Tag Archive for: Insurance

family on a hike carrying two children by piggyback

How to Protect Your Family Using Life Insurance

Do you need life insurance? Chances are yes.

Life insurance is designed to protect your family and loved ones after you’ve passed away. Investing in life insurance is especially important if you’re financially responsible for a child, partner, aging parent, or disabled loved one.

Why? Life insurance helps to provide financial security for your family and loved ones following your departure. Let’s discuss how to protect your family and loved ones with life insurance.

What is Life Insurance?

Life insurance is a contract between a policy owner and a life insurance company. In this contract, the life insurance company promises to pay a designated beneficiary a death benefit upon the passing of the insured.

Most of the time, that death benefit is paid income tax-free to the beneficiary.

Life Insurance Options

There are two main categories of life insurance available:

  • Term life insurance, and
  • Permanent life insurance

Simply put, term life insurance is less expensive and lasts for a period of years whereas permanent life insurance lasts for an insured’s lifetime, and is, therefore, more expensive. Permanent insurance also has a tax-advantaged cash value component that can be accessed by the policy owner during the insured’s life.

Interested in learning more about the differences between each? Check out our article “Term Life Insurance vs. Permanent Life Insurance.”

The Benefits of Having Life Insurance

Life insurance coverage can help in the following ways:

Provide Financial Security

Life insurance can help replace lost income after one passes away. The death benefit of a life insurance policy can be used for any number of reasons, including to:

  • Pay monthly bills and day-to-day expenses
  • Pay off debt (i.e. mortgage, car loan, or credit card)
  • Pay federal and/or state estate taxes
  • Provide an inheritance

Cover End of Life Expenses

Death is expensive—and often is a cost most families don’t want to be troubled with, especially following the death of a loved one. Life insurance can help a family pay for end-of-life expenses like burial and funeral services, cremation, burial plots, caskets, etc. 

Pay for Medical Bills

Life insurance can help a family pay for hefty medical bills if the insured passes away from health-related issues. There are also policies with optional benefits that can help pay for ongoing chronic or terminal illness care expenses.

Supplement Educational Expenses

If the deceased loved one has children or grandchildren, life insurance can help pay for educational expenses (i.e. college or private school).

Consider Cash Value Life Insurance

Cash value life insurance is permanent coverage—insurance that is designed to last for the insured’s lifetime—that includes a tax-favored investment account that the policyholder can use while the insured is still alive.

(Yes, cash value life insurance allows you to financially help your family and loved ones while you’re still living – and it grows tax-deferred!)

The cash value can be used to offset future premiums and/or accessed tax-free, for any reason, using either policy loans or withdrawals. This component adds flexibility and provides an immediate tax-favored source of income for retirement, travel, healthcare needs, or emergencies.

Read on to learn more about cash value life insurance.

Infographic of "How to Protect Your Family Using Life Insurance"

Partner with Acumen Insurance Solutions to Protect Your Family

There are many other benefits to owning life insurance. Life insurance could help keep a family business running or provide a charitable legacy—the options are endless.

Remember, it’s better to buy life insurance sooner than later. Why? Life insurance is less expensive the younger and healthier you are.

Moreover, your life insurance needs will evolve over time – so best to get familiar with your options now. Interested in learning more? Read on to see how your life insurance needs might change in our article “Can I Change My Life Insurance?

executive's desk overlooking a city

How to Retain Top Talent Using Executive Compensation

The effects of poor employee retention and high turnover within a business are catastrophic. In fact, poor employee retention can lead to:

  • Decreased team morale
  • Reduced employee productivity
  • Expensive recruitment efforts, and
  • Time wasted

So, how can you retain top talent within your business?

Today, employee retention goes beyond offering company-wide happy hours and snacks in the office (those strategies will only get you so far!).

Powerful compensation programs — particularly those that include executive compensation — will set you apart in the hiring and retention game.

But how can you fund these benefits? Let’s talk about how to retain top talent using executive compensation; but first, an overview of executive comp plans.

