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Premium financing has many variables to consider when analyzing it as a viable option for clients – but so does planning in general.  Oftentimes, premium financing is seen as having more inherent risk due to the fact that advisors do not fully understand the moving parts.

Let’s start with the fundamentals, is there a life insurance need?

When analyzing a premium financing option for clients, it is easy to get lost among the variables in play.  These include 1) collateral risk, 2) policy performance risk, and 3) interest rate risk.

Collateral Risk

Collateral risk is the difference between the outstanding loan balance and cash surrender value of the policy.  Additional collateral does not always need to be cash or cash equivalents.  When structured properly, clients can pledge dormant assets such as residential and commercial real estate and equipment.  The fact that liquid assets may not be needed for premium financing collateral allows for further leveraging opportunities for the client versus paying the premiums out of pocket.

Policy Performance Risk

Policy performance risk is present in any policy sale, but when premium financing in involved poor performance can increase the collateral risk in the under-performance may not permit the freeing up of loan collateral anticipated at the time of the sale and, possibly, even result in the need for more collateral.

Interest Rate Risk

Interest rate risk is all about the possible increases in the variable rates charged on the loans made for premium dollars.  Rates overall are rising which affects the rates charged on premium finance loans.  When illustrating premium financing scenarios expectations of the client must be managed by realistically demonstrating the impact on the plan if rates rise.

And in no event, should the feasibility of a plan depend on mere speculative arbitrage between policy crediting rates and borrowing rates.

A plan should be based on a more comprehensive strategy that include the cost of purchasing the insurance with cash, the opportunity gained by the flexibility of interest payments in the arrangement and the rate of return on the capital retained that wasn’t used for premium payments.  Interest rate risk can be mitigated by structuring a favorable credit facility and administering it every year.

We have a full array of products, financing, plan designs, implementation and administration support.

Please call your Life Sales Associate concerning your high-net-worth clients who may want to finance their insurance plan to allow for ongoing use of their other liquid or hard assets.

When it comes to underwriting, one of our A+ carriers follows a responsibly aggressive approach and looks closely at controlled impairments.

If a case qualifies for credits, they will apply them.

Here’s a great case study:

• 54-year-old female
• Non-tobacco user
• Applying for $1 million of Term Life
• Has type 2 diabetes; treated with Metformin
• Build is 5′ 3″, 220 lbs.
• Initial work up Table 4

Received Credits for:

• Lifetime non-smoker
• Income > $100,000
• Preferred or better driving record
• Negative cardiac testing
• Controlled blood pressure

This carrier’s offer:  Table 2!

The Life Underwriting Team is here to help with all of your impaired risk cases.  Please contact us today for more information about this carrier and how we can help boost your sales.

When you meet with your clients to fill out a Long-Term Care application you are faced with asking tough questions.  At times, not all clients feel comfortable telling you which medications they are on or why, or how much they weigh.

As an agent, it is your job to be thorough when completing the application in order to get your client the best offer available.

Here are some tips on asking the tough questions:

Set the Stage

Let your clients know why you are asking these personal questions.  You could say something like this:

“Mr. and Mrs. Client, you don’t have to be in perfect health to get Long-Term Care Insurance, but you do need to be in relatively good health.  It’s my job to gather that information, so I need to ask you some questions about your current health and about any medications you may be taking.”

Get An Accurate Health Picture

Just as a doctor needs complete and accurate information to make a diagnosis, you need it to make the best recommendation for your clients.  Encourage them to be completely honest and thorough when answering health questions.

Learn The Story Behind The Medication

The medications your client takes usually tell the story but you should dig deeper to find out what conditions a medication has been prescribed to treat.  It is a good idea to familiarize yourself with common medications associated with uninsurable conditions.

Here are some common medications you should be familiar with:

• Prednisone is prescribed for COPD and Rheumatoid Arthritis
• Requip is prescribed for Parkinson’s Disease
• Aricept is prescribed for Dementia
• Avonex is prescribed for Multiple Sclerosis

Don’t Guess How Much Your Client Weighs

Ask them and remember to use build charts to assist you when filling out applications.

Lastly, it is smart to include a cover letter with the application stating information you learned about your client that may not have been required to disclose on application.  This allows you to share more with the underwriter such as your client’s habits, lifestyle and what they are doing to manage current health issues.  Remember, the more you can tell the underwriter about your client, the better chance for a positive underwriting outcome.

For more information on how to approach your clients about Long-Term Care applications contact your LTC Specialist today.

With steadily and rapidly increasing health insurance premiums today’s consumers and employers have adapted as best they can.

The usual result is more out of pocket expenses for individuals in the form of higher deductibles and co-pays.  This has become a necessity to keep premiums as affordable as possible.

It’s not unusual today to see health insurance deductibles of $5000, $7500, or even $10,000.

The government attempt to soften the blow for tax payers has been the advent of HSA (Health Spending Accounts) plans

These are a combination of a High Deductible Health Plan (HDHP) and a separate custodial savings account for future medical expenses.

With or without an HSA plan, a serious medical issue could result in a crippling out of pocket expense costing thousands of dollars.  This would financially decimate many people.

