Protection Products

Level the DI Playing Field with Multi-Life


Protection

When it comes to the insurance industry, and specifically to how products are priced, men and women aren’t created equal.

Statistics prove that women live longer. So, when purchasing life insurance, they pay smaller premiums than men. Unfortunately, when it comes to disability insurance, that’s not the case.

All things being equal, a female will pay 30-50% more for a disability policy than her male counterpart. It’s because women are more likely to file a claim – not just for pregnancy, but for all types of claims.

The good news is that there is a solution. Multi-life. Most carriers offer some type of multi-life option, but I’m going to focus on Principal for this example. In addition to being one of the largest DI carriers in the market, they are also more flexible, and they offer unisex pricing options. To qualify as multi-life, they require policies to be placed on three or more people with a common employer. There is no requirement for the employer to contribute to the premium, although that’s certainly an option. In fact, the policies can be billed directly with no employer involvement.

Let’s use an example

Here we'll look at a 40-year-old female business owner in a white-collar occupation who lives in Indiana. For her policy, we’ll use a 90-day waiting period to age 65, and a $5,000 monthly benefit with residual. The premium for the policy, without any multi-life discounts, is $3,500 annually.

Now let’s assume that the client buys policies on two other employees. We just hit the magic number for making this a multi-life plan. Those two policies, after the discounts, can have annual premiums as low as $165 — which we can help you design. The client is paying a total of $330 per year for these two polices.

And now that the plan qualifies for multi-life, our client’s premium of $3,500 on her own policy is discounted to $2,300 annually. Her new premium, along with the $330 for her employees’ policies puts her total annual bill at $2,630. That’s an additional 25% savings, and her premium discount is locked in for the life of her policy — even if the other two policies are canceled later.

Buy more. Pay less.

I believe that’s what we call a win-win.

Your Ash DI team can help you structure a multi-life plan for male and female owners. The discount on the females is much more significant — it lowers the female rate to be similar to that of a male — but don’t let that stop you from considering multi-life plans regardless of gender.

Take a minute to consider small businesses you work with. If multi-life is a viable solution to protect them and their employees, let us know. We’re here to help.

Watch More on This Concept

disability insurance protection DI multi-life policy

Optimizing Retirement Income


Protection

When we think of financial retirement strategies, our first thoughts are usually strategies involving Individual Retirement Accounts (IRAs) or annuities. And that makes sense. They are an important part of a secure retirement and they fill a vital need. Today, however, I’d like to throw out another idea— that of using life insurance to optimize retirement income.

Before I dive into the how, I want to start by looking at the financial lifecycle, which begins with your first job. The financial lifecycle has two components: human capital, or the ability to earn an income, and financial capital, or monetary wealth, built up over time. Human capital can be converted into financial capital as workers earn wages and save some of those earnings. For example, this occurs when deductions are withdrawn from workers’ paychecks and deposited into their 401(k) accounts.

Both human capital and financial capital are used over a couple’s lifetime to generate income. During their early working years, couples tend to have higher amounts of human capital and lower amounts of financial capital. As the working years wind down, human capital diminishes. Ideally, at the point of retirement, enough financial capital is in place to generate income for a couple as long as it is needed.

Let’s look at an example

A couple, both age 30 and both high-income earners. They plan to retire at age 65, giving them 30 years of human capital before we need to have it all converted to financial capital to fund their retirement. They each have a qualified plan balance of $125,000 and nonqualified balance of $25,000. Their annual qualified contributions are $19,000 each; nonqualified contributions are $25,000 each.

During their working years, life and disability income insurance are important in case of an immediate need. It’s also a time to plan for retirement, so we put annuities in place, and have the long-term care conversation to make sure they are prepared for an extended health care need. The qualified and nonqualified funds they are investing in are for retirement, as is a plan for long-term care. That’s when these solutions really come into play.

A continued need

After retirement, though, the need for life insurance doesn’t go away, although it might change a bit. Life insurance can be purchased to help achieve several different goals, including income protection, efficient wealth accumulation and wealth preservation

The key is to use life insurance to help with asset LOCATION. Why?

  • Asset location provides a tax-efficient vehicle for retirement savings
  • Asset location gives planners a vehicle to own tax-inefficient assets
  • Asset location can provide tax-diversification in retirement

All of this sounds great, but how do you do it? The short answer is by understanding Section 7702, which defines life insurance, modified endowment contracts (MECs) and tax-advantaged life insurance. The taxation of non-MEC life insurance is actually more favorable than many of the traditional retirement products.

 

Taxation of Life Insurance vs. Alternatives

 

Traditional IRA

Roth IRA

NQ Investments

Annuity

Life Insurance

Tax-Deductible

Yes

No

No

No

No

Tax-Deferred

No

Yes

No

Yes

Yes

Tax-Free Distributions

No

Yes

No

No

Yes

Tax-Free Legacy

No

Yes

Yes

No

Yes

Unlimited Contributions

No

No

Yes

Yes

Yes*

*Subject to suitability and financial justification limitations

 

Back to our couple of 30-year-olds, and how to apply this concept. Start with a minimum non-MEC death benefit, purchased with their nonqualified cash flow. This is will be funded now, while they are still converting human capital to financial capital. On retirement, the death benefit will be level.

Using their $25,000 annual nonqualified investment, we will cover a portion of their insurance need and utilize Section 7702 to create a favorable tax location all while reducing investment volatility.

In this example, the female earns a $1.3 million death benefit, net of savings, to age 65. Her projected cash value at retirement is $3 million, and her tax-free retirement income projection (age 65-90) is $230,000. The residual death benefit is $500,000.*

Make it work for your clients

We can help achieve similar results with your clients. Identify high earners between the ages of 20-55. Incorporate this concept into their term insurance strategy. It all starts with having the conversation. Then tap into your Ash resources. Our Life Sales team is always happy to help structure a plan that is the right fit for your individual client.

 

 

 

 

 

 

*Using Allianz LifePro+ Advantage, Female PNS Age 30, $25,000 for 35 years. 6.9% assumed rate of return.

protection life insurance retirement retirement income section 7702