Flying Bee

PERSONAL PLANNING CONCEPTS


PERSONAL PLANNING CONCEPTS
COLLEGE FUNDING & LIFE INSURANCE:
Here’s how permanent life insurance works as a college savings vehicle. For every dollar you pay in premiums, a portion goes toward the death benefit and another portion is diverted to a separate cash-value account. Whole Life is generally the safest kind of permanent life insurance. The issuer credits your account by a guaranteed amount, although it may pay more if the investments perform well. The money in the cash-value account grows tax-deferred, much like a 529 plan.

Other types of permanent life coverage, such as Index Universal Life give policyholders a degree of control over their investment and potentially lower premiums. In this case, you select the sub-accounts, interest rates based on the performance of underlying indexes, that you want to be attached to your policy, and your account’s annual return is pegged to the performance of these underlying investments. The potential is there for greater returns than with whole life, but there may be periods where the indexes have a zero return. Anything earned in the index becomes guaranteed and will never lose value.

When it comes time for your son or daughter to start college, you can take out a loan against your cash balance. The insurer will reduce your death benefit if you don’t pay back the loan, but that’s not necessarily a drawback if you intended the policy primarily as a college savings plan all along.

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LIFE INSURANCE AUDITS:Life Insurance portfolios are never analyzed as a performing asset, are rarely reviewed, and are usually less functional than what was intended when initiated.

Consider this:
  • 70% of policies reviewed require some change or update to meet changing needs
  • 75% of policies issued prior to 1996 are underperforming projections
  • Lower mortality rates today often make new policies much more attractive, lower premiums for the same coverage, or more coverage for same premium
  • There are significant tax advantages if properly structured
  • 56% of insurance companies in business in 1985 exist or are no longer independent
  • 86% of policies issued never result in a death claim

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PENSION MAXIMIZATION:
When you take your pension, you may have several election options: Lump Sum, Single Life Annuity, 50% Joint and Survivor, 100% Joint and Survivor, Life with 10 Years Certain.

If you choose to leverage a pension maximization strategy, you would take the single life annuity (or life only) option. By accepting your full pension over the course of your lifetime – you don’t receive any spousal benefits directly through your pension.

However, to ensure that your spouse is still protected, you would purchase a life insurance policy rather than accessing reduced survivor benefits through your pension. The goal here would be to increase the monthly benefit you receive from your pension. The increased monthly income should exceed the cost of a life insurance policy, providing a death benefit to your spouse.

Key Points of Pension Maximization:
  • Is a retirement strategy for couples.
  • The partner covered by the pension plan selects a life only income option upon retirement. This will provide the highest income for the family until the death of the pensioner.
  • At the pensioner's retirement, a life insurance policy is purchased providing continued income to the surviving spouse upon the death of the pensioner.
  • This strategy provides the maximum income during the pensioner’s  life and also after that person's death to those who live on.

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LIFE SETTLEMENTS:
An underwritten life settlement for primarily Universal Life and Convertible Term policies. The policy’s settlement value is based on the age and prevailing health conditions of the insured, with a target age range between 70-95, and predicted life expectancy of 10 years or less. Underwriting includes review of a policy illustration, phone interview, and review of medical records.

Typical Transaction Time: 60-90 days
  • Policy: minimum face value $100,000
  • Male: minimum age 70
  • Female: minimum age 70
  • Medical underwriting
  • Illustration review
Policy Illustration:
Level death benefit, minimum guaranteed premium to maturity or age 100+, or conversion Illustration for Term policy