Estate Planning - Life Insurance Recommendations

James Gandolfini’s estate tax and the role of life insurance

August 7, 2013

10:46 AM

Leave a comment on James Gandolfini’s estate tax and the role of life insurance

current assumption UL or CAUL, Estate Maximization, Estate Planning, guaranteed universal life, GUL, ILIT trust, irrevocable life insurance, irrevocable life insurance trust (ILIT), life insurance in a trust, New York, No Lapse Guaranteed Universal Life, no lapse universal life, No-lapse guarantee, term insurance, term life, Term Life Insurance, universal life insurance, Whole Life

James_Gandolfini

James Gandolfini, actor extraordinaire of The Sopranos, who died recently of a heart attack at age 51 apparently has left his heirs subject to a sizable estate tax. Tax experts noted that they will likely end up owing a significant amount partly due to his residing in New York. State estate taxes vary considerably depending on which state you reside in.

I was struck by this comment in one analysis as to the very practical role of life insurance in estate planning.

At a minimum, an irrevocable trust should have been set up for Mr. Gandolfini to use to pay insurance premiums toward a life insurance policy that would have covered expected estate taxes, Mr. Wolfe said.

Gandolfini did set up a $7 million life policy for his son in a irrevocable life insurance trust (ILIT). To give the benefit of doubt, he may of set up others. Life insurance is not required to be in the public domain of probate. One lesson to come out of this is to add life insurance regularly especially when remarrying and having children. Insurability, the ability to obtain coverage, can be an issue when adding life insurance later in life. Fully underwritten life insurance involves a blood test, and depending on age and coverage amount, an EKG and medical records. In Gandolfini’s case at his age in the absence of identifiable heart disease his rate classification probably would have depended almost entirely on his weight according to the carrier’s build chart.

Estate planning with minor children makes term life insurance an option. There’s 10, 15, 20, 25 or 30 year term depending on the age of the child and how far it is prudent to carry the coverage out. Term is inexpensive and conversion allows on to exchange the term into a permanent policy without proof of insurabilty during the term period.

For permanent life insurance the first and foremost estate planning tool is Guaranteed No-Lapse Universal Life locking in coverage to age 120 or beyond. For other situations and goals the options include current assumption Universal Life, Indexed UL or on the upper cash value and benefit end a Whole Life plan.

Goodman Triangle or the unholy trinity

by Sean Drummey

January 23, 2013

11:40 AM

Leave a comment on Goodman Triangle or the unholy trinity

Estate Planning, Goodman Triangle, irrevocable life insurance trust (ILIT)

When three different parties are designated as the owner, the insured, and the beneficiary of a life insurance policy exposes the proceeds to gift taxation. (1) This so-called “unholy trinity” for example having the husband as the insured, the wife as the policy owner and the children as the beneficiaries. (see Goodman v. Commissioner, 1946)

To avoid this typically the owner and the insured are are same, for example the husband as the insured and owner with the child as beneficiary, or owner and beneficiary the same, for example the wife as owner and beneficiary with the husband as the insured, or an irrevocable life insurance trust (ILET) is set up, for example the ILET as the owner and beneficiary with the husband as the insured.

The current lifetime gift tax exclusion is $5.25 million. ($10.5 million for a married couple) (1)

The large gift tax exclusion means the Goodman Triangle may not be of significance to many individual policy owners but could still be a factor business life insurance policy owners with income tax consequences.

(1) Tax information is general and for information purposes only. Please seek professional advice for personal income tax questions and assistance.

Survivorship Guaranteed Universal Life at 50 something

by Sean Drummey

June 19, 2012

2:27 PM

Leave a comment on Survivorship Guaranteed Universal Life at 50 something

American General Life Insurance Company, Estate Planning, In your 50's, Legacy Building, Nationwide, Pruco Life Ins. Co., Prudential life insurance, Second-To-Die Insurance, Survivorship Guaranteed Universal Life, Survivorship Life Insurance, Survivorship Universal Life

After reviewing yesterday 13 major life insurance carriers for a couple in excellent health in their early 50’s for Survivorship Guaranteed Universal Life, multimillion limited pay some companies were clear leaders for lowest premiums:

American General Life Insurance Company: “AG Secure Survivor GUL”
Pruco Life Ins. Co. (Prudential): “PruLife SUL Protector”
Nationwide Life and Annuity Insurance Co: “YourLife No-Lapse Guarantee SUL II”

American General also has guaranteed cash value accumulation, and a versatile option to reduce the face amount and access that cash value while maintaining the lifetime guarantee.

