If you are like many financial advisors you spend much of your time focused on helping clients build wealth for important goals while minimizing portfolio risks. Unfortunately, too few spend time addressing non-portfolio risks that can prevent clients from reaching those goals. When you do this, you’re missing an aspect of risk management that can affect both your clients’ financial well-being AND your own. Fortunately, DBS has taken the guesswork out of it and have a tool that will help you determine how much – and what type – of life insurance your clients need!
In a previous article, I discussed how Section 1035 permits tax-free exchanges of life insurance policies and discussed how to structure a life insurance exchange to qualify for Section 1035 tax treatment. In a nut shell, to qualify for tax-free exchange treatment under Section 1035 the transaction must be a “like-kind” exchange.
In contrast, if money or other non-like-kind property (referred to as “boot”) is received in the exchange the transaction will not qualify for tax-free exchange treatment. If boot is received as part of a life insurance exchange, gain will be recognized and taxed to the policy owner to the extent of the boot received. A situation where unsuspecting policy owners may inadvertently generate taxable income involves exchanges of policies with preexisting loans. Depending on how the transaction is structured, the loan may fall into the trap of being recognized as boot, causing the exchange to be subject to taxation. This article provides tips on doing Section 1035 exchanges on insurance policies with loans to avoid taxable income. More
Completing a thorough fact finder is important and necessary in order to do the best job possible for your clients. Equally important is asking the right questions. How you open the conversation and what you ask can lead to a deeper understanding of a client’s financial concerns. More
As a financial professional you already know why investing is important. You can build an investment portfolio whose design is to accumulate dollars toward every goal a client has. It can be creative, tax-efficient, and even leave your clients with a comfortable lifestyle as they save toward their life goals. But what happens if the client dies prior to achieving his/her investment goals? The best investment plan in the world isn’t worth much if it doesn’t take this risk into account.
If you are like most advisors you are not talking about life insurance even though it is considered a backbone to a financial plan. In fact, a study conducted by Paybrus Partners found that 56 percent of financial advisors will not talk about life insurance even if a client brings up the subject! So, who do you need to talk to about life insurance?
It’s natural for a client to put things off; there always seems to be more time until there is no time. It’s up to you as the advisor to keep things moving toward completion. Here’s a recent case that started out like most, but in the end came down to a matter of weeks before the client found out he was completely uninsurable, meaning the case would be lost completely.
Situation: The case started out like most. In September 2016 a financial representative called a DBS Case Design Analyst seeking product options for a client who wanted to purchase a hybrid life long-term care policy. After discussing options and looking at the pricing the financial advisor decided to propose a John Hancock policy. The client liked the option and an application was submitted in December. More
Situation: Numerous life insurance strategies involve borrowing against the cash value of a policy. Policy loans can provide a fast and easy source of cash for clients. Often the terms of a policy loan are more favorable than a conventional loan. They do not have the stringent credit and underwriting approval requirements and the interest rates are typically lower. In addition, there are no fixed repayment schedules in that the loan interest can be paid or accrued and can remain outstanding until the insured’s death.
The reason life insurance companies can provide favorable terms on a policy loan is because the carrier controls the cash value that serves as collateral for the loan and it will not allow a policy loan to exceed the cash value of the policy. Consequently, the carrier knows that the funds will be available. If the outstanding loan balance gets too close to the remaining policy cash value the carrier simply “forecloses” on the policy. So the good news is that the policy owner can never be on the hook for a loan that is greater than the policy cash value. More
For many individuals life insurance is their largest unmanaged asset. Unfortunately, after a policy is purchased it often is put in a drawer and not looked at again until a death claim is filed. Like an investment portfolio a life insurance policy portfolio should be reviewed every couple of years or at a minimum when there is a meaningful change in a client’s life.
This begs the question . . what should be checked in a life insurance portfolio review? Clearly, a financial advisor will want to make sure the existing policy(ies) compares favorably to what is available in the marketplace by conducting a policy performance review. But, there is much more to examine than the performance of the policy itself. In addition to the policy analysis, a critical part of the review process should include a review of the “people” . . . the policy owner and beneficiary(s). More
As a financial advisor you are well aware of the need to manage and review investment portfolios, but you may not understand how important it is to manage and review your clients’ life insurance policies to ensure they are continuing to meet their objectives.
Many Life Insurance Product Features Must be Managed
Modern life insurance policies contain many useful features. Regardless whether your clients have universal life, indexed universal life, variable life, whole life or “no-lapse,” their policies may include options such as flexible premium payment, the ability to select and manage underlying sub-accounts, and obtaining a given death benefit and premium guarantee. Even whole life has non-guaranteed elements such as dividends and term riders. Each of these features have important caveats that must be managed, much as you must manage a client’s portfolio against downward volatility, to make certain the policy benefits are maximized and to insure that options are not lost or guarantees voided. More