Personal Insurance Planning

Family Protection

As we grow older, get married, build families and start businesses, we come to realize more and more that life insurance is a fundamental part of having a sound financial plan. Depending on your type of policy, life insurance can be fairly inexpensive which means there’s no excuse to why you can’t get coverage now! Plus over the years, you’ll find comfort in knowing money will be available to protect your loved ones in the event of your passing. Here are a few other reasons why having life insurance is so important.

1. To Protect Your Family and Loved Ones

If your loved ones depend on your financial support for their livelihood, then life insurance is a must, because it replaces your income when you die. This is especially important for parents of young children or couples who’s partner will find it difficult if they no longer have the source of income provide by their partner.

You will also need to provide enough money to cover the costs of hiring someone to cover the day to day household tasks, like cleaning, laundry, cooking, childcare and everything else a growing family needs.

2. To Leave An Inheritance

Even if you don’t have any other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. This is a great way to set your kids up for a solid financial future and provide for any monetary needs that will arise.

3. To Pay Off Debts and Other Expenses

In addition to providing income to cover everyday living expenses for your family needs insurance to cover any outstanding debts, like the mortgage, credit cards and car loans.

Other expenses include funeral and burial costs that can easily run into the tens of thousands of dollars. You don’t want your spouse, parents, children or other loved ones to be left with any extra financial burden in addition to the emotional burden they’re already suffering.

4. To Add More Financial Security

Like most parents you probably want to know your kids will be well taken care of when you’re gone. You not only want them to get a quality college education, but to provide for other life ventures like getting married or starting a business. For this reason, additional coverage is absolutely essential while your kids are still at home.

5. To Bring Peace of Mind

No amount of money can ever replace a person. But more than anything, life insurance can help provide protection for the uncertainties in life. Without a doubt, having life insurance coverage will bring you and your family peace of mind. It’s one thing you can be sure of and no longer question if they’ll be taken care of when you’re gone.

None of us know when we’ll pass away. It could be today, tomorrow, or 50 years into the future, but it will happen eventually. Life insurance protects your heirs from the unknown and helps them through an otherwise difficult time of loss.

Life, Disability, and Long-Term Care

Disability Insurance

The statistics are alarming. Nearly one in four Americans will become disabled before they retire1. It’s enough to have you looking twice for discarded banana peels and open manhole covers before you walk down the sidewalk. But it wouldn’t do you much good. The reality is accidents don’t cause most disabilities. Instead, back injuries, cancer, heart disease and other illnesses are usually to blame. And that’s precisely why disability insurance should be a core component of your financial life.

Your income is the foundation to the life you created. Without income, everyday life and plans for the future are affected. When you fall ill or have been injured in an accident, you have enough on your mind without having to worry about where your next paycheck will be coming from. Of course, if you had disability income insurance, you may not have to worry at all. A disability insurance policy can offer you flexible, robust coverage that can help protect against the financial impact of a disability.

Things to consider when evaluating disability income coverage:

How much income replacement will I need?

Evaluate your monthly expenses to determine your risk. As a general rule, you may be eligible for a monthly benefit equal to about 60% of net salary or business income. Discuss your personal situation with your insurance professional who can provide further detailed assessment of your income replacement needs.

Can I also protect any future income increases I may receive?

Any policy issued will include a monthly benefit amount based on your current financial and occupational information. Most policies also offer a future insurability feature2 (or "future insurability option") that allows for the purchase of additional coverage without the need to provide further evidence of good health.

Will my benefits keep pace with inflation?

Most policies offer riders to help your benefits keep pace with inflation during a disability. A cost of living adjustment3 (COLA) rider will adjust benefits each year while you remain disabled and eligible for benefits. COLA riders can be vital to maintaining your standard of living during an extended disability.

1 Social Security Administration Fact Sheet, February 7, 2013.
2 Restrictions and limitations apply. While medical information is not required when exercising a future insurability option, applications to exercise an increase option will be financially underwritten taking into consideration both the applicant’s then current income, as well as all disability insurance which is then in force, or for which the insured has applied or is eligible to receive.
3 This benefit is not necessarily protection against increases in the cost of living.

