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What A Trump Presidency Means For Life Insurance

Is this the end of tax advantages for life insurance?

 

Current tax benefits for life insurance

 

For more than a century life insurance has enjoyed significant tax advantages aimed at both owners and beneficiaries of policies.  Cash value life insurance policy accumulation values are not taxed if the money stays inside the policy.  These plans act much like a Roth IRA–after-tax dollars go in, no tax while accumulating, and tax-free death benefits when the policy pays at death.  While you’re alive, you can borrow on the policy or withdraw your “basis” in the policy tax-free.  Once you take out more than you’ve put in, the difference is taxed at ordinary interest rates.  This tax deferral is a HUGE benefit of owning these types of policies.  I know, I know, “but this is a term insurance web site”… Reality is that many people do buy these policies and hold them for long periods.  They pay off, too.  Most life insurance claims are from permanent insurance policies.

What President Trump Will Change

 

Under President-Elect Trump’s proposed tax plan, the tax-deferred/tax-free cash accumulation would be eliminated.    According to Trump’s plan he would “Repeal the exclusion for investment income on life insurance contracts entered into after 2016”.(Brookings Institution analysis)  This takes a major incentive to own permanent life insurance, and there are some big reasons why folks would purchase these policies for business and estate tax funding among others.  Tax-free buildup, as it’s known in the insurance world, is a cornerstone benefit to policyholders.  The major life insurance lobby in the US, the National Association of Insurance and Financial Advisors (NAIFA) and others have fought Congress for decades over this issue and have won major victories on behalf of policyholders and agents alike.  

What Does This Taxation of Cash Value Buildup Mean For Me?

 

Simply put, if you’re buying nothing but term life insurance, probably not much.  Nothing changes with the death proceeds of a life insurance policy- that’s great.  Also, this taxation of cash value won’t take place on contracts entered into before 2017, so their grand-fathered.  So, really, the only folks who would realistically be affected by this are the people who want to purchase permanent cash value life insurance when they’re young.  Even then, I’m not so sure that this is a bad thing altogether.  Most young people today should really be starting out with term insurance anyway.  You get the highest return on your life insurance dollar with term policies and you’re not paying high commissions to an agent unnecessarily, not to mention huge surrender charges where you won’t break even for possibly decades if ever when you cash out.

The Insurance Industry Will Adapt

 

Our industry will adapt-it always has and always will, like any other business.  When interest rates were well over double digits and people were cashing out their old whole life policies and investing the proceeds in money markets, the insurance carriers invented an alternative called Universal Life, which was, essentially, a term life policy coupled with an internal money market account wrapped by a life insurance contract.  Interest rates those policies credited were equivalent to outside money market rates and were a viable alternative.  Earlier this century, after the new actuarial table- the 2001 CSO Table was introduced,  major insurance companies came out with modern universal Life policies which offered low premiums and almost no cash value so as to enable the policies to keep a level premium for the life of the policyowner.  This was in response to the CSO table’s reflection of greatly improved life expectancy.  If people live longer, then they can pay longer before the policy pays off, so they can charge less.  I predict the same thing will happen if Trump’s tax plan goes into full effect, where long-term policies will look just like term insurance with zero cash value and a simple tax-free death benefit.  

Ok, So What Do I Do Now?

That’s a great question!  I’m telling my clients to stay the course, keep the policies they have, and buy term life insurance as a placeholder until the Trump presidency matures and we see where his tax plan goes in the next few months.  Regardless of tax reform possibilities, if you need life insurance, then BUY life insurance.  Don’t put off protecting the very family that means the world to you just because a tax change “might” happen.  We all know that we have a finite time on Earth.  We don’t know if tax change is inevitable, so plan accordingly.  Now would be a very good time to review all of your personal coverage, especially disability insurance, which often overlooked!  make sure you review your employee benefits at work for both spouses and make sure you both are protected adequately “just in case”…  As always, please let me know if you have any questions or comments below.  AND, by all means, get term insurance quotes at the button below!  

