualified individuals starting on January 1, 2025 via The WA Cares Fund. That benefit is currently fixed at $100/day, up to a total of $36,500.

The program not only provides workers with basic LTC protection – it also aims to reduce the amount the state pays every year for LTC benefits issued through Medicaid.

Opting In or Out?

Currently, state residents can opt out from October 1, 2021 through December 31, 2022 if they can prove they have other long-term care coverage. The state has defined “long-term care coverage” to help make that distinction clearer. For example, a rider counts as coverage as long as it provides coverage for at least 12 consecutive months.

There are exclusions, however – and they’re detailed here. Specifically: “However, long-term care insurance does not include life insurance policies that:
(i) Accelerate the death benefit specifically for one or more of the qualifying events of terminal illness, medical conditions requiring extraordinary medical intervention, or permanent institutional confinement;
(ii) provide the option of a lump sum payment for those benefits; and
(iii) do not condition the benefits or the eligibility for the benefits upon the receipt of long-term care.”

Unless they opt out, Washington workers who receive a W2 from their employer will automatically be opted in. There is one catch to the opt-out system, however. Once someone opts out, they can’t opt back in.

In next blogpost, we will discuss how to be eligible for such long term care benefits.

3 Different Interesting Crediting Methods for Life Insurance

9/21/2021

There are three different interest crediting methods for cash value life insurance products:

Cap rate. This means your subaccount is credited with interest up to a stated rated, or cap. For example, if your cap rate is 10% and the S&P 500 experiences a 13% gain, your subaccount will be credited with 10%.
Participation rate. This means your subaccount is credited with a percentage of the total market gain, also expressed as a percentage. For example, if your participation rate is 75% and the S&P 500 experiences a 13% gain, your subaccount will be credited with 75% of 13% of your cash value total (i.e., 9.75%).
Spread. This means your subaccount is credited with the percentage of growth experienced by an index minus a stated spread. For example, if your spread is 3% and the S&P experiences a 13% gain, your subaccount will be credited with 10%.

Annuity Wealth Transfer Concept

9/17/2021

Meet Rick and Karen, both age 59, decided that they do not need the annuity for retirement and want to pass the value to their children at death. However, they want to maximize the money they can pass to their children and avoid passing a tax burden.

Enter annuity wealth transfer concept, this method helps people like Rick and Karen to minimize tax and leave more assets for their beneficiaries. See details below.

Fixed Index Annuity — A Solution in Ultra-low Rate Environment

9/16/2021

Fixed index annuities are long-term insurance products that can help consumers grow their assets, while protecting their principal in changing markets. By allocating a portion of their retirement assets to a fixed index annuity, consumers can reinforce their retirement savings foundation and help:

1. Generate higher growth and income than many fixed income instruments.

2. Protect against interest rate risk and bond market volatility

3. Guarantee more income for life

How the Very Rich Uses Private Placement Life Insurance (PPLI) to Avoid the Looming Biden Tax Increases

9/13/2021

Private Placement Life Insurance (PPLI) has long been a tax-shelter vehicle for ultra-high-net-worth clients, leveraging the tax-deferral build-up of cash value in a permanent life insurance policy but in a structure that accommodates more specific investment choices (for that particular HNW client) and without the sometimes-expensive commission structure that can overlay 'traditional' permanent life insurance.

However, a change to life insurance reserve requirements under the Consolidated Appropriations Act in late 2020 now allows insurance companies to use lower interest rate assumptions (based on a new variable rate tied to current market rates) in determining whether a life insurance policy will become a taxable Modified Endowment Contract (MEC), which has the end result of allowing substantially higher cash value contributions into permanent life insurance without triggering MEC status.

At the same time, the rise of a potentially significant increase in the taxation of both ordinary income and especially capital gains under President Biden's proposals is leading to growing interest in a wide range of 'tax shelters' for ultra-HNW clients.

