In our line of work, there’s a question that comes up from time to time. And, it’s being asked more frequently: What should I do with this life insurance policy?
With recent estate tax reform, married couples can now shelter more than $22 million from estate taxes at death. So families with a net worth less than $22 million find themselves wondering what they should do. They have life insurance to pay for estate taxes that no longer exist.
These families and their advisors should proceed with caution, thoughtfulness, and all the relevant facts as this is often a long-term and highly consequential decision. Here are 10 options to consider.
1. Do nothing. The current estate tax law “sunsets” at the end of 2025. Should the political climate shift – as it seems to do frequently – future legislators could create a more draconian estate tax regime. Our mantra has always been, “It doesn’t matter what the estate tax is today – it matters what it is when you are no longer here.”
2. Repurpose the coverage. Even if a family won’t need their life insurance for estate taxes, they may have other considerations – estate equalization for illiquid assets, for example, or the desire to provide a meaningful legacy to children, grandchildren or a favorite charity.
3. Surrender or exchange the policy. Proceed with caution as cost basis planning can be incredibly important and impactful! If you surrender a policy with a significant amount of tax-deferred gain, that gain will likely be heavily taxed. On the flip side, if you surrender a policy with cost basis that exceeds the current cash value, you lose that basis forever. Consider a 1035 exchange for a new insurance or annuity policy and allow the cash value grow tax free until it’s at least back to basis. We recently pointed out this option to a wealthy family. They were able to preserve nearly $2 million in cost basis on the purchase of a sizable, no-lapse guarantee contract that had zero cash value. (Call us for case studies of how this works).
4. Consider a life settlement. Believe it or not, there is a secondary market that acquires life insurance contracts. It’s possible to sell your policy to a third party for a value in excess of the current cash surrender value. However, consider this: If a policy is attractive for investors, it might be pretty attractive to keep!
5. Change funding to maximize return. Do a thorough Internal Rate of Return (IRR) analysis on your coverage to find the optimal funding pattern. One of the most common mistakes we see is policies that are funded to age 120, when a mortality study might suggest 90 or 95 would be sufficient. Through our efforts, we have been able to produce rates of return that are 50 to 200 basis points better by simply managing the policy’s funding schedule.
6. Consider an asset swap. Provisions of an Irrevocable Life Insurance Trust (ILIT) often provide the ability to substitute an asset of equal value for your life insurance policy. This may be a good way to repurpose the policy (see number 2 above).
7. Take a “wait-and-see” approach. See if you are able to stop, lower or modify the premium payment pattern to keep options open for future changes. Again, the tax law is temporary. And don’t forget: Your clients likely aren’t getting healthier. You may want to keep their insurability locked in.
8. “Pay up” the policy. Consider reducing the face amount to yield a lower premium, or even no premium. Many policies can be adjusted to a “reduced paid-up” status, or new coverage can provide a guaranteed death benefit with no additional premium outlay.
9. Talk to the beneficiaries. Your client’s children may consider funding the coverage for its future investment return.
10. Plan for other needs. Simply because your clients don’t need coverage at death doesn’t mean that insurance isn’t a good solution. Many new policies offer living benefits for extended care or even retirement income. And, the return on these policies is hard to match! Check out our December webinar replay for details on how this works.
Here is an even better suggestion: Call us. We will help you navigate the new tax laws and make it easy for you and your clients to make an informed decision. Whatever the question, whatever the need. Ash Answers.
One of the first questions you’ll see on most life insurance applications is whether or not the applicant has Alzheimer’s disease, dementia or any form of cognitive impairment. In most cases, a “Yes” response is often the precursor to declining your policy. However, understanding these impairments will help get your client full consideration – and potentially a policy in hand.
The word dementia is really just a general term used in describing symptoms caused by disorders of the brain. Symptoms are things like memory loss, or difficulties with thinking, problem solving or language.1 The most common type of dementia is Alzheimer’s disease. Typically, if you have been diagnosed with end-stage dementia or Alzheimer’s disease, the condition has progressed enough that it interferes with activities of daily living. This decline in cognition is severe enough to generally exclude consideration for traditional life insurance plans.