Life Insurance

Term insurance

Term insurance is the simplest form of life insurance. It provides basic protection for a predetermined period of time at an affordable premium. Some term life policies offer a valuable conversion privilege that allows the policy owner to convert the term coverage to permanent insurance that builds cash value, with no additional medical underwriting. These Term policies can be customized with a variety of riders.

Variable Universal Life

Variable Universal Life is a permanent insurance which provides a death benefit in exchange for flexible premiums. The policy's cash value, including any assets allocated to the investment divisions, is subject to market risks and fluctuates in value. There is a potential for long-term growth in cash value which can provide the opportunity to leave a higher death benefit to your heirs or have more cash available to meet future funding needs. If there are any decreases in the policy's cash value, they could negatively impact the policy's death benefit. Clients are asked to consider the investment objectives, risks, charges and expenses of the policy carefully before investing. The prospectuses contain this and other information about the policy and should be read carefully by your clients before investing.

Whole Life

There’s more to whole life insurance than protection. It can help you prepare for retirement, pay for your children’s education.

Whole life is permanent, guaranteed life insurance coverage. Simply put, as long as you pay the premiums, your policy will provide the security of a guaranteed death benefit and an accumulation component called cash value.

Death benefit

While it’s not something people always want to talk about, death benefit protection can give you substantial peace of mind, especially if you have a family, business, or others who depend on you financially. Your policy’s death benefit can help pay off a mortgage, finance higher education, keep a family business open, or just make life easier for the loved ones you leave behind. You and your Agent can decide the death benefit dollar amount best suited to your circumstances.

Cash value

Cash value is a benefit that is specific to permanent life insurance products like whole life. Your whole life policy provides a guaranteed cash value. As you continue to keep your policy, your cash value will grow. You can access your cash value through policy loans. Policy loans accrue interest and reduce the death benefit by any unpaid balance. Over time it can become a valuable asset that you can use any way you see fit, including for some of life’s most pivotal events:

  • supplementing retirement income as your life insurance needs decrease
  • adding to a down payment on a home
  • funding the cost of your child’s college education
  • financing or starting a new business

Plus, it has substantial tax benefits that make it even more beneficial. It’s important to understand that any outstanding loans from your policy will accrue interest and reduce the policy’s cash value and death benefit.

Whole life provides security, peace of mind, and a range of other benefits that make it a smart choice if you’re seeking the best possible protection for the important people in your life—and a wise financial decision for your own future.

Fixed premiums

Whole life premiums are guaranteed to never increase for the duration of your policy. While the cost of everything else goes up, your premiums won’t.

Living benefits

While the primary purpose of whole life is protection, it can also help meet financial needs during your lifetime. These are often referred to as the “living benefits” of life insurance. Taking loans or withdrawals from your policy’s cash value can help pay for unexpected expenses like medical bills or even a down payment on a new home.

1 Department of Health and Human Services. National Clearinghouse for Long-Term Care Information., 2013.
2 Riders are available at an additional cost. Premium and available benefits vary based on coverage levels and riders selected.

Loans against your policy accrue interest and decrease the death benefit and cash value by
the amount of the outstanding loan and interest.

Estate and Legacy Planning

Regardless of your level of wealth, the failure to establish an estate plan can be detrimental to your family. A properly structured estate plan helps ensure that your family and financial goals are addressed during your life, if incapacitated, and after your death.

The following provides an introductory discussion regarding essential planning individuals should consider, as well as an overview of lifetime gifting strategies and long- term trust planning.

Essential Documents

The following planning documents should be considered regardless of whether an individual that is married or single.

Last Will and Testament

A will directs how you want your assets distributed upon your death. Without a will, your property would pass as required under your state’s intestacy statutes. State law may not provide the inheritance scheme you would choose for your family, and could also increase your exposure to federal estate taxes.

In addition to directing the disposition of your property, a will can enable you to:

  • Name an executor, avoiding the trouble and cost of a court-appointed administrator.
  • Avoid bonding costs.
  • Avoid annual reporting/accounting to the probate court.
  • Name a guardian for minor children, substantially eliminating the likelihood of a court-appointed guardianship.
  • Protect the children’s inheritances in the event your surviving spouse should remarry.
  • Retain assets in trust if distributions to your heirs at your death would be inadvisable.

