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GoodTimesTax time looms large, and we’re betting that you may not know about four great tax benefits that life insurance can bring to the table.

Unlike other types of inheritances or income, life insurance policy benefits are tax-free. Investments or the cash value of a policy also grow tax-free in most policies.

We’ve written before about how life insurance can be a wise investment, when structured correctly (it is this structuring or designing that is often done wrong and gives cash value life insurance a bad rap). Say you need money to pay for a home, or supplement your income. There are two ways to access that cash, both with significant tax advantages over selling shares in a mutual fund.

1. You can withdraw cash on a tax free basis. Cash value within a life insurance policy can always be withdrawn on a tax free basis IF the policy holding the money is kept active. Doing so may reduce your death benefit, but you won’t pay taxes on money taken out as long as you follow the rules of the contract.

2. You can borrow against the cash value. Another option is leaving the money in the policy, but taking out a loan against it. Most insurance companies will lend you money, holding your policy as collateral. Because a loan is not a taxable distribution, you can borrow against your cash value to supplement income or make a large purchase. A little caveat to keep in mind is that you will pay interest on loans—either out of pocket or as an increase to the loan balance. Often times this is countered with a credit, creating a minimal charge or none at all. Taking out loans reduces your death benefit and the overall cash value of the policy. If the policy lapses or is surrendered with an outstanding loan, a portion may be taxable.

3. Death benefits are usually income-tax-free. The beneficiaries of your life insurance policy will likely not have to pay federal income tax on death benefits. If you bought a $500,000 policy, you can be assured that they will receive $500,000 in benefits with no deductions and no withholding required.

4. Estate taxes aren’t inevitable. Your tax advisor or attorney can explain ways to avoid potential estate taxes through a transfer of policy ownership to another person or trust. Usually this means transferring the policy more than three years before your death.

Key Man Insurance
19Jan
2016

ConferenceTableMany small and mid-size companies take out life insurance on the owner, the founders or even key employees as part of risk management and planning. Called key man or key person insurance, these life insurance policies are designed to protect the company from the absence or loss of people who are crucial to the business.

Key man life insurance works like this: a business buys the life insurance policy, pays the premiums and is the beneficiary of the policy. If that person dies, the company gets the insurance payout.

No one wants to think an untimely death will happen to them or someone they know. But these things do happen. Key man life insurance provides options to business owners when faced with an unexpected death. You can use the funds to pay bills, make payroll, recruit, hire and train a replacement, protect assets or repay debts. Alternatively, if needed, the funds can be used to buy out partners or investors, pay severance to employees and close the business down.

Having a cushion of funding can help business owners buy time rather than being forced to sell the business quickly regardless of market conditions or file for bankruptcy.

Most life insurance carriers will approve five to ten times the key person’s annual salary and bonus. Key person insurance reduces financial pressure and demonstrates management foresight to vendors and creditors.

Let’s be clear–this isn’t personal life insurance. Key man life insurance pays the owner or owners of the business, not the family.  It’s used to keep businesses out of bankruptcy while they focus on holding the company together after an untimely death, not to replace income for family expenses.

So, look around your business and think about who would be very hard to replace in the short term. For a lot of small businesses the owner plays an indispensable role across multiple functions. He or she may do the bookkeeping, write the computer code, or handle the most important clients. Without him or her, the business would grind to a halt.

Figuring out how much key man insurance you need takes some planning and thought. How long would it take to replace this person? How long would it take to train them or get them up to speed? When do you think you could have the business back up on its feet? The size of the key person insurance policy you need will depend on your business, but it’s wise to get as much coverage as you can afford. A policy that meets your short-term cash flow needs should also fit into your budget.

MarijuanaLife insurance may be a conservative industry by nature, but we’re not completely uncool. If you’re a marijuana user—and a lot of people are, legally and not so legally—there are a couple of things you should know about getting life insurance.

First, be up front with your agent about whether or not marijuana use is part of your life. Life insurance companies know there is no one-size-fits-all marijuana user, and each insurer has different standards. Some are quite forgiving of marijuana use while others turn down all drug users. Looking for the right carrier for your lifestyle should be part of your research, and we can help.