One of our strategic carriers has a very affordable solution to this very serious problem and risk in the form of our critical illness rider

This benefit will pay up to $50,000 in the event of certain medical conditions, and one need not satisfy the elimination period to qualify.  It can be issued on express issue basis on our short term Disability Income (DI) products, and is available on our Long-Term DI plans too.

The value is high and the premiums are low.  People recognize their exposure and will be glad you offered them a solution!

Please contact your Disability Income Department for more details and a case design, custom to your client’s needs.

Climatologists can argue all day about which hurricane was the worst.  The fact of the matter is the “baddest” is the one that destroyed your home, the number of millibars notwithstanding.  And back in the old days they all were the baddest because you didn’t have any warning.

Nowadays, sophisticated stuff starts measuring a storm as soon as some breeze off North Africa throws a few straws into the wind, allowing homeowners in the “cone” to take proper measures, and all the ships at sea.

And so it is with tax laws, the worst is the one that costs you – made worse by the fact that you didn’t see it coming.

And both may be true depending on how you structure third-person ownership of a life insurance policy with a chronic illness or LTC rider.

The most common planning question involves estate taxation

Insureds want to keep the death benefits out of their taxable estate, but still want access to the rider benefits should the need arise.  Policies with indemnity-type riders are commonly put in irrevocable trusts with the understanding that care costs can be paid out-of-pocket by the insured to reduce the taxable estate.  If the cash payments under the rider are needed by the insured, the trust can provide for loans to the insured.

Reimbursement-type riders present a problem

Because expenses are paid directly to the care provider the trustee is bound by the terms of the policy to benefit the creditors of the grantor/insured.  This could constitute either an incident-of-ownership in the policy or a retained interest in the trust, either of which would have the effect of pulling death benefits back into the taxable estate.

But there may be another tax problem lurking in the weeds for trust-owned life policies, even those with indemnity-type riders, and this time it is an income tax issue.  IRC 101 is the section allowing for income tax-free receipt of proceeds from a policy by reason of death.

Regarding treatment of accelerated death benefits subsection (g)(1)(B) says:

For purposes of this section, the following amounts shall be treated as an amount paid by reason of the death of an insured . . . Any amount received under a life insurance contract on the life of an insured who is a chronically ill individual.

But then the Code goes on to say in subsection (g)(3)(A):

In the case of an insured who is a chronically ill individual . . . [tax-free treatment as an accelerated death benefit] shall not apply to any payment received for any period unless— such payment is for costs incurred by the payee [the person getting paid the benefit, i.e. the policy owner] for qualified long-term care services provided for the insured for such period.

This raises the possibility that benefits paid to a third-party policyowner will not get income tax-free treatment under the rider because the third-party owner (the payee) did not incur the medical costs resulting in the claim.  Material on the topic warns, “. . . there is no specific guidance from the Internal Revenue Service as to the tax effects of such third-party ownership . . . there is the risk that such ownership structure could cause adverse income, estate and/or gift tax consequences.”

The responsibility of the insurance advisor is clear

When helping a client implement third-party ownership of a life policy with an LTC or chronic illness rider the client must be pressed to get the advice of a tax advisor.

To sow the wind by not doing so it to risk eventually reaping the whirlwind.  For help in addressing this concern with you client, contact your LTC Sales & Marketing Manager.

When you mention life insurance to your clients, chances are the first thing they think about is protecting their families in case they should die prematurely.  Yet the reality is that they can face just as much risk by living too long.

What if they outlive their retirement savings?  Or become unable to take care of themselves in their old age?

Life insurance with a long-term care (LTC) rider can help provide benefits for your clients whether they live or die

The first benefit provided by life insurance is the death benefit: a source of immediate liquidity payable at death that can help provide income replacement, fund estate settlement costs and repay existing debts.

But the right kind of life insurance, properly structured, also generates a significant cash value.  The potential cash value can be accessed at retirement via policy loans and withdrawals to supplement your client’s retirement income.

Finally, if the policy is purchased with an LTC rider, it can also provide funds to cover long-term care benefits, such as nursing home costs and/or skilled in-home nursing.

With such a policy, your clients have now covered three major risks: dying too soon, living too long and living with an impairment.

Contact your Life Sales & Marketing Associate today for more information.

Effective January 28, 2021, John Hancock will be temporarily raising their minimum face amount for term insurance to $750,000.

As a result, we will be temporarily modifying our LifePipe quoting and iGo e-App to reflect the change in minimum face amount.

Volumes are up sharply and, when paired with the iterative interruptions and delays caused by John Hancock’s recent conversion to a new application processing platform, many have experienced processing times that are not on par with normal John Hancock service levels.

This temporary raise was enacted in order to accelerate a return to service levels that are consistent with John Hancock’s commitment to you.

As digital integrations progress, and John Hancock is able to support business with the high level of service you have come to expect from them, they will reevaluate and adjust term limits accordingly.

If you have any questions about this temporary change, please reach out to your Life Insurance Representative.