For high net worth married couples, a will, if structured properly, also can help assure federal estate tax benefits are preserved for the couple’s estates. Estate tax-efficient wills allow a married couple to take full advantage of the unlimited marital deduction and the federal estate tax exemption ($5.34 million per individual in 2014, as indexed for inflation) of both spouses. Allocation of the first-to-die spouse’s exemption amount to a trust may reduce estate tax for the couple’s combined estate, provide asset protection and allow control and management by a trustee, while still benefitting the surviving spouse and children.

For couples with more modest estates, estate tax-efficient wills may not be as advantageous from a total federal tax perspective as an “all-to-spouse” will, taking into consideration the unlimited marital deduction, the potential portability of a deceased spouse’s unused “applicable exclusion amount” (as discussed below), and the opportunity to have appreciated assets receive a step-up in tax basis at both spouses’ deaths (which could help reduce the heirs’ capital gains tax exposure).

Revocable Living Trust

A revocable living trust (RLT) is an arrangement by which a person (the grantor) transfers ownership of property into a trust during one’s lifetime. An RLT can be used as a substitute for a will in many respects by providing for the distribution of assets upon the grantor's death. Unlike a will, a revocable living trust can be established to govern the distribution and use of the trust assets during the grantor’s lifetime, which can make it a useful planning tool in the event the grantor becomes incapacitated. In essence, the trust is like a rulebook (which can be modified or revoked by the grantor during lifetime) for how the grantor’s assets are to be handled while alive and after death.

Establishing an RLT may provide the following benefits:

Avoidance of Probate

Probate is the legal process for transferring property upon death. Assets owned in an RLT do not pass through the probate process, potentially enabling a faster and less costly method for transferring assets upon death than by a will, which would require probate and sometimes court supervision. An RLT also can be especially useful in avoiding multiple probate proceedings when an individual owns real estate or other property in multiple states.

Privacy Preservation

At an individual’s death, when assets are passed to the heirs through probate under a will, probate may expose details of an estate to the public through public probate court filings. In contrast, trusts allow the transfer of assets to remain private within the constraints of the trust document.

Segregation of Assets

An RLT may be useful for married couples with substantial separate property acquired prior to the marriage. In community property states, the trust can help segregate those assets from their community property assets.

Estate Tax Minimization

An RLT does nothing to save estate or income taxes during life, but provisions can be included in the trust, as with estate tax-efficient wills, to take advantage of estate tax exemption amounts at death.

Durable General Power of Attorney

A power of attorney is a document that allows a person (known as the "Principal") to appoint another person or organization to handle affairs while the Principal is unavailable or unable to do so. The person or organization the Principal appoints is referred to as an "Attorney-in-Fact" or "Agent."

A general power of attorney can grant the agent limited or broad powers as specified in the document to manage the principal’s financial affairs and property. Some of the powers that may be granted include:

  • Handling banking transactions and transactions involving U.S. securities.
  • Entering safety deposit boxes.
  • Buying and selling property.
  • Purchasing life insurance.
  • Settling claims.
  • Entering into contracts.
  • Buying, managing or selling real estate.
  • Filing tax returns.
  • Handling matters related to government benefits.
  • Maintaining and operating business interests.
  • Making gifts and consenting to splitting gifts made by the principal’s spouse.
  • Making transfers to RLTs.

Health Care Power of Attorney

A Health Care Power of Attorney allows the principal to designate an agent who will have the authority to make health care decisions on the principal’s behalf in the event the principal is rendered unconscious, mentally incompetent or is otherwise unable to make such decisions.

A HIPAA (Health Insurance Portability and Accountability Act) Authorization also is advisable. It allows medical providers to release a person’s protected medical information to another person. Individuals may include the HIPAA language in the Health Care Power of Attorney, or may use a freestanding document. If your state has a HIPAA Authorization form that has been published or approved by a state regulatory agency, consider using the approved form because medical professionals in your state will be more likely to recognize the form and release the information when requested.