Mild Cognitive impairment or MCI is a decline in memory and personality that could produce alterations in judgment, behavior and language. Mild cognitive impairment is a disorder that presents with measurable memory decline, but the client is able to independently perform all usual activities of daily living successfully. This is not to be confused with basic forgetfulness or not being able to recall a name on occasion. However, it’s important to understand the signs and symptoms. In fact, there are several causes of mild cognitive impairment that are actually reversible. To name just a few: thyroid dysfunction, vitamin deficiency, medication side effects, sleep disorders and even stress.
In general, a medical workup for cognitive impairment will include:
If the workup doesn't create a clear clinical picture, the doctor may recommend neuropsychological testing, which involves a series of written or computerized tests to evaluate specific thinking skills.2
To help best negotiate a life insurance offer, we must work together to determine the actual diagnosis and how it was made. We must understand the severity of the client’s symptoms or lack even lack thereof.
It’s important to highlight all of the favorable factors. This would include having regular preventative health care and immunizations, as well as compliance with any prescribed medications. You should also make note of a routine that involves gainful employment, regular exercise, hobbies, participation in social activities and the ability to travel or take vacations. It also helps to point out if there are any family members with longevity as well.
What does this all mean for your clients’ chances of securing life insurance? Carriers are continually re-evaluating their manuals when it comes to older age underwriting and cognitive impairment, giving more opportunity to secure affordable life insurance.
Clearly, many factors need to be taken into consideration for underwriting, and Ash Brokerage is here to help. To help assist you in gathering the needed information, we have developed a Cognitive Impairment Questionnaire. Give our experienced underwriting staff a call to discuss your case.
Dianne Leidigh has earned an unwavering reputation, among customers and constituents alike, as a respected partner and trusted resource. Through her personal commitment to continuous professional growth, she’s become an Associate of the Life Management Institute, Associate of Customer Service with LOMA, and an Associate of the Academy of Life Underwriting. As Dianne approaches her second decade in the brokerage life insurance industry, much of which dedicated to advocating risk, her passion for helping others, commitment to personal growth, and perseverance continues to yield truly winning solutions!
Ash Brokerage Cognitive Impairment Questionnaire: https://ashcmsstorage.blob.core.windows.net/media//Docs/uw/impairment/Mild_Cognitive_Impairment.pdf
1Alzheimer Society Canada, “What is dementia?”: http://www.alzheimer.ca/en/About-dementia/What-is-dementia
2Alzheimer’s Association, “Mild Cognitive Impairment”: https://www.alz.org/dementia/mild-cognitive-impairment-mci.asp
Tax season is here. And with tax reform in place, this season could be a game-changer. What do I mean? Well, your clients could be saving thousands of dollars on their income taxes. Now’s your chance to help them use it wisely.
Take a look at the chart below. I’m not a tax expert, but I estimate a married couple with a combined income of $250,000 and two kids could save more than $7,000 with the new tax code.
What if you took that money and used it to purchase a tax-advantaged financial instrument?
Cash value life insurance can not only give clients protection during their working years, but it can also create a supplemental, tax-free retirement income stream for their future. It may sound complicated, but it’s not. You’re simply taking one tax advantage to create another – and your clients don’t lose any net household income. You can watch a great video that better explains the concept.
There are other uses too. Today’s insurance products offer flexibility and coverage for things like long-term care or chronic illness. If you missed it, watch the replay of the webinar we did on this topic.
Bottom line: No matter their situation, you owe it to your clients to explore the possibilities. Before they cash out their tax savings, you should check out the options available with life insurance. Give me a call – no matter the question, no matter the need. I’m here to help.
For financial professional use only. Calculations based on married couple with two children, living in Texas (with no income taxes), paying $11,157 in mortgage interest. Actual tax savings will vary. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Ash Brokerage and its representatives do not provide tax or legal advice. Consult a tax or legal professional.
Do you know the top two leading causes of death among men in the United States? If you answered heart disease and cancer, you are correct!1 What you may not know is that prostate cancer is the most prevalent type of cancer among men. Currently, nearly 2.9 million American men are living with the disease, and the American Cancer Society estimates that in 2017, 161,360 men will be told they have prostate cancer.2 With these statistics, there is a high probability you will encounter the opportunity to protect a prostate cancer survivor, if you haven’t already.
As a result of increased preventative screening to include Prostate Specific Antigen (PSA) – normal values between zero and four – digital rectal exam (DRE), and advancement in treatments, early detection is naturally higher.