Executive Compensation Plans: The Basics

Like a snowflake, no two compensation plans are the same. There are a variety of benefits with varying degrees of attractiveness that can be bundled together in compensation design.

(Secret’s out: It’s not all about the cash!)

Executive compensation plans typically consist of the following elements:

  • Base salary (cash compensation)
  • Short-term incentive or incentive compensation (i.e. an annual bonus)
  • Long-term incentive (deferred compensation)
  • Additional benefits and perquisites

Corporate-Owned Life Insurance (COLI)

Of course, corporate-owned life insurance (COLI) can play a crucial part in many deferred compensation plans for executives. Let’s discuss what this might look like and its benefits.

What is Corporate-Owned Life Insurance?

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 as a lump sum or over time. 

With corporate-owned life insurance (COLI), the insured person is a key employee. The beneficiary may be the organization, the key employee’s heirs, or a combination. Similar policies, called bank-owned life insurance (BOLI), have been used by commercial banks for nearly 40 years.

Death benefits can be used by the organization to protect against the economic loss caused by the passing of a key person. They can also be directed to the executive’s beneficiaries to reward and incentivize performance and longevity, serving as a valuable retention and family protection tool.  

COLI designs also include a substantial cash value account, which grows tax-deferred and can be accessed tax-free via policy loans and withdrawals of principal to eventually support the agreed-upon retirement benefit, generally paid out over a period of years. 

Why Corporate-Owned Life Insurance?

There are various benefits when it comes to corporate-owned life insurance. This particular investment vehicle:

  1. Is Safe: COLI policies are issued by some of the world’s strongest insurance carriers, some of which have been around for over 150 years.
  2. Is Liquid: In the event that you choose to redeploy all or a portion of your capital elsewhere, you have the ability to do so without penalty for exit with many of the policy designs.
  3. Provides Meaningful Rates of Return: These cash values of these policies are currently earning very meaningful current rates of return. In fact, they sit somewhere between 2.5-and-6.0%, depending upon the class of policy selected, with guarantees against loss and without direct market exposure.*

Moreover, given these benefits, COLI allows organizations to balance the cost of employee benefit programs while potentially enjoying higher yields than the typical “safe” investments.

Finally, one of the most attractive features of properly-designed executive compensation plans is that they’re highly customized and tailored to an individual executive or organization. The benefits from both the death benefit and cash value components can be allocated differently depending on the situation.   

A Final Word

At Acumen Insurance Solutions, we focus on ways that we can leverage tools like COLI to make your organization’s investments support executive compensation programs that inspire growth and ensure employee retention.

Interested in learning more about COLI? Read on in our article “Why CUOLI is the Best “Otherwise Impermissible Investment” for Your Credit Union.”

Or, contact us today to learn more.

*Disclaimer: Policy performance is based on current rates as charges, and some values are not guaranteed. These policies are not considered securities. Guarantees are based on the claims-paying ability of the underlying insurance carrier. Policies are not FDIC-insured. Pricing can be based on many factors, including the insured’s age, gender, and health. Please refer to a current policy illustration for details. Please refer to 26 U.S. Code §101(a) regarding tax-fee death benefit and 26 U.S. Code § 7702 (a) (g) regarding tax treatment of cash value. Medical and financial underwriting is required. Excessive policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Acumen Insurance Solutions, LLC does not provide tax, legal, or investment advice, and is not FINRA registered.

couple reviewing their life insurance with broker in front of home

Exit Strategies for Life Insurance Policies

There are many reasons why you may no longer want or need your life insurance policy.

Perhaps your beneficiaries will no longer need the life insurance proceeds after you are gone. Maybe premiums for the coverage have become unaffordable. Perhaps you need to use all of the policy’s cash value to bolster retirement income or fund a healthcare need.

Maybe the original need for insurance protection—to pay off a mortgage, fund an educational expense, or provide income replacement for your spouse—has changed. You might have an expiring term policy that is that you are not planning to renew. The list of reasons goes on.

