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There’s a Hebrew proverb that says, “A good person leaves an inheritance to their children’s children…”  The implicit truth here is that wise management of affairs goes beyond concern for the current generation.  This wisdom of the ages should apply as well when high-net- worth clients are planning for death taxes, especially when the first generation is uninsurable!

In a nutshell, estate tax planning involves two steps: 1) implementing all workable strategies to reduce the anticipated tax bill to the lowest level, then 2) insuring against the rest with life insurance coverage on the first-generation client – usually a grandparent.

But what happens when all the gen-one clients are medical declines?

Most tax and legal advisors recommend that the best stop-gap measure against long-range depletion of the estate is insurance on the next generation (the children of gen-one) to fund any tax liability when gen-two’s net worth is passed to the third generation (the grandchildren).

The best way for gen-one to pay for coverage on gen-two may be to lend the money to the owner of the policies on gen-two – usually an irrevocable trust whose beneficiaries are gen-two and gen-three.  The note held by gen-one for the loan is payable only upon the death of the gen-two insured(s) many years in the future.

This has two advantages for gen-one.  First, the transaction doesn’t currently require any use of gen-one’s lifetime exemption to protect from gift taxation the money paid for premiums.

Second, down the road when the value of the note is included in the estate of gen-one at death, it could benefit from a deep valuation discount since repayment won’t occur until the death of gen-two.

Three considerations, before I get outta Dodge for the day:

This concept is often referred to as generational split dollar, or something similar. In the past it has been viewed with caution because of some unfavorable rulings.  But last year the Tax Court in the case of Levine v. Comm. gave it a green light along with guidelines that serve as a virtual blueprint for attorneys drafting the arrangement.  In Levine the $2,300,000 valuation of a $6,500,000 note was upheld saving the estate over $1,500,000 in estate taxes.
Financially underwriting gen-two is more complex to the extent it involves convincing the carrier of the likelihood of gen-two’s receipt of an anticipated inheritance.
Even when gen-one is insurable the concept should be considered when, for all the planning, there are still considerable death taxes anticipated at the death of gen-two.

Call with questions, material requests, or other considerations on this or any planning case you have with CPS – tom@cpsadvancedmarkets.com or 706-354-0401.

The post Death Tax Savings For The Uninsurable – A Small Balm In Gilead appeared first on SRS Inc.

Some carriers like to claim that your clients don’t need Long-Term Care (LTC) protection beyond the average length of a care need.  But preparing for only the average length of a care need can leave a large gap.

The Story of Averages

The average length of an LTC need is typically longer for women than men (3.7 years vs 2.2 years1).  However, in a survey of leading long-term care insurers, that story of averages doesn’t hold up.

With five of the seven carriers, men met or exceeded the length of claim for women, with each exceeding a million dollars!  Planning for the average would’ve only covered a fraction of the cost.

The belief that average lengths of care are sufficient could create one of the most devastating financial decisions in life.

Addressing only the average care need excludes the possibility of a life-long diagnosis like Alzheimer’s or Parkinson’s.  Lifetime protection is the only way to ensure that every client has exactly the amount of protection that they need, whether it’s for two months, two years, 20 years or more.

Your clients aren’t average, and their LTC protection shouldn’t be either.  Contact us to learn more about Continuation of Benefits options, including Lifetime, to help your clients be protected against costly LTC needs.

Largest LTC Insurance Claims Paid through December, 2018

CO
Largest Claim (Male)
Total Cost
Largest Claim (Female)
Total Cost

1
14 years, 2 months
$2,276,381
16 years, 6 months
$2,329,333

2
19 years, 3 months
$2,205,800
15 years, 4 months
$2,636,417

3
16 years, 2 months
$2,091,083
9 years, 10 months
$1,727,594

4
15 years, 8 months
$1,700,000
14 years, 6 months
$2,000,000

5
14 years, 3 months
$1,461,256
11 years, 7 months
$2,012,385

6
15 years, 4 months
$1,413,934
15 years, 6 months
$1,499,601

7
13 years, 2 months
$1,179,502
18 years, 1 month
$1,316,417

Source: http://www.aaltci.org/long-term-care-insurance/learning-center//ltcfacts-2019.php#2019end Published 2019

The post Your Clients Aren’t Average – Why Is Their Long-Term Care? appeared first on SRS Inc.

