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3 Things About Life


New tax laws create an uptick in non-qualified benefits planning

As we enter the fourth quarter of 2018 the new tax laws are still crystalizing.  One thing is clear, certain corporations will benefit from a tax reduction which can be 15% or more.  Some businesses may want to transition to a C-Corp, while others will look harder at non-qualified plans to take care of its most valuable employees.

Advanced strategies like split dollar for businesses may make more sense than ever.  Split dollar essentially splits the benefits and costs of a life insurance policy between the business and its employee.  The case of Jim Harbaugh and the University of Michigan is a great example of how this was used as a retention, reward and reimbursement tool.  University of Michigan is lending Jim $2 million a year for 7 years to purchase a life insurance policy. The below article explains how this strategy worked for Harbaugh.

Head Coach Jim Harbaugh Gets a BOLIP

The new tax law allows a corporation to implement this type of plan on certain key people.  And, if your business is a C-corporation the owner receives the added benefit of getting money out of the corporation at lower tax brackets.

Loan Rescue – what is it & and who does it benefit?

Certain permanent life insurance policies accumulate cash value.  Over time, clients might decide they need to tap into that cash for things they want or need.  Some clients buy a policy and only fund it for a short time, letting the insurance company take loans from their policy to pay the premiums.  What some don’t understand is that those loans & loan interest accumulate, and once a policy’s cash value has reached a certain low point something must give, or the policy will implode.

If a policy implodes with a gain, there will be a tax on money your client may not have.  This is where a loan rescue strategy may be of value.  Essentially your client will need to exchange their policy into a plan that will be able to carry that loan.  In some situations, we can take a policy that is near implosion and replace it with one that will be around for longer or forever depending on the design and the type of policy chassis considered.  There may be a lower death benefit, but the primary reason for this exchange is to avoid taxes, which can only be done by keeping the policy in force.  A loan rescue design may net out the loan or carry it for a shrinking net death benefit.

Learn more about the Loan Rescue Strategy.

Stress Testing your life

There are generally two types of permanent life insurance in the market place – guaranteed and projected.  Guaranteed Universal Life (GUL) is preferred by many advisors for its strong guarantees and substantially lower premiums than its guaranteed counterpart (whole life).  A GUL policy is not required to accumulate the same internal cash reserves as whole life insurance, and thus can offer a lower premium.

Many people make the mistake of shopping for GUL coverage the same way they shop for term insurance, by the lowest price.  With GUL it is important to know what happens if your client misses a premium or needs to reduce or skip a premium.  Remember any life insurance chassis is going to react negatively to premium adjustments that take you off track of the original policy parameters.  The results can be surprising as outlined in the below example.

To learn more read the following article:  Stress Testing Your Life Insurance Policy.



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