In many situations, it can make economic sense for a family to finance the premiums needed to acquire life insurance coverage for estate and wealth transfer planning purposes. Here’s how a basic Life Insurance Premium Financing transaction is structured:
Yields on cash assets
Succession planning
Family protection
It is a best practice for nonprofit organizations to keep liquid reserves on their balance sheets for unexpected emergencies and opportunities These reserves are typically held in cash at the bank, or invested in CDs, U.S. Treasurys or short-term bonds.
In today’s low interest rate environment, it is difficult to achieve meaningful yields on these assets without taking additional risk or sacrificing liquidity The Liquidity Plus Program provides a solution by doing the following three things well, rather than one thing poorly:
Life insurance underwriting is the process of evaluating the level of risk an applicant for coverage may pose to the insurance company. There are several things that an insurance underwriter will typically review, including: lifestyle, health, and motor vehicle history. The underwriting process is subjective and can take between two and six months to complete.
Medical records are ordered based on the information provided on your signed HIPAA authorization. You will also complete a physical exam conducted by a licensed medical professional at your home or office. Some carriers may waive the exam for younger, healthier insureds.
Results from your exam combined with your medical records will allow the carriers to determine your
insurability and offer an initial health rating. This could help narrow down your options to carriers who
feel you are the healthiest.
You will then complete and sign the selected carrier’s life insurance application. Upon receipt, the carrier may also require additional information.
Nonprofits frequently use Supplemental Executive Retirement Plans (SERPs) to attract, reward and retain key executives. There is no “one size fits all” SERP design, and selecting the right one can be challenging. The differences between the various SERP designs are important to identify as such differences can significantly impact both the organization and the executive.
The following questions are crafted to help you focus on the most important considerations when comparing plan designs so you can make an informed decision about which SERP design is best for your organization and your key people.
ALL LIFE INSURANCE FIRMS ARE NOT CREATED EQUAL
The reason why Acumen is different is because we don’t just dabble in life insurance – it’s our specialty.
From superior client service to complete carrier and product independence to proactive underwriting, Acumen surpasses clients’ and advisors’ expectations when it comes to the design, placement, and servicing of life insurance.
Life insurance comes in several different flavors, so learning the options and then selecting the right type of policy for your goals and budget is crucial.
In general, life insurance is a contract between a policy owner and an insurer, whereby the insurer promises to pay a designated beneficiary a sum of money, called a “death benefit,” upon the passing of the insured person, in exchange for a premium, paid in a lump sum or over time. Under current tax law, death benefits are exempt from Federal income and capital gains tax; with additional planning, they can be exempt from Federal estate tax, too.
Term life insurance is designed to last for a specific amount of time or “term,” which can range from 1-to-40 years. Term life is pure coverage without a cash value component. Premiums are inflexible but they are guaranteed not to increase for the length of the term. At the end of the term, a new policy and updated medical underwriting is typically required. Some term policies offer a feature that allows conversion to a permanent policy of the same or smaller amount within a certain period and without evidence of insurability. This can be valuable if the policy owner wants to extend coverage beyond the term, but the insured cannot medically qualify.
As opposed to term, permanent life insurance is designed to last until the insured’s death, whenever it may occur. It combines term insurance death benefit protection with a cash value account that grows tax-deferred. Each year, the life insurer deducts what it needs from the premium to cover mortality and administrative costs; the rest goes into the cash value account. The owner can access the cash value during the insured’s lifetime for different purposes, including reducing premiums, pledging it as collateral for a loan, receiving in cash, or leaving it to accumulate. There are five main types of permanent life insurance policies, discussed in detail, below. Many of the differences come down to the option chosen as the mechanism that drives the growth of the cash value account.
Like all permanent life insurance policies, whole life provides lifelong coverage and includes a cash value component. Although it’s more complicated than term, whole life is the most straightforward form of permanent life insurance. This is because the premium is designed to remain the same for as long as the insured lives, the death benefit is guaranteed, and the cash value account grows at a guaranteed rate. Most whole life policies can also earn annual dividends on cash value, which represents a portion of the insurer’s financial surplus, but they are not guaranteed. Whole life premiums are not as flexible as other types of permanent insurance, and policy loan interest rates can be high. Whole life is most appropriate for those with a conservative risk profile.
Credit unions often invest in specialized programs, institutionally-priced permanent life insurance policies on the lives of their executives for up to 25% of net worth, in most jurisdictions.
Permanent life insurance has both a cash value and a death benefit. These particular policies are designed to maximize current cash value growth while protecting the credit union should an executive pass away.
While the insured executive is living, the current yield on cash value can far exceed that of other safe/liquid assets. When the insured passes away, a death benefit is paid and can be used to:
Acumen insurance solutions specializes in the strategic use of life insurance for estate planning, business succession planning, and owner/executive benefit planning for both u.s.–based and foreign national clients. We review existing policies and custom design new policies to meet client’s specific needs while collaborating, ensuring that any proposed coverage changes fit within the framework of the client’s overall plan. We strive to exceed expectations but not only offering sound advice, but also providing top-notch customer service.
As specialists in our respective fields, we work hard at providing our clients with the best possible service. However, our client’s needs often extend beyond the realm of the services we can offer them on our own. An accountant gives tax advice, an attorney gives legal advice, a financial planner gives investment advice, and an insurance professional designs insurance products. Rarely, is one professional able to offer a high quality one-stop shop for clients. This reality places us all in the position of having to defer to the expertise of our colleagues who are equipped to serve our clients in the ways we cannot. By teaming up with like-minded firms, we make our clients happier through collaborating and, consequently, watch our practices grow. Acumen insurance solutions continues to expand as a result of forming referral relationships with key players in other fields and we would enjoy having the opportunity to grow with you as well.
Development and funding of shareholder buy-sell agreements and owner/key employee retirement benefit plans.
Strategic design, implementation, and funding of wealth transfer plans that protect assets for heirs, reduce taxation, and often involve a charitable legacy.
Evaluation of existing life insurance contracts to determine competitiveness, value, and applicability of coverage to the overall plan.
Policy design, carrier selection, underwriting, funding, positioning, and implementation.
Properly designed life insurance can be an effective tool for addressing important personal and business planning objectives, including spousal protection, wealth transfer, tax planning, liquidity needs, business succession, key employee retention, and charitable planning.
Financing life insurance premiums can be a great way for a family or business to acquire the amount of insurance they need by borrowing money from a bank to pay the policy premiums.
Premium financing creates a unique opportunity your bank to loan money to strong, established individuals and companies. However, your bank needs to understand how the life insurance polices should be structured to so your bank can protect itself and be fully collateralized at all times, in case things do not work out as anticipated.
Acumen Insurance Solutions is an affiliation of independent life insurance experts solely for marketing and cost sharing purposes and is not a co-venture or partnership for any other purposes. No member of Acumen Insurance Solutions shall be liable for actions by any other member.