How often you use marijuana will make a difference. Are you smoking weed every day or every month? The more often you use marijuana, the more you’ll pay for life insurance. You may also be categorized as a smoker and offered a smoker’s higher rates.

Having a prescription for medical use of marijuana may help, but it will depend on on what condition it’s treating. If the insurer doesn’t consider your condition serious, then you may be classified as a recreational user. But if the condition is considered serious—like late-stage cancer, cerebral palsy or ALS—it’s also probably uninsurable.

When your health exam comes, know that the psychoactive chemical, tetrahydrocannabinol (THC), in marijuana can be found in saliva, plasma, urine and hair follicles, according to medical lab ExamOne. Most insurance companies will screen urine samples for THC, but there are several ways to detect it.

THC stays in your system longer because it’s absorbed in fat cells. The precise time varies by individual, but ExamOne says tests can pick up THC in urine up to three days after first use and up to 40 days or more from regular users.

What’s the worst thing you can do for your life insurance exam? Not being up front about your marijuana use and then having THC detected during your exam. Once this happens, you’re uninsurable for at least the following twelve months…which could have been prevented with the right information and product.

That positive test results stay in a kind of semi-permanent record for life insurance carriers. Your test results are kept in the Medical Information Bureau database and are accessible to all insurance companies.

As insurance agents, we’re not asking about your use to be snoopy or judgmental. In fact, it’s the opposite! We want to find the right life insurance carrier for you just as you are.

CancerGetting a life insurance policy after a prostate cancer diagnosis may be easier than you think. Updated underwriting guidelines at several carriers now reflect better treatment options, survival rates and the evolving body of research about the disease progression. This means faster acceptance into life insurance policies even with prostate cancer.

Prostate cancer is the most frequently diagnosed form of cancer, affecting one in six men during their lifetime. And while the diagnosis may be unwelcome news, it’s certainly not a death sentence. Prostate cancer is common, treatable and typically slow-growing.

Life insurance providers recognize that many men with prostate cancer will continue to live many years after the initial diagnosis, thanks to early detection and effective treatment options. During the underwriting process, they’ll review your medical records, pathology report, test results and may even ask you to undergo a medical examination with one of their doctors. They’ll look at what stage your cancer is in and how fast it progresses. They’ll consider how old you were when diagnosed, and what kind of treatment you have received. They’ll look at how long it has been since your last treatment. They’ll ask if the cancer spread to other parts of your body, and if lymph nodes were involved.

Providing lots of information to the insurance carrier is important, because the more they know about your condition, the more fully they are able to evaluate the risk. When underwriters lack information, they tend to assume the worst. So it’s in your best interest to give them a complete picture of your health history as well as your prognosis.

If you are in remission or successful treatment is underway, an insurer may accept you for a life insurance policy with an additional premium surcharge. This surcharge will be based on the total amount of coverage you want to purchase in addition to the premium. In certain cases, you may even qualify for a standard premium rating.

If you’re in chemotherapy or radiation therapy, you may be asked to wait from six months to two years before being accepted.

Life insurance can still be a viable option even if you have prostate cancer. The insurance carriers take into account the breakthroughs in detection and treatment of prostate cancer. Today they are underwriting policies more quickly than ever before. It’s more good news for those who have been diagnosed and their families.

ExchangeEver wish you could get a do-over on a decision you made years ago? If that decision was about buying a life insurance policy, then good news! The 1035 exchange allows life insurance policyholders to replace an existing policy with a new one, with no taxable gain. This can mean opportunities to save money and increase your benefits.

A 1035 exchange is a tax code provision that lets you transfer money from life insurance, an endowment policy or annuity contract to a new policy or contract, without having to pay taxes. It’s a much better alternative to simply surrendering the old contract and purchasing a new one.

