Life Insurance Planning

Countering the risk of replacing your salary and paying off your debts with life insurance gives your family the security of knowing that if something happens to you, they will be taken care of. Life insurance planning maximizes your liquid assets to leverage against the risk of premature death by providing a secure survivor income so your family can remain in “their own world” and retire all debts, if planned for.

We provide life insurance planning services which, upon careful consideration of your personal objectives, will determine how insurance can be part of the solution to your most important financial concerns. Life insurance is primarily intended to cushion the financial effects of the insured’s premature death. Benefits can be used to fund a college education, provide retirement income for your spouse and/ or help eliminate debts. In addition to an income tax-free death benefit, certain policies permit the cash value to accumulate while deferring taxes on this asset growth.

Buying a Life policy for Basic Needs

People often ask, “How much life insurance is sufficient,” but our experience suggests each decision is facts and circumstances driven and only general rules of thumb give you some ballpark idea. Good websites exist which are specific to life insurance (www.LifeHappens.org ) and many have calculators to help you.

For most families, the decision is based on paying off debts and mortgages, funding college for kids, and replacing living expenses for the spouse and kids. Our experience has been that most folks underestimate how much to carry at the expense of buying the wrong kind.

It is important to know that agents who primarily sell life insurance for a living are trained to get you to buy some whole life or universal life too. Both products have a cash accumulation feature which levels out the cost of coverage over your lifetime. In our experience, however, most needs can be met by term, whether 10 year level, 15 year level or 20 year level premium pricing. Any excess cash flow is better spent on 529 plans for college, or 401(k) pre-tax or Roth after-tax retirement contributions, or accelerating mortgage debt pay down.  Once all of these basic financial tools have been utilized, then cash value life insurance can make sense if there is sufficient cash flow remaining.

Trust Owned Life Insurance

Many people worry about leaving a large amount of cash in the form of a death benefit to their spouse directly, primarily for the fear and risk that the surviving spouse may be unable and unqualified to prudently use the proceeds as you intended, not to mention the risk of being taken advantage of by a relative, friend or acquaintance.

As a result, we help families set up creditor safe trusts, to own life insurance assets, which not only protect principal from creditors and predators, but also follows the Uniform Prudent Investors Act (“UPIA”) for prudently engaging a professional investment advisor to oversee the management of the trust assets for decades.

Trust Owned Life Insurance (“TOLI”) not only protects the asset during life but also post-death, and for subsequent generations, if desired, to minimize inheritance taxes in passing wealth from your children to your grandchildren, and even to the next generation. Many wealthy families worry about “ruining their children” by leaving them a large inheritance directly. The proper design and structure of trust owned life insurance can give you the peace of mind that things will more likely turn out the way you want, if you were still alive to see things through.

Premium Finance Life Insurance

When financing life insurance, our clients like the notion of eliminating investment risk so there are no surprises in the future of higher payments, more payments or anything to upset the planning. As a result, we often design life insurance policies with secondary no-lapse guarantees so that premiums can be made in a guaranteed, predictable pattern for a few years, or low level payments for life. Moreover, trustee owners of life insurance do not like the notion of being sued by trust beneficiaries, so predictable, guaranteed premiums from a high quality life insurer gives all constituents the peace of mind that things are being managed properly.

Increasingly, wealthy families dislike the notion of paying large life insurance premiums, and even liquidating sound, long term investments to make premium payments. As a result, we often help families’ structure third party premium financing to make these premium payments, and the net result is better leveraging the entire estate values by avoiding current gift taxes on premiums paid to the trustee owner of the life insurance asset, and using low interest sources of credit to finance the premiums, with the policy often being the only required collateral.

An added benefit of using premium financing is that the internal rate of return (“IRR”) on the policy investment is often significantly higher than traditional payment methods, freeing up family wealth to stay invested in sound, long term investments. We analyze both the internal rate of return on the cash values, and, more important, the IRR on the death benefit, to better manage the risk of the proper structure of financing premiums, whether 100% financed, partially financed, or a combination approach. This asset must be reviewed annually, and a full report is submitted to the trustees so they can exercise their fiduciary responsibility to prudently manage trust assets. One key bit of advice we tell our clients when contemplating the use of premium financing: you must always have your EXIT strategy in mind.

Life Settlements: Selling Unwanted Policies for Large Cash Sums

With changing tax laws, and changing family dynamics, many wealthy families often conclude that perhaps they do not need some or all of their life insurance any longer. Traditionally, the only recourse was to surrender the policy for its net cash value, if any. In addition, many more families, who thought they had completed their estate planning, later discover that their life insurance asset is underperforming, not so much because of poor design, but more likely because interest crediting rates have decreased resulting in the need to restructure the payment method and amount to the life policy. Interest rates have fallen steadily over time from their peek in the early 1980’s until recent times, so as a result, premium payments on older policies have been extended many more years in most cases.

Increasingly, a new, viable alternative to either dilemma, above, is to engage a professional to shop your life insurance policy on a secondary market. This secondary market is primarily comprised of institutional investors seeking high, safe rates of return for their clients, and they are willing to purchase the unwanted policy for an amount significantly higher than its cash surrender value. The process involves your written agreement to allow them to both analyze the policy and your health, in the form of a life expectancy study, to determine what amount they will offer, if anything. This technique works best for wealthy families, whereby one or both spouses are in their 70’s at a minimum, and especially if current health is less favorable than when the policy was purchased years ago.

This technique and process is known as a “life settlement” and the life settlement industry truly is a complex planning area to navigate, not for the naïve or unwary. This industry, like many emerging and evolving industries, attracts many unscrupulous promoters and hucksters. Our advice: only work with knowledgeable, experienced professionals who operate with full transparency and no conflicts of interest.

Selling an unwanted life insurance policy to a third party financial institution can solve many estate planning issues, resulting in hundreds of thousands of dollars in opportunity gain, by reducing or eliminating future premiums, paying off premium financing debt, reforming an old irrevocable trust, or simply cost recovering premiums paid for many years that are far in excess of the life policy cash surrender value.

Our life insurance planning services are provided on a fee basis and negotiated at the point of engagement, based on exactly what services you want.