The combination of the two is leading to a rapid increase in the number of HNW individuals now exploring PPLI as a tax shelter, with the new, more appealing tax-deferred cash value accumulation potential, coupled with a looming Biden tax increase. Of course, the reality is that surrendering a high-growth life insurance policy is itself still taxable, which means the value of high-growth PPLI, once implemented, can generally only be extracted partially via policy loans, or by holding the policy until death (though that option itself may still be appealing for those otherwise concerned that the Biden administration will eliminate the step-up in basis rules).

Because of the complex rules involved in establishing PPLI, it's generally recommended only for those who can contribute at least $2M (and more commonly, $5M+) to the policy.

Tax Consequence of Leaving Life Insurance Surrender Value With the Insurer under Interest-only Option?

9/11/2021

Q. What are the tax consequences of leaving life insurance cash surrender values or endowment maturity proceeds with the insurer under the interest-only option?

A. The interest is fully taxable to the payee as it is received or credited. Under some circumstances, election of the interest option will postpone tax on the proceeds. If the option is elected before maturity or surrender without reservation of the right to withdraw the proceeds, the proceeds are not constructively received in the year of maturity or surrender.

But if the right of withdrawal is retained, the IRS apparently considers the proceeds as constructively received when they first become withdrawable. (It can be argued, however, that the proceeds are not constructively received when the policyholder has a contractual right to change to another option.) If the option is elected on or after the maturity or surrender date, the proceeds are constructively received in the year of maturity or surrender.

Is Interest Paid on an Insurance Loan Tax Deductible?

9/10/2021

Q. Can a taxpayer deduct interest paid on a loan to purchase or carry a life insurance, endowment, or annuity contract?

A. Interest paid or accrued on indebtedness incurred to purchase or continue in effect a single premium life insurance, endowment, or annuity contract purchased after March 1, 1954, is not deductible.

For this purpose, a single premium contract is defined as one on which substantially all the premiums are paid within four years from the date of purchase, or on which an amount is deposited with the insurer for payment of a substantial number of future premiums.

When a single premium annuity is used as collateral to either obtain or continue a mortgage, the IRS has found that IRC Section 264(a)(2) disallows the allocable amount of mortgage interest to the extent that the mortgage is collateralized by the annuity.

Tax Impact When Life Insurance Dividends Used to Buy Paid-up Additions?

9/9/2021

Q. What are the tax results when life insurance or endowment dividends are used to purchase paid-up insurance additions?

A. Normally, no tax liability will arise at any time when life insurance or endowment dividends are used to purchase paid-up insurance additions.

Dividends not in excess of investment in the contract are not taxable income, the annual increase in the cash values of the paid-up additions is not taxed to the policyholder, and death proceeds are tax-free.

In effect, dividends reduce the cost basis of the original amount of insurance and constitute the cost of the paid-up additions. Consequently, upon maturity, sale, or surrender during an insured’s lifetime, gross premiums, including the cost of paid-up additions, are used as the cost of the insurance in computing gain upon the entire amount of proceeds, including proceeds from the additions.

Are Dividends From a Life Insurance Policy Taxable?

9/8/2021

Q. Are dividends payable on a participating life insurance policy taxable income?

A. As a general rule, all dividends paid or credited before the maturity or surrender of a contract are tax-exempt as return of investment until an amount equal to the policyholder’s basis has been recovered. More specifically, when aggregate dividends plus all other amounts that have been received tax-free under the contract exceed aggregate gross premiums, the excess is taxable income.

It is immaterial whether dividends are taken in cash, applied against current premiums, used to purchase paid-up additions, or left with the insurance company to accumulate interest.

Thus, accumulated dividends are not taxable either currently or when withdrawn (but the interest on accumulated dividends is taxable) until aggregate dividends plus all other amounts that have been received tax-free under the contract exceed aggregate gross premiums. At that point, the excess is taxable income.

Tax Consequence of Giving Spouse a Life Insurance Policy

9/7/2021

Q. If a taxpayer gives a spouse a life insurance policy, is the taxpayer entitled to a gift tax marital deduction?

A. Yes. An outright gift of a life insurance policy to the donor’s spouse qualifies for the gift tax marital deduction on the same basis as the gift of a bond or any other similar property. The same should hold for subsequent premiums paid on the policy by the donor.