The most competitive premiums are subject to age, face amount and health status. When shopping for life insurance for estate planning a thorough search is advisable to verify which are the most competitive. However certain carriers will tend time and again to have lowest premiums.

Sean Drummey

Contact:
Phone: (910) 328-0447
Text: (910) 803-1427
email: spdrummey@gmail.com

New Survivorship product from American General Life

by Sean Drummey

May 31, 2012

2:48 PM

Leave a comment on New Survivorship product from American General Life

Estate Planning, Second-To-Die Insurance, Survivorship Guaranteed Universal Life, Survivorship Life Insurance, Survivorship Universal Life, Uncategorized

American General Life Insurance Company has introduced “Secure Survivor GUL”. Survivorship Insurance, also called Second-To-Die Insurance, is designed for couples for estate planning purposes. It is less expenses than individual coverage.

Key Features:

Guaranteed Universal Lifurvivor GUL”e (GUL) guaranteed not to lapse, no lapse, with timely premium payments; guaranteed death benefit and premiums.

Guaranteed cash value accumulation

Ability to reduce the death benefit and premiums in future years. Pro-rata partial withdrawals of cash value permitted while maintaining the age 121 lifetime guarantee.

For example male and femal age 64 both preferred non tobacco, $4,000,000 policy, $44,853 premium. Accumulates $543,682 guaranteed cash value at age 84. Access half the cash value $271,841 (less withdrawal fee) maintain half the death benefit $2,000,000 policy, $22,427 new guaranteed premium – guaranteed to age 121

Return of premium feature: one-time option at end of policy year 15 for return of up to a maximum of 100% of premiums paid, a no cost rider

Comments: American General’s product has what they call optionality. The choice to reduce the death benefit, premiums and accessing the guaranteed cash value while maintaining the lifetime guarantee, as well as the option to return premiums in year 15 are very valuable and flexible options. The guaranteed cash value accumulation is another useful plus to this product, unlike most Guaranteed ULs which build little or no cash value making premium payments and lapse protection much less flexible over the course of the policy.

Surrender Charges on IUL

by Sean Drummey

November 28, 2011

4:57 PM

Leave a comment on Surrender Charges on IUL

Cash accumulation, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, In your 40's, In your 50's, Indexed Universal Life, Lincoln National Life Insurance Company, Modified Endowment Contract, Penn Mutual, Retirement income

It’s always good to know the rules for getting money back, so I compared surrender charges for indexed universal life (IUL) carriers. Surrender charges decrease on a declining schedule. For the carriers I compared, it takes between 10 to 20 years for those charges to completely go away. Not surprisingly, Lincoln and Penn Mutual were among those most favorable.

Penn Mutual is the best: no surrender charges after the 9th year, also no surrender charges in excess of target premium.

Target premium is a premium designed maintain a permanent policy for life. Mind you target is a guidepost for keeping the policy in force, how the policy performs may require more or less premium. With Indexed Universal Life one strategy is to over fund the policy above target to build additional cash value. Of the carriers I surveyed, only Penn Mutual and Old Mutual did not require a surrender charge on that portion of the premium.

For example, as in prior comparisons: male age 44, over funding an Indexed UL with $25,000 in premium for 20 years in order to generate tax free retirment income in the form of policy loans. With Penn Mutual this is a $590,000 increasing face amount policy, and the given target premium is $7,918 a year, but by over funding it with $25,000 in premium, just under the IRS limit for a Modified Endowment Contract (MEC), the policy builds the maximum permissible tax free cash value. That amount between $7,918 and $25,000 would not be subject to surrender charges at any time with Penn Mutual.

The least amount of surrender charges in the shortest period of time is a distinct advantage for an Indexed Universal Life in case there is a change in plans.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

Indexed Universal Life (IUL) compared to a ship’s journey

by Sean Drummey

November 17, 2011

10:38 AM

Leave a comment on Indexed Universal Life (IUL) compared to a ship’s journey

California, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, Indexed Universal Life, Internal rate of return, IUL, Modified Endowment Contract, policy illustration, Variable Life Insurance, variable universal life, VUL

Think of IUL as a means to achieve desired goals: to build cash value and to provide a death benefit. It is like going by yacht across the Pacific from California to Tahiti. This is a long journey, under many weather conditions, and this vessel is particularly designed to be safe and to reach its destination.