Strategies and Considerations

Making Lifetime Gifts

Many individuals and married couples make gifts to their children and other family members. Lifetime gifts may allow the person making the gift (the donor) to observe how the recipients (the donors) will handle the money. Accordingly, by making lifetime gifts the donor can help guide the donor on sound money and business management skills. Gifts also can help reduce a donor’s taxable estate if desirable. However, making gifts in excess of the donor’s lifetime gift tax exemption amount ($5.34 million in 2014) may result in the imposition of gift taxes. A gift tax is a federal tax on the transfer of property by one individual to another where the person making the gift receives nothing in return.*

Annual gifts

Each year, a donor can gift up to a specified amount ($14,000 in 2014) to each of an unlimited number of donors without triggering federal gift taxes by using what is commonly referred to as the "gift tax annual exclusion." The annual exclusion amount is indexed for inflation, but only adjusted in $1,000 increments. Through "gift splitting," married couples can use their combined annual exclusions for a given donor even if only one spouse actually transfers property to that donor.

Only gifts of a "present interest" are eligible for the annual exclusion. Gifts of a "future interest" are ineligible. If a recipient receives a gift with no strings attached, the gift is of a present interest. If there are conditions on the gift or if there is a delay in the enjoyment of the gift, the gift is a future interest gift. A gift to a trust is a gift of a present interest only if:

(1) the beneficiary has the present right to trust income
(2) the beneficiary has a right to withdraw the amount of the gift from the trust and is given timely written notice of such right
(3) the trust is for the exclusive benefit of a minor and meets certain requirements.

Applicable Exclusion Amount

Every U.S. citizen is permitted a "unified credit" that allows the individual to transfer a certain amount of assets free of federal transfer taxes during life or at death. If a donor makes gifts to a donor during any given taxable year that exceed the annual exclusion amount, the donor can reduce any potential gift tax by applying all or a portion of his or her unified credit. At death, the executor of the decedent's estate will reduce the amount of estate tax due by any unified credit not used during the decedent’s life. The amount of assets the credit effectively exempts is referred to as the "applicable exclusion amount. The applicable excludes ion amount for gift and estate tax purposes is $5.34 million in 2014. The entire amount can be gifted during life, if desired.

Medical and Educational Gifts

Direct payment by an individual to a provider of qualified educational or medical expenses for the benefit of another individual does not constitute a taxable gift. The definition of educational expenses only includes tuition paid directly to the educational institution, not room and board, books, etc. As for medical expenses, IRS regulations describe exactly what types of expenses will be treated as qualified medical expenses.

Outright Gifts and Bequests vs. Long-Term Trusts

Rather than making an outright gift (during life) or bequest (upon death), many individuals choose to place assets in long term trusts for the donor’s benefit. Assets held in trust are distributed according to the trust terms. As long as the trust remains in effect, assets can generally be protected from creditors, litigation and divorce, as well as from mismanagement by the recipient. If incorporated into the terms of the trust, distributions can be structured to either encourage or discourage certain behavior. For example, the grantor of a trust could provide that distributions be made upon a beneficiary graduating from college or after holding a job for a certain number of years. A grantor also could require distributions be withheld in the event of a beneficiary’s impending bankruptcy or for proven or suspected use of an abusive substance.

*If desired, a beneficiary of a trust can serve as a trustee (or co-trustee) of that trust; however, if a beneficiary/trustee will be granted powers to make discretionary distributions of trust assets to oneself, such powers should be limited to an ascertainable standard, more specifically for their health, education, maintenance and support, to keep the trust’s assets out of the beneficiary’s taxable estate. From an asset protection standpoint, a trustee/beneficiary with rights to make discretionary distributions to one’s self may expose the beneficiary’s rights to claims of creditors. In contrast, if rights are granted to an independent third party trustee to make discretionary distributions to the trust beneficiaries, trust assets may be more effectively protected from the claims of the beneficiaries’ creditors. Moreover, unlike a trustee/beneficiary, an independent trustee can be granted unlimited discretion to distribute assets to a beneficiary without causing the trust’s assets to be includible in the beneficiary’s taxable estate.