Re-evaluating existing life insurance policies periodically is a good strategy for a few reasons. Things change, and the policy that you bought 20 years ago may not be the one you want now. You may be able to lower your premiums for the same coverage, particularly if your own health has improved since you first bought the policy. A 1035 exchange will enable you to switch to a new policy and go through underwriting again. If you qualify for less expensive insurance, you can use the cash value in your old policy to lower your premium.

You may also be able to get more desirable features, yields or benefits from a new policy. The 1035 exchange gives life insurance policyholders great flexibility. You can easily move to another carrier and may be able to pay less by using the cash in your present policy.

And if you have any concerns about your life insurance provider—say, for example, you hear that they are struggling financially—then the 1035 exchange is a great way to switch to a more financially solid carrier. A change like that can help you avoid trouble and stop any loss in value you might experience due to the insurance company’s financial woes.

The IRS has a set of rules for how 1035 exchanges work. For example, if a life insurance policy is being exchanged for another life insurance policy, the policies must be for the same insured. A single life policy can’t be exchanged for a joint life policy. The second rule is that you cannot take direct possession of the money being transferred. The funds must go from one insurer to another. And finally, the new policy’s face amount must be equal or greater than your existing policy. Follow those three basic rules, and that decision do-over is all yours.

BuyYoungPostPeople tell me all the time they are too young for life insurance. But buying a life insurance policy in your 20s – or as early as possible – can be a very wise investment for two key reasons: building cash value in your policy, and locking in coverage while you’re young and fit as a fiddle.

A lot of people wait to buy life insurance until they have a need – like when they have their first child and they’re worried about what might happen to their family if they were to die. But life insurance has benefits for the living, too, that you can take advantage of while you are young.

Say you bought your life insurance policy at age 25, paying a premium of around $1,000/year. The money you pay into your life insurance policy is still yours with some restrictions. Your premiums become the “cash value” of the policy.

Because the cost of the insurance coverage is low based on your young age, excess payments in to the policy can grow on a tax free basis providing a pocket of money for future needs. If you need money to pay for life events like buying a home, student loans or a wedding, you can borrow against that cash value in your policy.

The sooner you buy life insurance, the sooner you’ll start building that cash value. Eventually, if you decide you no longer need the death benefit, you can use the cash value to pay for your retirement.

The other reason to buy life insurance early has to do with your future ability to buy insurance. The cost of life insurance is based on several factors: policy type, total death benefit, your age and your health. Securing life insurance at a young age means that if you later develop health problems, you will have locked in your life insurance policy when you were healthy. This will guarantee these low rates for the policy term, and some policies allow the purchase of additional insurance in the future at rates based on your health at the time of the original purchase. This can be a big advantage if you develop a condition like diabetes or high blood pressure later in life.

So my answer to people who think they’re too young for life insurance is simple: You’re old enough to realize that life insurance policies aren’t just about the death benefit. Building cash value in a life insurance policy can be a wise investment decision, and buying life insurance now locks in affordable coverage for life.

For those of you who want the cliff notes version of this post, two words: compound interest. And we’re talking about the kind that earns you money, not spends it.

#5waysLife insurance may offer invaluable protection for your family, but the cost doesn’t have to be outrageous. A survey done earlier this year found that Americans without life insurance cited cost as the number one reason for their lack of coverage. But those surveyed also overestimated the expense by as much as 200%.

Life insurance can be a lot less expensive than most people think. And we’ve collected five tips to help you bring those premiums down further.

1. Term limits

Choosing term life insurance instead of a whole life policy can save you money while providing coverage for the unexpected. Term life policies last for a fixed amount of time, usually 20 or 30 years, and offer a fixed death benefit and premiums. With term life insurance, you’re buying coverage for the years you need it—those when you are paying off your home mortgage or when your children are growing up.

2. Take the test

Not many of us love taking tests, but getting a physical exam from your insurer can save you money over “guaranteed coverage” policies that don’t require a doctor’s visit. Generally, people with medical problems purchase these guaranteed policies because they have difficulty getting insurance any other way. But you’re still likely to get lower premiums and a higher death benefit if you opt for the health exam.