During the months of December, January, and February, we typically see the bulk of MLB athletes purchase disability coverage, so we thought it fitting to share a case study of a super star baseball player.

The Outfielder / Designated Hitter was in his last year of his current contract, approaching free agency, and projected to sign a five-year $105 million contract.  The advisor on the case was challenged with securing an adequate amount of permanent total disability to safe-guard the player against a career-ending injury or illness.

The premium was roughly $250,000 plus taxes and fees.

Client

A professional baseball outfielder and designated hitter on the cusp of signing a multi-million-dollar contract.

Situation

The young and healthy MLB super-star was in his last year of his current contract, approaching free agency, and projected to sign a five-year $105 million contract.  The player saw the need to protect his high performing status should he become significantly injured or sick prior to signing his next big contract.

Assessment

The advisor, working with the player’s agent and financial advisor, was challenged with securing an adequate amount of permanent total disability.  The permanent total disability coverage would protect the player in case of a career-ending injury or illness.

Solution

A $25 million permanent total disability policy designed to pay a lump sum.

Result

The advisor, agent, financial advisor and player were all thrilled to have obtained a comprehensive policy.  With the policy in place, the player could focus on playing the sport he loves knowing that he was protected against a career-ending injury or illness.

If you’re currently working with a high-income earner ($500k+ annually) who is an all-star in their own field, it is very likely they have exceptional income exposures.

Please feel welcome to share this case study with your centers of influence and baseball fans.  Contact your Disability Insurance Specialist for assistance today.

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Non-combustible tobacco products are those that do not require burning the tobacco for consumption.  Vaping, or electronic cigarettes, is a type of non-combustible tobacco that is heated at a lower temperature to create an aerosol for inhaling.

Generally, vaping is rated the same as combustible tobacco; at smoker rates.

There is a special program offered by one of our carriers that can allow non-tobacco rates for vaping if an additional biomarker lab test checked by the carrier is negative.

If eligible, the rate class can be improved from tobacco rates to non-tobacco rates with a one-class downgrade.  For example, a Preferred Tobacco rating to Standard Non-Tobacco.

To qualify:

Tobacco use must be non-combustible only; nicotine delivery devices (vaping), chewing tobacco and snuff
No use of cigarettes or cigars in the past 10 years
A tobacco combustion biomarker ordered by the carrier is negative

Contact our expert Underwriting Team to find out more about this special program.

The post Vaping – Underwriting Non-Combustible Tobacco Use appeared first on SRS Inc.

With the current economic and health challenges in America, many individuals are justifiably concerned about ensuring they protect themselves and their families against the unexpected.  And individuals are more open than ever to exploring ways to protect their future.

Advisors are uniquely positioned to help clients through times of uncertainty by offering income protection solutions, such as Individual Disability Insurance (IDI), that guard against an unforeseeable event.

By sharing a few essential details about income protection, advisors can help clients understand the true value of IDI, how it works and who needs it.

Communicating IDI Benefits

One of the most important aspects to communicate is that Individual Disability Insurance (IDI) can be an effective, long-term income-replacement solution.  Just as life insurance pays beneficiaries for a loss, IDI can pay a monthly benefit, tailored to a policyowner’s total income, in the event of a serious illness or injury.

People rely on their whole income to maintain their financial security, which includes their base pay, any incentive pay and bonuses. Although many companies offer group long-term disability (LTD) coverage, clients should be aware that it often doesn’t cover all sources of income, and it is often taxable and typically only provides 40-60% of income replacement.  It also likely does not cover bonuses or incentive pay.

