There are life insurance products on the market that are guarantee issue. This means that it is guaranteed that you will be able to get covered by the plan even with health concerns. This is obviously a good option for clients who have serious health issues and can’t qualify for a regular life insurance plan that is fully underwritten. If you can qualify for an underwritten product, it will allow you to buy larger amounts of insurance and it will be much more cost effective. With a guaranteed issue product you can expect to pay at least twice as much and be limited to purchasing about 50,000 in death benefit. AARP offers a very popular guaranteed issue program. Often times through group insurance you can get a larger amount of guarantee issue, but 50,000 is usually about the max in the individual market. The caveat to most guarantee issue life insurance policies, is that they may not pay a death benefit in the first two or three years. If something were to happen to the insured in the first couple years, the beneficiary would get all premiums paid in, plus interest. While that is better than a sharp stick in the eye, it obviously provides no leverage in the first couple years.
Typically, we will work with clients on their specific underwriting situation and help them find the carrier (s) that will underwrite there issue the most favorably. If they can qualify for the fully underwritten product, than we will go with that route. If not, then we will go to guaranteed issue products and figure out the best fit. Some clients don’t want to take the medical exam and we have options for that too. This is more expensive than underwritten, but it is available.
There are some very important things to look at when you are creating your estate plan.
1. It is important to figure out the necessary liquidity that your beneficiaries will need upon death. This is something that is often not considered because a person thinks they have enough assets to cover their loved ones. This may be the case, but the assets may not be in cash and require a liquidation of the assets. The need for liquidity may require an immediate sale of the asset and command a lower number than the value of the asset. The other way to get liquidity could be taking a loan to cover the necessary expenses to settle the estate. This is not a great option as it will create debt for your loved ones. Life insurance can be a very good tool to create immediate liquidity to the estate.
2. Will you be subject to Estate Taxes and what is your maximum exemption? Will the government come in and tax up to 50 % of your non-exempt estate when you pass away?
3. Have you created a trust? Should your trust be irrevocable or revocable? How is it structured and what type of trust is it?
4. Does all of your beneficiary information match up on all of your assets with the beneficiary information with your trust? If not, the beneficiaries on the assets will supercede the trust designations. Make sure all of this matches up.
When you are creating your estate plan, make sure to consult with your tax, financial, and estate planning attorney. You should make sure you review it every few years and make sure nothing has changed, etc.
A great donation to your alma mater can be life insurance. It allows you to leave a donation to the school and gives you the leverage to make the gift that much bigger. The donor simply pledges the policy to the university and makes the university the beneficiary. When the donor passes away, the death benefit flows into the university’s coffers. Often times the life insurance pledge can be targeted for a specific purpose at the university. For example, the donor may really care about the basketball program and want the death benefit to go to the building of a new stadium.
On top of the fact that you can provide such a nice benefit to your university, it can also provide you with estate and tax planning benefits. Talk to your professionals about this, before you consider such a gift, but there may be tremendous value in it. One of the stategies that is being used at many of the universities to create larger death benefits is through premium financing. The client will not have to come out of pocket for as much of the premium this way and may allow them to purchase a much bigger death benefit. For example a premium for 6 million dollars of life insurance might require a premium of 200,000 a year. If the client can pay a small fraction of the 200,000 and still get the full benefit, then it provides them with a more attractive solution. So they pay out of pocket 20,000 a year rather than 200,000 and still get a benefit of 6 million dollars.
One popular option with life insurance is naming your favorite charity or charities as the beneficiary. This can be a powerful and leveraged strategy to leave a legacy as well as provide a windfall for organizations that you care about. You can leave a percentage of the benefit and don’t have to leave 100%. For instance, many people will leave a majority to their family like 90% and 10% to their charity or to their church. You write the small checks to the insurance company and they will write a big check to the charity upon the insured’s death.
This is not only a strategy for the wealthy, but a strategy that can be used by anyone. It is important to make sure you have all of your wills and insurance information properly structured. We suggest to our clients that they consult with a good estate planning lawyer and a CPA.
A charitable remainder trust (crt) can be used as a planning tool as well. This type of trust allows a person to donate an asset to charity and basically have that asset annuitized back to them. For example, you donate a stock portfolio worth 500,000 dollars and in return get a stream 0f income from the charity. The amount that you receive will be based upon your age and the option you choose for payment. You can choose lifetime payments or get payments that last for you and your spouse’s lifetime. Like an immediate annuity if you select the option that lasts for you and your spouse’s lifetime, the payment is slightly lower than the straight lifetime option. With the donation of the asset, life insurance can be used to replace all or part of the asset donated.