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What to do when someone dies

What To Do When Someone Dies

Practical Things to be done when someone dies


death is not a pleasant Thought


We all think we’ll be here forever, then one day there’s an accident or a diagnosis that changes everything in a split second.  While death is no joke and we all get a turn, those with a diagnosis have a bit more time to prepare both emotionally and logistically.  There’s time, at the very least, to say goodbye to loved ones.  For those left behind, that may very well not be solace at all, but for families who get a call in the middle of the night after an accident, most wish that they had able to say goodbye.  Not having a final conversation with a loved one before he dies can haunt people for the rest of their lives. So, what can we do about the inevitable?  We can’t control an accident and for the most part we can’t control a diagnosis, except for lifestyle choices, so what can we control?  We, as parents or employers or people with others in our lives we care about, can plan for the future by making sure that our financial house is in order.  This sounds simple, and it is, but most people fail to organize their affairs properly in an on-going manner so that when their time is up it’s not a huge financial and administrative burden to those left behind to pick up the pieces. Where do we start?  well you’ve come to this site in search of term life insurance quotes or something related to life insurance because you know you need to protect your family financially. That’s generally the first and best place to start.  Life insurance is the bedrock foundation of any financial plan.  For pennies on the dollar you can make sure there’s enough money available when your loved dies AND that it’s available immediately, or within a couple of weeks.  This is crucial because when a death occurs certain things need to happen.  

Estate Planning Basics


​​​​ First, we need to notify the insurance agent or broker that the client has passed away.  The Broker will notify the life insurance company and initiate the claims process.  If you have multiple life insurance policies, make sure that you call each broker with whom the deceased had a policy.  People can easily have multiple policies.  At this point it doesn’t matter what type of life insurance policy it was, whether term insurance or permanent insurance.  The benefit dollars are all the same color time of claim. Once the claim on the policy is approved, the insurance company, these days, will send the beneficiary a checkbook which has the benefit balance in an interest-bearing account with the insurance company.  In the old days, people would choose a “settlement option” either before or after death and they still can, but those options do not afford any flexibility.  These options include an annuity payment structure, interest-only, periodic sum pay-outs and several others designs for “little old ladies” who didn’t understand finances.  Settlement options are pretty much a thing of the past.  The checkbook option allows you to write a check for the full amount of the policy, or write checks for chunks of the proceeds.  Very flexible. Second, call your estate planning attorney!  He or she probably drew up your wills and trusts and they need to know immediately that a death of their client has occurred.  She will “open and estate” and start the ball rolling from the legal end.  If you’ve handled your plans properly, most of your beneficiary designations will dictate where life insurance proceeds go as well as retirement accounts and certain types of real property.  In California where we live, most people have a living trust which would hold title to certain large assets, especially a home, and there would be much less delay in setting the estate.  Often times the insurance agent will know the attorney you have used locally and he can notify the attorney if you desire. Third, make funeral arrangements.  This usually entails clergy.  In my practice, many times it’s the clergy who plays a major role in organizing the family support structure.  If not clergy, then notify your funeral home of choice first.  Funeral homes are in a very good position to help you with certain administrative tasks like ordering death certificates.  Get AT LEAST 10 death certificates!  You will need more than you think for credit card companies,etc. Fourth, go to the bank to empty the safe deposit box. The lawyers might not agree with me on this, because the banks are not supposed to let anyone into the box after the death has been certified and they receive the proper permission from the probate court. However,  this minor step could save you a huge headache, especially since many people still keep their valuables, stock certificates(if you actually have the paper anymore), life insurance policies, and wills/trust documents in their safe deposit boxes.  Of course, I can’t give you legal advice, but these ideas are gleaned from my practice over 30+ years of helping people make sure that there is a smooth financial transition when someone dies. Fifth, notify all of your financial institutions and Social Security of the death.  Remember the 10 death certificates?  They will all want a copy or a sealed original, so don’t forget to get more than you need.  If you are the beneficiary of a retirement account, then the custodian will certainly want a death certificate. Last, and perhaps most iimportant, find a fee-only financial planner who will help guide you with a comprehensive financial plan.  Your new financial life without your loved one will look completely different and rather than spend all of your life insurance proceeds without direction, make a thoughtful plan!  A good fee-only financial planner who does not take compensation on assets under management, but either charges hourly or project-based fees is best.  These planners, though few and far between, will operate without conflicts of interest in your new life insurance account. I’ve barely touched the surface on the first things to do when someone dies, but it should give you an idea of where to start.  Stay tuned for some recommendations on how to “get your stuff in order” before something bad happens.  Make sure you get started by getting your instant term insurance quotes here.  See just how easy it is and how inexpensive it can be to protect your family with term life insurance!