As baby boomers enter their retirement years, many mistakenly assume government programs will meet their future Long-Term Care (LTC) needs.  But both Medicare and Medicaid have limitations and may undergo significant changes in the face of the growing federal deficit.

Now is the time to start having conversations with your clients about LTC planning, the risk of depending on government programs, and how those programs differ from private LTC insurance.

This educational approach will help position you as a valuable resource for your prospective clients.

Resources for Long Term Care:

• Medicare, like most health insurance, is primarily meant to cover acute illnesses. It does pay for some LTC expenses, but there are significant limitations, and you must be age 65 to qualify.  Some benefits are payable for the first 100 days per benefit period in a skilled nursing facility, if you enter within 30 days after a hospitalization of at least three days, and if you are receiving skilled care and continue to get better. Medicare does not cover custodial care — help with the activities of daily living that a person could need for years.
• Medicaid is a joint federal and state insurance program that pays a large portion of the nation’s LTC expenses.  Most state laws require that you spend down your assets before you become eligible for benefits, and may limit the options as to where and what kind of care you can receive.  Some states have proposed revisions to Medicaid that could further limit eligibility in the future.
• Private LTC Insurance is a more dependable option and provides benefits for care in a variety of settings, including the familiar surroundings of home.  You can assist your clients in taking responsibility to help secure their future by designing an LTC Insurance plan that will fit their specific needs and budget.  That way, they can feel confident they will get the care they need without worrying if they will need to rely on a government program to pay for it.

Did You Know?  Your social security statement says, “Medicare does not pay for Long-Term Care, so you may want to consider options for private insurance.”

Contact your LTC Sales Associate today for more information and resources.

We have partnered with the nation’s Top Carriers to provide your clients with Employee Assistance Programs (EAP) that best suit their demographics and needs.

How it works:

• EAP is added to group plans like a rider
• An add on to group life or LTD
• Available to groups of 10+ employees
• Free with some carriers and a small additional charge with others

Preferred Choice EAPs can help with:

• HR Management Training Courses
• Emotional Well-Being
• Financial & Retirement Planning Tools
• Student Loan Advocacy
• Legal Support
• Work & Life Transitions

The COVID-19 pandemic had many companies seeking high-level solutions to ensure their employees remained mentally strong, well equipped and undistracted.  As a result, EAPs have seen a significant increase in demand among our group markets.

Contact your Disability Insurance Specialist to learn more about Employee Assistance Programs today!

Director Francis Ford Coppola leaves us with a cold and calculating Michael Corleone looking out the windows of his lake house over the water that would prove to be the River Styx for his brother.  What is to be a day of relaxation and fishing for Fredo will end in the fulfillment of Michael’s directive for the execution of a sibling who he deems unfaithful to him and the family.

In audience time it is 16 years before we meet the Don again in the opening scene of The Godfather: Part III.  In contrast to the sordid power-brokering that goes on in the initial wedding and baptism sequences of the first two films, we find an older, reflective Michael on a path for respectability, legitimacy and eventually some sort of moral absolution.

In a grand ceremony at St. Patrick’s Cathedral he is being inducted as a Commander in the Order of St. Sebastian and viewers soon learn that there is probably a connection between that honor and a $100 million gift to the Church from the Vito Corleone Foundation, a charity run by Michael’s daughter.

The film only serves to fuel the suspicion we often have of those who seem too charitably minded; a suspicion that is understandably shared by insurance carriers.

Back in the olden times as states began passing laws giving charities an insurable interest in the lives of donors, it wasn’t much trouble getting a significant amount of charity-owned coverage on the life of a person who intended to donate the premiums each year to the organization.

The problem arose when an invigorated life settlement marketplace created an attractive non-correlated asset class and groups of independent investors arranged for charities to buy coverage on donors paying the premiums and anticipating returns for all involved when the policy was sold later on in the secondary market.

Once everybody figured out what was going on a couple things occurred

First, applications began containing questions addressing intended use of coverage, particularly regarding possible transfer of interests in the contract after the sale.  And, second, the liberality of financial underwriting for charitably-owned coverage was dramatically proscribed.

A recent survey we conducted of major carriers revealed that the starting point, and often the finish line, for the amount of death benefit they would entertain was only ten times the annual donation pattern the insured had with the charity; i.e. if Benjamin Bear has been giving $5,000 a year to the Bruin Varsity Club, he is only good for $50,000 coverage to leverage his legacy – hardly a gold mine for some insurance advisor alumni trolling the membership list.

One carrier would allow twenty times.  Another permitted the projected value of the pattern of giving for 75% of the donor’s life expectancy.

The fields are hardly white for harvest if an insurance advisor intends to get rich selling charitable-owned coverage.  Nonetheless, there are circumstances where carriers may look beyond the donation-multiple standard.

By the way, both The Godfather and The Godfather: Part II won the Academy Award for Best Picture.  The Godfather: Part III was nominated, but denied, the award going instead to the Kevin Cosner film Dances with Wolves.  The American Film Institute ranks The Godfather #2 among the best motion pictures in American cinema, second only to Citizen Kane.  Also, UCLA has won more NCAA championships than any other school.  You can look it up!