For higher-income earners, Group LTD can be capped at an amount that is much lower than what is needed to replace a client’s monthly income.  Should these individuals experience a disabling event, they would still be expected to keep up with their higher recurring expenses.  Also, most employer-based disability coverage is only maintained while the employees are working for that employer.  IDI is portable income protection, which stays with the individual throughout their career no matter where they work.

Everyone has monthly expenses, which often include mortgages, car and loan payments, and other recurring costs.  Highlighting that expenses are recurring even in the absence of income can help clients realize how valuable IDI can be for their financial stability.  Advisors can help paint the picture for clients that if they are unable to work, these expenses would remain, with possible new expenses arising due to their illness or injury.  IDI helps protect the income that clients are using to pay for these monthly expenses, maintain their lifestyles and support their families.  This is even more essential during unpredictable events like we’re experiencing now.

By providing meaningful solutions that address clients’ individual needs, advisors demonstrate how individual disability insurance can provide valuable protection and increased financial stability for clients.

The post Helping Clients Understand the Complexities of Income Protection appeared first on SRS Inc.

What if you could offer your clients 8.15% guaranteed for 3 years with a taxable investment today? Would they jump on that opportunity?

Assuming a 35% client tax bracket, that 8.15% rate is the same as a 5.30% guarantee for 3 years on a tax deferred annuity!

See below for a comparison:

Tax Deferred Annuity

Taxable Investment

Year
Deposit
Yield
Annual Gain
Yearend Value

Year
Deposit
Yield
Annual Gain at 35% tax Bracket
Yearend Value

1
$100,000.00
5.30%
$5,300.00
$105,300.00

1
$100,000.00
8.15%
$5,297.50
$105,297.50

2

5.30%
$5,580.90
$110,880.90

2

8.15%
$5,578.14
$110,875.64

3
5.30%
$5,876.69
$116,757.59*

3
8.15%
$5,873.64
$116,749.27

Contact us for details on how to take advantage of this incredible rate environment!

*16,757.59 remains tax deferred until withdrawn

The post How About 8.15% GUARANTEED For 3 Years? appeared first on SRS Inc.

Think Pink.  Think Compassion.  Think Care.  Think Ahead.

October is Breast Cancer Awareness Month.  Agents and brokers, reach out and talk with your clients about what they can do today to make things easier should the unexpected happen.

While the chances of surviving a critical illness such as cancer, heart attack, or stroke are greater than ever, living with the condition can create severe financial hardships for many of our clients.

Traditional health insurance plans cover medical expenses, but costs such as insurance deductibles, child care, travel to and from treatment facilities, and short term home health care must often be paid out of pocket by the patient.

A real life story:

I recently spoke with a broker in Maryland who was diagnosed with Breast Cancer.  She had the tumor removed successfully by a full mastectomy and had just finished up a bout of radiation and chemotherapy.  But although she was feeling better, she was unable to work full time and the treatment affected her finances dramatically – business, household, and medical expenses continued to build up.

It’s stories like these that remind us just how invaluable a Critical Illness Policy can be.

Critical Illness Insurance pays a tax free lump sum payment on diagnosis of any one of a list of serious illnesses – including cancer, heart attacks, or stroke.

And since claims statistics suggest we are five times more likely to suffer from one of these than we are to die before we reach age 65, you can think of it as putting a client’s premium dollars in a safety deposit box.

If the client is diagnosed with one of the 12 covered illnesses the policy will pay the face value.  If they die of one of the covered illnesses the policy will pay the face value to their beneficiary.  If they die of any other reason, 100% of all premium paid will be returned to the beneficiary as tax free death benefit.

And there are plans to fit any budget.  A Female, age 45, with $50,000 in lifetime coverage, can get coverage for only $57.46 a month.  In addition to the lifetime version of the product, there is a choice of 10, 15, 20, & 30-year coverage periods.

Contact us today for more information.

The post Think Pink #BreastCancerAwarenessMonth appeared first on SRS Inc.