An annual exclusion may be allowed instead of the marital deduction if the recipient spouse is not a U.S. citizen.

Use Permanent Life Insurance as a Tool to Pay for Tuitions

9/6/2021

The primary purpose of life insurance is to provide a death benefit to beneficiaries. It can be designed to meet your changing needs with features such as a flexible death benefit and flexible premiums. The death benefit protection can make life insurance an attractive choice for establishing a self-completing plan to help fund a college education.

Earning a college degree today can now cost a significant amount—and that amount continues to rise faster than the rate of inflation. With the spiraling costs of earning a diploma, you should review your options. An option to consider is permanent life insurance. Permanent life insurance provides death benefit protection and a way to potentially accumulate tax-deferred cash value growth.

Use Permanent Life Insurance as a Tool for College Planning

9/5/2021

Below is an article from fa-mag.com that discusses using permanent life insurance as a tool for college planning:

September is Life Insurance Awareness Month and a wealth advisor with a specialty in college planning wants more nancial ̀ advisors and parents to understand how permanent life insurance policies (including whole life and indexed universal life) can help fund college expenses.

Beth Walker, a wealth advisor with Omaha-headquartered Carson Wealth Management and founder of the Center for College Solutions, a consulting rm in Colorado Springs, isn’t suggesting parents abandon ̀ 529 college savings plans for permanent life insurance contracts (also referred to as cash value contracts) but thinks the strategy deserves a closer look.

According to Walker, almost every permanent life insurance contract includes loan provisions that enable the policyholder to borrow on the cash value that has accumulated. A parent is typically the owner and the insured on policies used to fund college, she said. The cash value of permanent life insurance contracts is unlikely to sabotage nancial aid awards because ̀ it’s excluded from the Free Application for Federal Student Aid formula and only a handful of colleges that require the CSS Prole application inquire about the cash value of policies, said Walker.

In addition, policyholders can generally borrow up to 90% of the cash value of their life insurance contracts “with just the stroke of a pen,” she said, without having to qualify or have an appraisal. Both of those steps are required when collateralizing a home equity line of credit to pay for college, she added. “The exibility of an insurance line of credit is a phenomenal tool during the college years,” said Walker. She also pointed out that the collateral in cash value contracts continues to compound uninterrupted when loans are taken and policyholders are permitted to repay the loans whenever they wish.

Some parents wait until they receive a bonus or until their children graduate college, she said, and others may opt not to repay the loan. Outstanding loan balances are deducted from the payout beneficiaries receive ̀ following the death of the insured. That being said, “I would never advocate that you don’t pay it back, ” said Walker, noting there can be surrender charges and parents might need the payout to fund their retirement.

Walker has used cash value life insurance as a college funding strategy with more than 30 client families. She has also funded a life insurance policy to pay for her son’s college education.

Starting to fund a permanent life insurance policy when the kids are in middle school or younger is “a complete no-brainer,” she said, “provided the permanent policy is properly designed.”

At that stage, parents have many years to build cash value before they’ll need to borrow the funds to fund college. Permanent life policies can still be an attractive way to help parents whose kids are in high school manage cash flow challenges, she said, but at that point the policy will likely be earmarked for retirement.

One of her client families bought a house at the height of the real estate market but has no equity in it because property values subsequently crashed, she said. The parents—highly compensated with good jobs and maxed out on their 401(k) contributions—haven’t been able to save much for college for their two children who are now in middle school. According to Walker, the couple is starting to set aside $1,500 a month for college costs through a permanent life insurance policy. The couple will be able to borrow $30,000 a year from the policy and she has factored in a 4% annual inflation increase during the years the clients’ children will be in college. “The rest they’ll have to get through student loans and merit-based scholarships,” she said. The clients plan to repay the loan to their policy by the time they retire.

When Walker comes across clients who inherit money upon the death of their parents, she often encourages them to put the inheritance into a permanent life insurance policy instead of taking a distribution that could disqualify the grandchildren from receiving financial aid.

