Understanding the Tax Implications of Life Insurance: Part 2

Producers Roundtable

Questions were posed to three top producers regarding some of the practicalities and issues surrounding the use of life insurance in tax planning. (In Part I, it was discussed how agents can get up to speed on the tax implications of life insurance and why that knowledge is relevant. To read it, click here.)

Q. What do you view as today’s best opportunities in the area of life insurance in tax planning and what practical steps are you using to maximize those opportunities?

William H. Black Jr., CLU, Winter Park, Fla., president of W.H. Black and Company and PensionSite.org: The best opportunities for life insurance in tax planning today, in my opinion, are within defined benefit plans. First, the life insurance in a DB plan allows the client to deduct the cost of the premium. Second, the death benefit remains income tax-free to the beneficiary. Third, spousal beneficiaries receive the insured benefit estate tax-free. And fourth, irrespective of the beneficiary, the life insurance proceeds are outside of probate.

Of course, this is considered an advanced planning tool, and not all advisors deal with business clients. Outside of the DB plan, other opportunities abound. For example, consider these four opportunities: first, fixed annuities as an alternative to CDs. Second, income annuities to guarantee a client an income he or she cannot outlive. Third, term life insurance can be a means of providing affordable coverage when a client’s cash flow may be impaired in these times of economic turmoil. And fourth, use life insurance as a separate asset class. When the client wishes to provide a certain benefit to an heir, charity, etc., show the IRR — the internal rate of return — report generated by most carrier software. These IRRs are almost impossible to beat in an alternative investment. That’s a strong selling point.

Douglas R. Peete, CLU, ChFC, Overland Park, Kan., founder of Douglas R. Peete & Associates: The best opportunities lie in the area of private split-dollar planning to minimize the imputed gift tax while maximizing the transfer of assets through the death proceeds to the trust or family.

William M. Upson, CLU, ChFC, Walnut Creek, Calif., founder of Strategic Asset Management Group: I believe the best opportunities lie in the areas of long-term care planning, since this is the area of specialty I have chosen. It also happens to be one of the largest growth markets in existence, with the 10,000-plus people per day who are retiring in the U.S. alone over the next 25 years. We can provide the underpinnings of a very successful insurance career by taking the time to understand the importance of all forms of insurance in long-term planning. Some life policies even have life coverage with long-term-care riders as one of the options. I am using this knowledge base, plus the information provided in my two books, to provide robust website information on seven different sites, which in turn drive very significant business to our firm 24/7. Usually the cases are quite large and complex, but we will endeavor to assist any prospects in solving their problems. I have not advertised in 15 years, do no cold calling and do not have an outbound calling service generating prospects. 100% of our business comes from referrals from satisfied clients; other financial advisors, such as CPAs, attorneys and agents; and the growing connections created by the use of web technology, such as YouTube, our websites and websites where we are listed as experts in these areas of insurance and retirement planning.

By Charles K. Hirsch, CLU for LifeHealthPro.com.  Charles is a contributing editor to Life Insurance Selling


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