So, what do you do if you don’t need your life insurance policy anymore? Luckily, there are ways to get out of these policies.

Let’s sit down with David Jacobs, J.D., Principal at Acumen Insurance Solutions to talk about understanding life insurance settlements: What is a life insurance settlement? How does it work? What are some exit strategies for life insurance policies?

Let’s find out.

What is a Life Insurance Settlement?

A life insurance settlement refers to the sale of an existing insurance policy on someone’s life to a third party.

There are two types of settlements. Either where:

  1. A lump sum is given to the policy owner. The policy is surrendered to the new buyer and the new buyer takes over those premium payments and collects the death benefit; or,
  2. You can sell a portion of your life insurance policy to reduce or eliminate premiums and retain a portion at the same time. This is known as a hybrid settlement.

How Did Life Insurance Settlements Begin?

So, how did life insurance settlements come to be? Well, we’re glad you asked because there’s quite an interesting story behind it.

In 1911, Dr. Grisby and his patient, John Buchard, enacted one of the first documented private sales of life insurance.

Here’s how it happened.

“Grigsby offered Buchard $100 and a medical procedure for his life insurance policy. In exchange Grisby would be fully responsible for the premiums, while receiving Buchard’s death benefit when he passed.”

What happened next? The case was taken to the Supreme Court! “After an appeal, Supreme Court justices ruled in Grisby’s favor, setting the precedent that life insurance policies are property and can be bought and sold freely and legally.”

This case set the stage and is the foundation for allowing third parties to purchase existing life insurance policies today.

Exit Strategies for Life Insurance Policies

So, what do you do if you just don’t want your insurance policy anymore? There are a few options:

  • Allow your policy to lapse
  • Surrender your policy
  • Give the policy to charity
  • Have beneficiaries continue the policy  
  • Use a life insurance settlement 

Let’s talk about each of these options in a bit more detail.

Allow Your Policy to Lapse

You can stop paying premiums and just let your policy lapse. Your policy will just eventually die on the vine; however, you don’t get any benefit from this option unless you pass away while the policy is still in force.

500,000 seniors a year lapse their life insurance policies, leaving behind $100 billion in benefits and walking away with little or nothing. Policies that lapse can be a significant source of revenue for the life insurance carriers, since they have collected premiums for years on them yet never paid out a death claim. 

Surrender Your Policy

On the other hand, you can return a permanent life insurance policy to the life insurance carrier for its cash surrender value. This value may be less than what you’ve paid in premiums over the years. Cash value gains are subject to income tax when the policy is surrendered. 

Give the Policy to Charity

Next, you could donate your life insurance policy to charity. There are, however, some additional factors to consider in this option. You must:

  • Have some charitable intent
  • Be comfortable with theoretically taking the money “away” from your heirs and instead diverting it to a charitable organization
  • Find a charity that will accept donations of life insurance policy
  • Calculate the charitable deduction you’ll receive by giving the policy away

Have Beneficiaries Continue the Policy 

If you cannot afford the premiums any longer, you could offer your beneficiaries the option to take over the policy and pay the required premiums. This might be particularly attractive if you have had a decline in health since you originally purchased the policy. This option may require making some administrative changes to the policy with the carrier.   

Use a Life Insurance Settlement Option

The final exit strategy is to use a life insurance settlement option. Life insurance settlements are available for both term and permanent life policies when the insured is age 65 and over.

(Note: If you have a term policy, it has to be convertible to a permanent policy for this to work.)

A third-party investor who wants to take over the policy will analyze your contract and your current health to estimate how much the premium is and how long they expect to pay it. The older and less healthy you are, especially compared to when you purchased the policy, the higher the settlement value can be. 

This estimate will determine how much they’re willing to write a lump sum check to you for, today, in order to take over the policy. The settlement amount is often much higher than the cash surrender value option, mentioned above. 