Cash value life insurance isn’t the college funding answer for everyone with cash-flow challenges, said Walker, noting, “A confident practitioner would need to run scenarios.” She cautioned that permanent life insurance is a long-term commitment that shouldn’t be taken lightly. “You really have to spend time educating parents,” she said.

Consumers often don’t know enough to ask the right questions, she said, and even people with a license to sell insurance also may not be educated on how it can be used to fund college. “Because it’s a complex tool, with a lot of moving parts, “ said Walker, including yearly fees and onetime fees, “you have to really understand what you’re doing.”

Epilepsy and Life Insurance Application - Part B

9/4/2021

In last blogpost, we discussed what is Epilepsy. We will continue the discussion below.

Evaluation & Treatment of Epilepsy
Evaluation and treatment for epilepsy is typically done via electroencephalography (EEG). An EEG measures the electrical activity of the brain and can help confirm that epilepsy is present. This may also help classify the type of epilepsy. Imaging of the brain can also be a useful tool for evaluating seizures and is usually done with an MRI or CT scan. The goal of epilepsy treatment is to eliminate or reduce the seizure activity with minimal side effects of the treatment. While most epileptics will achieve adequate seizure control with medicines, up to one-third will not.

Life Insurance Underwriting for Epilepsy & Seizures
Here are the primary questions to a proposed insured who presents with a history of epilepsy or seizures will be asked:

Age of onset or diagnosis? How long/time since diagnosis?
Type of seizures? Is there any known cause, or are they idiopathic?
Number of seizures, on average, per year?
If they’ve ceased, when was the last?
Has there been adequate work up including EEG, MRI, or CT scan?
How is it being treated? Have there been any surgeries?
Any complications? Status epilepticus? Alcohol misuse?

The underwriting of an applicant with epilepsy or seizures looks to several factors including the type of epilepsy or seizures, any known cause, frequency of the seizures, level of control, and any complications. Standard to low/moderate table ratings are typical, depending on the details. We even have a few carriers that indicate Preferred offers may be possible in the ideal circumstances.

If you have any questions, please contact us, we will help you gather the pertinent info that we’ll need to help evaluate your case.

Epilepsy and Life Insurance Application - Part A

9/3/2021

About Epilepsy & Seizures
Epilepsy, or seizure disorder, is a neurological condition that comes from abnormal electrical activity in the brain. Epilepsy is a chronic disorder that is typically diagnosed once there has been a history of two or more seizures that were not provoked by a specific preceding cause. According to the National Institutes of Health, approximately 3 million Americans have epilepsy. The incidence is highest in early childhood and has recently begun to become more prevalent in the elderly.

Types & Causes of Epilepsy
Epilepsy is categorized as being either symptomatic or idiopathic. Causes of symptomatic or acquired epilepsy may include genetic birth factors, infections, toxins, alcohol withdrawal, trauma, circulatory and metabolic disorders, tumors, and degenerative diseases. It is termed idiopathic if there is no evidence of an organic brain lesion and no known underlying cause. The majority of cases of epilepsy are idiopathic.

Seizures can be subdivided into partial and generalized seizures. Partial seizures are localized to one area of the brain and are either simple or complex. Simple partial seizures have no alteration of consciousness, while complex partial seizures have altered consciousness.

Generalized seizures involve both sides of the brain or the entire brain. Types of generalized seizures include tonic-clonic or myoclonic (grand mal) seizures, absence (petit mal) seizures, as well as atonic, tonic, and clonic seizures. Status epilepticus is a medical emergency in which there is a prolonged continuous seizure or multiple seizures without full recovery of consciousness in between and is associated with a high mortality rate that can be up to 20% or higher per episode.

In next blogpost, we will discuss life insurance underwriting for Epilepsy.

Copyright © 2013 - 2018 PFWise.com, All Rights Reserved.
IMPORTANT DISCLOSURES
PFwise.com does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that any material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

About Us | Contact Us
中文