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3 Unique Insurance Designs

What do you do when “what if” becomes “what now”?

Quality term is harder to find in the marketplace.  Many carriers have stripped down their coverage offering ala carte features.  You may now need to add an extension rider for longer conversion periods.  This makes sense for many, but especially business and high net worth situations where conversion is more likely.   

Read more about “The Commoditization of Term.

There is one rider different from all the rest. It locks in a client’s insurability to have a quality long-term care insurance solution later, even if their health changes. 

As with any type of planning, building in flexibility and asking “what if” questions is important. I like to consider that I help place safety nets underneath people to protect them today and tomorrow.  Below is an example of a unique term rider that protects you for more than death. 

Mary buys a 30-year term policy for $1,000,000 at age 40 that includes this unique rider.  5 years later Mary is hit by a car and paralyzed.  Mary would be able to exercise this rider to help pay for care by converting the policy with the rider.  Mary will start to receive benefits 90 days after she is diagnosed as unable to perform 2 of the 6 activities of daily living.  She will receive $12,000 per month until her entire death benefit is exhausted. 

If Mary never faces trauma and lives to retire, she has a guaranteed right for long-term care protection no matter how much her health has deteriorated along the way.  If she decides she wants life insurance protection for longer than 30 years she is guaranteed that right as well. 

Buy it from the business

Did you know there are tax incentives for certain business owners & executives for purchasing hybrid long-term care insurance through the business?  Some hybrid products are broken into a Stage 1 and Stage 2 design.  Stage 1 is the death benefit or “your money” and Stage 2 is the long-term care pool or “their money”. 

With this design an owner of a C-corporation can totally deduct the LTCi component and not have to pick it up as taxable income.  If a 55-year old owner pays $100,000 for a single premium hybrid LTCi plan on his life, that owner will pick up the death benefit cost (about 40% in this case) as a bonus and thus taxable income.  The LTCi portion of the premium is legally tax-deductible for the C-Corp and not taxable to the owner/employee. 

A business owner may want to offer this type of plan to non-owner key employees which could be used as a retention tool.  This design is more likely to be funded over a period of 5 or 10 years.  The owner incentivizes their 55-year old employee to stay for 10 years.  The business purchases a hybrid policy and let’s the employee own it today. The business pays $10,000 a year and the employee will have to pay income tax on $4,583 a year.  Assuming a 30% tax, the employee only pays $1,374 a year or a total of $13,740 over the 10 years. The employer is protected by the restriction it adds to the plan.  Once the 10 years is met and the restriction is removed, the employee could exercise the return of premium feature on the policy and receive the full $100,000.  If he decides to keep it, his pool of care is over $400,000 which doubles in value by age 80. 

Launch the following link to learn more about the Tax Treatment of Hybrids for Business Owners & Employees

Fixed annuities may be the answer to safe money

With interest rates at all-time lows, it is hard to find a good safe yield.  I recently researched CD rates and found a 3-year rate at 1.15% and a whopping 1.5% for a 5-year rate. A 10-year government bond yields less than 1% and unlike a CD when interest rates go up, the bond value will decrease.  You may want to look at fixed or basic indexed annuities for better rates.  I found a recent 3-year rate paying double the CD rate and a 5-year period paid just under twice the rate as a 5-year CD. 

If your client is under age 60 there is a penalty if you take money out of an annuity, but with double crediting rates you are still likely to net more money than the CD.

CD vs Fixed AnnuitySee how a fixed annuity compares to a CD

Top 10 Reasonsto Purchase an Annuity

Indexed annuity upside        

There are basic indexed annuities in the marketplace.  This one pays a 1% minimum guarantee over the 5-year period which is just a little under the 5-year CD rate.  When you examine page 5 of the illustration the historical returns reflect 3 different scenarios.  A below average period of time would have returned approximately 1.5% per year return.  A recent period would have returned about 3.3% per year and an above average experience would have delivered a 5.9% return

Keystone 5 Indexed Annuity

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