When Prostate Cancer is diagnosed, usually through a biopsy procedure, a specific stage will be assigned. The staging refers to the extent of the cancer (how much cancer is present and how far it has spread), stage I-IV. Staging is a big piece of the puzzle in underwriting, along with a Gleason Score, which is based on the tumor pattern the pathologist sees.
All of these factors have improved many life insurance carriers’ underwriting guidelines, leading to decreased postponement periods and more favorable ratings. The key to successfully insuring your prostate cancer survivor is understanding what information is important to find the very best solution.
Two important pieces of information will be whether or not they are in full remission/cancer free and for how long (month/year the remission was established). The longer your client has been cancer free, with regular follow-up and testing, the more favorable their offer may be.
For most life insurance carriers to give consideration of someone who has a history of prostate cancer, the client must fully complete treatment (surgery, radiation, chemo) and often the carrier will require a waiting period, referred to as a postponement period. The extent of the rating and duration of postponement varies depending heavily on the stage of the prostate cancer, type of treatment, and date of last treatment. Risk philosophy also varies from carrier to carrier based on the reinsurance manual used or the carrier’s own proprietary guidelines.
With increased early detection, we are seeing more and more cases with these considerations. Active surveillance or watchful waiting means the client’s physician is treating them by regularly monitoring the client’s lab markers (PSA, CEA, etc.) on an interval basis and closely monitoring PSA velocity.
This treatment option may be elected with a first-time diagnosis or biochemical recurrence. A biochemical recurrence happens when the PSA levels transition from undetectable to detectable, generally increasing, and may occur among men treated with radical prostatectomy or radiation for localized prostate cancer. These clients require careful consideration on an individual basis with the most favorable being age 65 or older, initial diagnosis Gleason Score of six or less, availability of favorable PSA trending documented over several years, and being three or more years out if previously treated.
Let Ash Brokerage assist you with your next Prostate Cancer case. To simplify fact-finding, use our Prostate Cancer Questionnaire. We leverage our experience, carrier relationships and resources to identify viable solutions based on your client’s individual circumstances and insurance needs. Reach out to your underwriting team for information or assistance.
1Centers for Disease Control: https://www.cdc.gov/healthequity/lcod/men/2014/index.htm
Ash Brokerage Underwriting Questionnaire:http://go.ashbrokerage.com/rs/535-YRX-827/images/Cancer-Prostate.pdf
Julie’s unwavering passion and dedication for risk advocacy promotes lasting partnerships while driving impactful results for all stakeholders, from our agents to our carriers. She leverages her 20 years of industry experience with her relational approach to ensure you experience the Ash difference.
What is it that we get spooked so easily by challenges? Something changes, or becomes a little difficult, and we prefer to complain, or just avoid the problem completely.
Well, I believe inside every challenge lies an opportunity. Recently, I talked with Mike McGlothlin (Ash’s EVP of retirement and one of the most respected guys in the annuity business) about why so many advisors are running away from a certain challenge rather than running toward it.
The challenge we discussed? Tax-deferred assets. I’m blow away by the number of advisors who have NO IDEA they can turn tax-deferred gains into tax-free benefits. Yes, you read that correctly. Tax-deferred into TAX-FREE. I’ll give you a couple examples of what I’m talking about.
You can take an existing, nonqualified annuity and do what’s called a 1035 exchange, moving those funds into a linked-benefit product for long-term care. Your clients’ asset is leveraged into a larger pool of benefits, which are tax-free. We call this “transferring the risk” because you’re shifting the risk of long-term care expenses to an insurance company, rather than leaving that risk on your clients’ retirement assets (and subsequently taking a hit with taxes on their pent-up gain).
Non-qualified annuities are great accumulation vehicles for many reasons – multiple investment options, tax deferral and guaranteed income for life. However, a highly appreciated annuity is one of the worst assets to have on your personal balance sheet at death. Controlling the tax – the amount and the timing – is a critical factor to a successful legacy strategy. You need to have the conversation with all your clients about controlling tax at distribution, regardless if that comes during their lifetime or at death.
By using these strategies, you’re accomplishing multiple things at once:
If you’re avoiding your clients’ tax-deferred assets because you’re afraid of the taxes on their pent-up gains, then you’re missing the boat. Better yet, you should just get your own boat because this might be the next “blue ocean.”
Mike and I dove deeper into this topic during a webinar Sept. 21. If you client has ANY tax-deferred asset, you need to watch this replay.
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