When the policy changes hands, the third-party purchaser becomes the owner and beneficiary of the policy and assumes payment of its premiums. The buyer also then receives the death benefit when the insured passes away. 

The insured and current policy owner need to be comfortable with this arrangement. However, the purchaser is not an individual investor; rather, it is typically a large pension fund or institution that can afford to buy policies at scale to take advantage of the law of large numbers.

In addition, the purchaser may use its estimates to make a hybrid offer, where you agree to take a smaller lump sum amount today in exchange for retaining a portion of the death benefit for your beneficiaries when you are gone. 

Why People Choose Life Insurance Settlements

Again, the benefits of a life settlement for the seller of the policy are obvious. The seller has the opportunity to benefit from their policy while they are still alive and receive a far higher amount than using the policy surrender option. The proceeds from the sale can be used for anything, including funding long-term care, medical treatments, travel, or family activities.

When an individual sells their policy, they’re essentially trading long-term benefits for short-term gain. The investor, on the other hand, is paying in the present day to receive a larger payout down the road.

Additional Considerations 

Most states highly regulate life settlement transactions and require that agents hold a specialized license. The settlement paperwork can be significant and requires notarized signatures from current policy owners, beneficiaries, and insureds. The insured’s current medical records are typically required by the purchaser in order to calculate its settlement offer. The buyer also has the right to periodically obtain updates on the insured’s future health through a designated representative and physicians’ records. 

Also, remember that settlement proceeds can be subject to tax. In general:
 

  1. Proceeds received up to the tax basis (total premiums paid) are free of income tax. 
  2. Proceeds received that are greater than the tax basis up to the amount of the cash surrender value are taxed at ordinary income rates. 
  3. Proceeds received that are in excess of the amount from Tier 2, above, get taxed as capital gains. 

Please consult your legal and tax advisor before moving ahead with a life settlement.

Life Insurance Settlement Calculator

Do you want to find out the value of your life insurance policy? Use our life insurance settlement calculator below.

Still have questions? What are the tax consequences of completing a life settlement transaction? What will happen to my policy after I sell?
Get in touch with our team at Acumen Insurance Solutions today. We will help you learn the true value of your policy today.

Permanent Life Insurance: What Options Are Available to You?

When it comes to life insurance, there are two main categories: Term life insurance and permanent life insurance. Today, David Jacobs, J.D., Principal at Acumen Insurance Solutions will be discussing permanent life insurance; more specifically, what options are available to you?

Let’s dive in.

What is Life Insurance?

First things first, what is life insurance?

Life insurance is a contract between a policy owner and a life insurance company. In this contract, the life insurance company promises to pay a designated beneficiary a death benefit upon the passing of the insured.

As we mentioned, when it comes to life insurance, there are two main categories: term life insurance and permanent life insurance. Remember that, no matter which type you own, the death benefit is generally paid income tax-free to the beneficiaries. 

Now, let’s focus on the different types of permanent life insurance options available.

Permanent Life Insurance: The Basics

Permanent life insurance, sometimes also referred to as whole life insurance, is designed to last for your lifetime, not just for a period of years. Since it’s designed to last for your entire lifetime, permanent life insurance is more expensive than term.

Permanent life insurance has the benefit of lasting longer than term, with premium flexibility and a cash value. The cash value is tax-advantaged and serves as a living benefit that the policy owner can access for any reason before the insured has died.

Three components make up permanent life insurance:

  • Premiums
  • Cash value, and
  • Death benefit

When you make a premium payment, what happens? Well, part of that premium goes to pay for the cost of insurance, or rather the cost to insure your life for the death benefit amount, as well as for policy fees, state premium taxes, and commissions.

The remainder of their premium goes into your cash value account, which can grow for you to use for any purpose at a later time.

Some of the main differences between the types of permanent policies have to do with what mechanism grows that cash value account.

Let’s discuss.

Types of Permanent Life Insurance

There are a few different types of permanent life insurance contracts to note. Again, the main difference between them is how the cash value (the living benefit account) grows.