Football is all about strategy – an effective game plan is essential for getting your team closer to the goal line.  On the field of impairment risk underwriting, its carrier vs. carrier and the final score can be unpredictable.

Think of an underwriter as your quarterback – calling the right play at the right time to get your case into the end zone.

Take a look at this case study:

We were presented with a 58-year old male, non-smoker, seeking $1 million of UL coverage.  At a comprehensive routine physical one year ago, he was diagnosed with mild carotid stenosis and an ultrasound finding of a single thyroid nodule.  Other medical history includes neuropathy, mild osteoarthritis and acid reflux.  A follow up thyroid ultrasound 6 months later revealed new thyroid nodules, although too small to biopsy.  After consulting with a specialist for a second opinion, additional imaging was done and the specialist determined the nodules to be clinically insignificant.  No biopsies were done.

Took a loss with Carrier #1 as they declined to offer.  Tried a Table D with Carrier #2 – no go.  Carrier #3 delivered more bad news at a Table 3.

Then, touchdown on Carrier #4 – Standard NT!

Score big on the insurance gridiron – our Underwriting Team, we’ll help you get your tough cases placed.

The post Case Placement: An Underwriting Winning Play appeared first on SRS Inc.

The best subtitle for this article would probably be, “New Horizons in Financial Underwriting!”  But first, let’s take a short break to capture a parent-child moment in a typical American home:

Father: “Son, I want you to be good at school today.”
Son: “I’ll be good if you give me five dollars.”
Father: “That’s ridiculous! When I was your age I was good for nothing!”

All humor from the Father’s unintended meaning notwithstanding, the vignette illustrates an accepted and common truth within a family unit, i.e. certain things are expected from the kids in the household for which they do not receive cash compensation.

And when allowances are paid in return for completion of chores and acceptance of other responsibilities, the amount of money most often does not represent even the minimum wage available for similar tasks out in the marketplace.  But at least the parents understand that their seemingly underpaid offspring are well reimbursed by such things as a roof over their heads, medical care, free Wi-Fi and afternoon snacks.

Non-cash compensation can also come into play when justifying coverage on a key person in a business

Most carriers start with ten times salary, but also consider other elements in the employee’s overall package, e.g. the cost of health insurance, retirement plan contributions, club memberships and afternoon snacks.

But another component of pay that most carriers will consider is any equity interest in the company.  Most acknowledge that the employee is taking less traditional compensation in return for some ownership.

Valuing that element of “pay” for purposes of its inclusion in the “10x formula” is a little more elusive and beyond the scope of our talk today.  The same should apply in family businesses where the second generation is working for less, knowing that someday they will own the business.  If there was no future hope of ownership they would go elsewhere for more money.

The problem underwriters have in building future equity into the equation is that the ownership interest is not “in hand” and who knows what will happen?

Underwriter hesitancy comes from comparing a key person need with a different financial justification involving future ownership – insuring against anticipated estate tax liability.  Carriers, generally, will not allow a second generation to build an anticipated inheritance into their net worth calculation when purchasing coverage to pay estate taxes – because it might never happen.

This is not a bad argument given that the hope for ownership is not creating a present financial need.

But, this is not the case with an underpaid “key kid” working for the family store

1) The son or daughter is taking less than he or she is worth, 2) the business is getting services at a current lower rate, and 3) it would cost more than what is presently being paid to hire a replacement who isn’t motivated by possible future ownership.

The fact that the inheritance may never occur is not a contingency that affects the very real (and very measurable) need for more coverage than ten times compensation would suggest.  This should be a consideration in the financial underwriting process.

Call us regarding any key person cases that we can help you place for your client.  If the circumstances for justification are of a Sweat Equity on the Come nature, we will help you blaze a trail in the exciting world of financial underwriting.  And who knows, as a result – Maybe someday your name will be in lights/ Saying Johnny B. Goode tonight. 

Make contact at 706-354-0401 or tom@cpsadvancedmarkets.com.

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