Prior to this life insurance that captured stock market, equity, returns was a more perilous journey. Variable Universal Life, a VUL class yacht, was favored. It is a sleek craft with the potential of performing very well (direct stock market participation), but like a yacht without an engine, it has proved to be risky for loss of cargo (cash value) and to capsize and sink (lapse).

So along came Indexed Universal Life as a safer alternative. It is like a powered yacht. Call it a IUL class yacht. She is backed by the ship builder (carrier) with no direct participation in the stock market. She has a sail or multiple sails (Index Account). Sails are designed for use when the winds are favorable (bull market) to build up the cargo (cash value) and ship’s value (death benefit). If there is a typhoon (bear market) approaching, the ship’s owner can use the engine instead (Fixed Account). If there are varying winds or doldrums, the owner may use both sail and engine (Participation Rate). The owner must decide in advance which mode to use for a period of time (Segment). This segment is generally one year. When the segment is over, the yacht owner is awarded for its performance (Interest Rate Crediting ) that increases the value of the cargo (cash value) and yacht (death benefit).

Now this IUL yacht has a very sturdy deck (Floor). Generally this deck is totally protected against leakage (0% market losses). It may even a raised deck (1% or higher Floor). As with a double hull, there are also guarantees in place for the ship not to sink (lapse). These guarantees may be for a set period of time like 10 years, 20 years or for life.

There are, however, certain restrictions placed on the ship’s speed in favorable conditions. The height of the mast is limited by the ship builder (Cap) or the top mast lowered (Spread). The yacht owner may gain extra by increasing the volume of sail (additional premiums). There are however certain rules as to how much sail is permitted (IRS rules for Modified Endowment Contract or MEC).

With an Indexed Universal Life cash value is built higher by increased premium contributions, and by gauging the direction stock market performance. Ideally, when the market is in an upward trend, the owner has directed premium into a high performing index, and when the market is in a downward trend, premium is directed into a fixed account. Regardless of choice or performance, the policy is protected against any losses by the floor. It is similar to a powered yacht that sets the maximum amount of sail with favorable winds, and uses the engine when conditions are unfavorable. There are various possible coverage goals. Some may use an IUL for early cash value accumulation for retirement, others can use the cash value for premium payments in retirement and estate planning.

Keep in mind when reviewing Indexed UL products
Just as yacht makers may brag about the boat’s sails, engine and design, life insurance carriers will promote their Cap (e.g. 13%), Fixed Account guarantee (e.g. 3%), Floor guarantee (e.g. 1%) and other bonus features. What is not evident is the product’s cost of insurance, expense and policy charges, the ship’s drag, how that affects the performance over a long period of time, especially 20, 30 or 40 years out.

How to Evaluate Competing Indexed UL Products
Fortunately, you don’t have to buy this IUL yacht after just reading the specs and trusting that it sails well. Request from the agent a policy illustration to test the product’s projected future performance. This will simulate how load and expense charges affect policy values, and compare that side-by-side with other carriers. This will help determine the all important internal rate of return. It’s similar to computer modeling a yacht race factoring each boat’s design, tonnage and various wind conditions. The carrier’s financial strength and viability is another important consideration because cost of insurance and other expense charges are subject to change, and you are also selecting which carrier will perform best and deliver the best results over time.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

Continue reading “Indexed Universal Life (IUL) compared to a ship’s journey” →

Universal Life vs guaranteed UL what works best depends on age

by Sean Drummey

October 12, 2011

2:53 PM

Leave a comment on Universal Life vs guaranteed UL what works best depends on age

Age 68, Cash Value, Estate Planning, guaranteed universal life, In your 40's, In your 50's, In your 60's, In your 70's, In your 80's, Universal Life

Universal Life, UL, has many different life insurance product designations. One of the most basic distinctions is whether it is a UL or a Guaranteed UL.

Guaranteed Universal Life (Guaranteed UL)
With guaranteed UL there is a lapse protection guarantee: as long as you pay your premium on time, coverage is guaranteed. Lifetime guaranteed UL is guaranteed to age 121. Great coverage: inexpensive, straightforward, easy to understand. Put premium payments on bank draft and forget about it. Is there a catch? No. Well, perhaps in a few ways: guaranteed UL’s lack flexibility on the adjusting the premium amount, the lapse protection is lost if the premium is not paid on time, and guaranteed UL’s do not build much cash value.