Remember that, no matter which type of permanent insurance you own, the cash value grows tax-deferred and can be accessed tax-free using policy loans and withdrawals.  

Whole Life Insurance

A whole life policy cash value grows based on a guaranteed interest rate plus a non guaranteed dividend that the insurance carrier declares every year. Dividends are positively-correlated to interest rates and move slowly over time.

Universal Life Insurance

With a universal life insurance policy, the cash value grows based on a crediting interest rate that the insurance company declares annually, and is also positively-correlated to interest rates. 

Index Life Insurance

With an index universal life policy, the cash value grows based on the performance of a specific stock or bond index; typically it’s the S&P 500, however, other index accounts are available.

Index life policies are not directly invested in the market but instead track the movement of the chosen index.

Typically, index policies have a floor and a cap mechanism. For example, if the index declines over a policy year, the cash value is credited at a 0% gross rate to protect against downside risk; but, if the index increases, the cash value is credited at that rate, up to the cap. It’s like investing with guardrails. Caps can vary among carriers and usually float on an annual basis.

Variable Universal Life Insurance

The last type of policy is called a variable universal life policy. Variable life policyholders use mutual-fund-like sub-accounts to grow the cash value. Policy owners are accepting market volatility in exchange for the opportunity to potentially earn higher returns.

These types of policies are considered securities by the Securities and Exchange Commission (SEC), whereas whole, universal, and index are considered general account policies.

Infographic of Permanent Life Insurance What Options Are Available to You

Learn About Term Life Insurance Next!

We hope this discussion delineated the differences between term life insurance and permanent life insurance, and that you learned more about the types of permanent life insurance that are available on the market today.

Interested in learning more about the second category of life insurance, term life insurance? Read on in our article “Insurance 101: Term Life Insurance vs. Permanent Life Insurance.”

Important Notes: Please refer to 26 U.S. Code §101(a) regarding tax-fee death benefit and 26 U.S. Code § 7702 (a) (g) regarding tax treatment of cash value. Policy performance is based on current rates as charges, and some values are not guaranteed. Medical and financial underwriting is required. Withdrawals and loans from life insurance policies classified as Modified Endowment Contracts (MEC) may be subject to income tax and a federal tax penalty, if taken prior to age 59½. Excessive policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Life insurance is backed by the claims-paying ability of the carrier and is not FDIC insured. See policy illustration for details. Acumen Insurance Solutions, LLC does not provide tax, legal, or investment advice, and is not FINRA registered.

Term Life Insurance vs. Permanent Life Insurance

An Insurance 101 Series

Welcome to Life Insurance 101. We’re here to make things simple for you. Today, we’ve got ​​David A. Jacobs, J.D., Principal at Acumen Insurance Solutions on camera to discuss the difference between term life insurance and permanent life insurance in a way you can understand.

Let’s dive in.

What is Life Insurance?

Life insurance is a contract between a policy owner and a life insurance company. In this contract, the life insurance company promises to pay a designated beneficiary a death benefit upon the passing of the insured.

Most of the time, that death benefit is paid income tax-free to the beneficiary.

Term Life Insurance vs. Permanent Life Insurance

Interestingly enough, life insurance comes in a couple of different flavors. There are two main categories of life insurance: the first is called “term” life insurance, and the second is known as “permanent” life insurance.

The main difference between permanent and term insurance is that permanent insurance is designed to last for the insured’s lifetime and permanent insurance has a tax-advantaged cash value component.

But more on this later! Let’s discuss each individually.

Term Life Insurance

Term life insurance is exactly what it sounds like. It is life insurance that’s for a period of years; typically 10, 15, 20, or 30 years.

When it comes to term life insurance, there are only two components:

  1. The premium that’s due either every year, quarter, or month, and
  2. The death benefit, which is paid when the insurer dies within that term

Generally, premiums are level and the death benefit is guaranteed for that period. At the end of the term, the insurance policy stops, and the benefit is gone.