3. Buy early

It’s simple: the younger you are, the less life insurance costs. Buy it as soon as you have the need for it, like at the birth of your first child or when you sign mortgage loan paperwork for your first house. Buy early, and you can lock in a good rate to carry you through future years, even if you later develop health problems.

4. Shop around

As with most purchases, the best way to make sure you’re getting the best policy for your money is to compare offerings from multiple insurance providers. If your employer offers life insurance, compare its costs and coverage to individual rates. Employers often subsidize the cost of group insurance, so you may save money. And as you shop around, check the insurers’ credit ratings with A.M. Best or Standard & Poor’s.

5. Pay annually

Using payment plans that split the annual premium over months or quarters often adds fees. Try to arrange your budget to accommodate payment one time a year instead of over time to reap savings.

 

BabyExamplePictureCalling all Parents and Grandparents!!

Sometimes life insurance seems like a losing proposition. You pay and pay premiums and can’t envision the time when you will need it or even worse, when your family gets the money upon your death.  While traditional products were designed for death benefits protection, today’s products are much more flexible, allowing people to use them for cash value accumulation, disability protection, long term care protection, and should none of those needs become a reality…death benefit protection.

The term we insurance people use to describe these flexible uses of a life insurance policy is  “living benefits” – meaning values created by a life insurance policy can be used during the insured’s life, not just upon their death..  These living benefits become more and more lucrative the earlier you start.

Starting early in a child’s life can allow you to provide benefits to them throughout their life. This can be through cash distributions for college funding or acceleration of death benefit for disability and long term care needs..  We’ve been structuring policies that grow to as much as $1 million of available benefit when the child reaches their 80s (i.e. when they’re most likely to need that coverage for long term care needs) for as little as $25 a month. We don’t start at a million because that would be silly, but we design the policy so it’s gets there when the time is right.

These hybrid products can allow you to use one contract for multiple needs. Cash accumulated inside the policy can be withdrawn on a tax free basis, provided the actual policy stays in force. Much more flexible than a 529 plan, these withdrawals can be used for college funding, starting a business, a home purchase and basically anything the child may need in the future. The living benefit riders allow the insured to draw down on the coverage amount for disability or long term care funding. It’s important that I note here that different carriers have different protections associated with these living benefit riders, so understanding what any given carrier is offering is essential.

These policies can be taken out up to age 90, but like we said, they perform beautifully when started in the toddler years. It’s really not about protecting those years as much as it is providing the long term living benefits we’ve discussed. Many parents and grandparents will also take out like coverage for themselves in order to protect their children and grandchildren from the financial exposure of their own long term care needs later in life. If you’ve shopped for long term care coverage you know it’s a use it or lose it proposition. When you use a hybrid life insurance product with living benefits it’s not. You use the benefit during your lifetime or it passes to your beneficiaries when you’re no longer here.

If you’d like to discuss your personal situation we’d love to hear from you. And PS…these types of policies don’t pull up on our quoting system, so don’t let that scare you.

 




 

Black&WhitewithBookshelfToday, LifeHealthPro.com named our Founder, Mindy Lamont, one of the 24 most creative people in insurance.

“Insurance is an industry that depends upon data to accurately assess and manage risk. It is inherently a cautious business — and slow to change, many would add. But it is also a business designed to problem-solve, to engineer, to market and sell customized solutions to a consumer base that needs its products more than ever. At a moment of enormous opportunity, this industry is poised to deliver the innovative products the public is demanding. While they’re at it, thought leaders are embracing new technologies and distribution models that make buying insurance not only necessary, but also easy.

In the midst of what is arguably the most creative era insurance has seen, we present 24 innovators who are leading the charge in product development, underwriting, marketing strategy, research, and sales distribution.”

We are honored and excited to have our Founder included in this exceptional group of industry leaders!

Read the full article here.

Back in November (before all the holiday madness!), I was graciously invited to join Toni Patillo and Karla Dennis on the Call Toni Radio Show. Watch the video for a summary of our conversation…and tune in on Saturdays from 3-4pm!

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