Universal Life (UL)
UL’s are called flexible adjustable life insurance for a reason. Premiums are flexible. There is a target premium. The real target is to make the life insurance coverage last for the rest of the policy holder’s life. Premium can be raised, lowered or kept the same to meet that target. It’s sort of like gas in the car. The idea is to have enough gas (cash value) to reach one’s destination, i.e. go beyond the person’s lifespan. At the policy’s beginning, target premium is typically set to age 100. The car’s (i.e. carrier) performance helps determine how much gas (premium) is needed. With a UL the holder is obliged to take a much more active role in management of the policy.

Does my age affect which type I choose?
Yes, generally select a UL in 40’s and 50’s, and a guaranteed UL in 60’s, 70’s and 80’s

Universal Life: 40’s and 50’s
When younger, in your 40’s or 50’s, you want the flexibility of regular universal life to lower or raise premium payments depending on your financial situation, to build higher cash value and to possibly replace your coverage for a better product later on.

For example:

Mrs. Wright, age 46, takes out a $250,000 universal life policy with the target premium of $150 a month. Five years later, her child needs braces and her monthly budget is tight. Since there is $3,000 cash value in her policy, Mrs. Wright, after reviewing an in force illustration, lowers her premium to $100 a month. One year later after getting back on better financial footing, Mrs. Wright increases her premium to $200 a month until the policy back on track to the original target of age 100. Later she is able to lower the premium back down to $150 a month.

Guaranteed UL: 60’s, 70’s and 80’s

When older, lock in a benefit amount for a set premium for life.

For example:

Mr. Ward, age 68, would like to leave $500,000 to his son. He chooses a guaranteed universal life product because the premiums are fixed and the policy is guaranteed to age 121. He has a secure retirement income and can well afford a fixed premium payment. He puts those payments on bank draft and can rest assured that this portion of his estate plan is secure.

Turning 70

by Sean Drummey

September 23, 2011

4:07 PM

The need for life insurance

by Sean Drummey

September 9, 2011

1:07 PM

Leave a comment on The need for life insurance

Age 56, Age 61, Age 66, Age 71, Estate Planning, guaranteed universal life, Term Life Insurance

Since September is life insurance awareness month, here a few thoughts on the need for life insurance.

Real life testimonials of life insurance beneficiaries are compelling. Neil Frankle of the WealthPilgrim.com has a memorable personal story of being orphaned at 17 and unexpectedly receiving $25,000 in life insurance that his father inadvertently signed up for as a loan condition.

Yes, but aren’t the odds of dying before one’s time fairly rare? Modern life is certainly not as prone to unexpected death as it was 100 years ago with tuberculosis, cholera, typhoid scarlet fever and pneumonia. There was the flu pandemic of 1918 and another could conceivably happen. The West Coast could see an earthquake on the order of magnitude as the San Francisco earthquake of 1906.

But in America today, on a day to day basis, the main risk to one’s life is in a car. It’s routine to travel at speeds above 50 mph, trusting your life to drivers passing by who may be drunk, distracted, unskilled or infirm. Fatalities run around 33,000 a year in the US. It’s possible to be another one, and entirely not your fault.

If you are raising children, get some life insurance. Term is cheap. Don’t let your kids down.

For example, Genworth, preferred non tobacco, 10 year term rates for men, $100,000 in coverage:

age 31 – $8.11 a month
age 36 – $8.37 a month
age 46 – $13.64 a month
age 51 – $19.68 a month

Genworth has $50,000 10 year term that’s even cheaper. Woman’s rates are even less than for men.

Continue reading “The need for life insurance” →

Estate planning checklist: include life insurance information

by Sean Drummey

September 6, 2011

2:36 PM

Leave a comment on Estate planning checklist: include life insurance information

Estate Planning, Policy Review

Findlaw.com has a useful estate planning checklist which is from the American Bar Association. This checklist asks for the basics of life insurance policies: company name, address, policy number, owner, beneficiaries, etc. What’s missing from the checklist is method of payment. It ought to be included. Provide information as whether the policy is on bank draft or direct billing, and provide information on the billing cycle. Many problems occur with life insurance policies on bank drafts being rejected for insufficient funds, or direct bills, mostly quarterly or annual, not being paid. Life insurance policies have by law a 30 day grace period for past due payments. If a permanent policy has cash value and an automatic loan provision, the policy can draw off its cash value and remain in force.

If you don’t know the policy number, most companies reference life policies by the insured’s social security number. I found it rather curious omission that this checklist didn’t ask for social security numbers. It’s can be very useful for tracking down a life policy.

postscript 9/12/2011: (emphasis mine)

But 57 percent of the policy owners who have talked to the beneficiaries about the existence of the policy admitted that they have not told the beneficiaries where the policy is located.

Image source: Wikipedia Commons