Lastly, some term life insurance policies have a special benefit that allows you to “convert” the term insurance to a permanent insurance policy without medical underwriting.

This can be a tremendously beneficial feature if the insured experiences a health issue that would prevent them from being able to qualify for new insurance after the term policy ends. These convertible term policies tend to cost more and require more effort to find than traditional term policies, but can be worth it depending on your unique circumstances and desires.

Permanent Life Insurance

The second type of insurance category is permanent insurance. The terms “permanent” and “whole life” insurance are sometimes used interchangeably.

Just as the name implies, permanent life insurance is designed to last for the insured’s lifetime, not just for a period of years. Since it’s designed to last longer, permanent life insurance is more expensive than term.

Permanent life insurance, however, has the benefit of a) lasting longer and b) having a cash value component. The cash value can be accessed for a variety of reasons and grows without tax.*

A Permanent Life Insurance Policy’s Cash Value Component

Let’s discuss more about the cash value component that is unique to permanent life insurance.

The cash value component of a permanent life insurance policy is available to the policy owner while the insured is alive, and grows tax-deferred. This cash value component can be accessed tax-free using either policy loans or a withdrawal of the principal.

This cash value component allows the policy to last as long as the policyholder wants it to. Permanent insurance is similar to a car; the more gas you put in, the longer it will drive. The same thing goes for permanent life insurance: the more premium you put into the policy, the longer the policy will last and the more cash value it will build.

Now, let’s briefly discuss the different types of permanent life insurance.

Types of Permanent Life Insurance

There are a couple of different types of permanent life insurance contracts to note, including:

  • Universal life
  • Index life
  • Whole life
  • Variable universal life

The difference between them all is how the cash value (the living benefit account) grows. For example:

  • Does it grow based on a dividend? That’s a whole life policy.
  • Does it grow based on an interest rate calculation or declaration? That would be a universal life policy.
  • Does it follow an index, for example, the S&P 500, but with a “floor” and a “cap” mechanism? That would be an index policy.
  • Or, does it involve the market (i.e. mutual fund-like accounts)? That would be a variable universal life policy.

Regardless, all of these policies have the same feature; as long as you continue to pay premiums and cash value remains in the policy, it will last until the death of the insured.

In the meantime, however, the policy owner can reach in and use the cash value for a variety of purposes. For example, it can be used to help pay premiums in certain years, fund education needs, supplement retirement, and/or support healthcare costs, all without triggering tax.

These are all things that the policy owner can use the cash value for while the insured is still alive.

Read on to learn more about the specific permanent life insurance policies available to you.

Infographic for Term Life Insurance vs. Permanent Life Insurance

A Recap on Term Life Insurance vs. Permanent Life Insurance

To review, the differences between term and permanent are:

  • Term life insurance lasts for a period of years and has two components: a premium and a death benefit.
  • Permanent life insurance lasts as long as you want it to (typically a lifetime) and has three components: a premium, a death benefit, and a cash value.

No matter what type of life insurance you own, however, it is an asset. Moreover, it is an asset class that needs to be reviewed, monitored, and serviced regularly. Why? To make sure that the policy is keeping up with your goals as well as to make sure that the industry and the policy are still performing as anticipated.

Read on to learn about the question, “Can I Change My Life Insurance?


Important Notes: Please refer to 26 U.S. Code §101(a) regarding tax-fee death benefit and 26 U.S. Code § 7702 (a) (g) regarding tax treatment of cash value. Policy performance is based on current rates as charges, and some values are not guaranteed. Medical and financial underwriting is required. Withdrawals and loans from life insurance policies classified as Modified Endowment Contracts (MEC) may be subject to income tax and a federal tax penalty, if taken prior to age 59½. Excessive policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Life insurance is backed by the claims-paying ability of the carrier and is not FDIC insured. See policy illustration for details. Acumen Insurance Solutions, LLC does not provide tax, legal, or investment advice, and is not FINRA registered.